-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gn4wkJDanrMS6NRwOQXAZcODTPQ+FyuIH1igO2KexgOXpx6Jn3Kl0Ku143x0tZuT ODxlh4g+uJMisFNKGKOynA== 0000086346-97-000003.txt : 19980102 0000086346-97-000003.hdr.sgml : 19980102 ACCESSION NUMBER: 0000086346-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970328 SROS: NYSE 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: SEC FILE NUMBER: 001-06666 FILM NUMBER: 97567443 BUSINESS ADDRESS: STREET 1: 1114 AVE OF THE AMERICAS STREET 2: 36TH FLOOR 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 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 December 28, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-6666 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. 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. 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 __ As of March 24, 1997, there were outstanding 14,780,082 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 $33,930,555. 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 1997 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 Stockholder Matters Item 6.Selected Consolidated Financial Data Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8.Consolidated 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 Schedule and Reports on Form 8-K SIGNATURES PART I ITEM 1. BUSINESS Introduction. 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. Salant designs, manufactures, imports and markets to retailers throughout the United States brand name and private label apparel products primarily in three product categories: (i) menswear; (ii) children's sleepwear and underwear; and (iii) other products, as described below. Salant sells its products to department and specialty stores, national chains, major discounters and mass volume retailers throughout the United States. (As used herein, the "Company" includes Salant and its subsidiaries, but excludes Salant's Vera Scarf division.) Men's Apparel. In 1996, Salant substantially restructured its men's apparel business to focus on those businesses that the Company believes offer the opportunity for greater profitability by either (i) providing its customer and the retail consumer with products under well-known brands or designer labels, or (ii) developing private label programs that capitalize on the Company's sourcing, merchandising and marketing expertise. As a result of this restructuring, the men's apparel business is comprised of the Perry Ellis division and Salant Menswear Group. The Perry Ellis division markets dress shirts, slacks and sportswear under the PERRY ELLIS, PORTFOLIO BY PERRY ELLIS and PERRY ELLIS AMERICA trademarks. Salant Menswear Group is comprised of the Accessories division, the Texas Apparel division and all pant and dress shirt businesses other than those selling products bearing the PERRY ELLIS trademarks. The Accessories division markets neckwear, belts and suspenders under a number of different trademarks, including PORTFOLIO BY PERRY ELLIS, JOHN HENRY, SAVE THE CHILDREN and PEANUTS. The Texas Apparel division manufactures men's and boys' jeans, principally under the Sears, Roebuck & Co. ("Sears") CANYON RIVER BLUES trademark. The Salant Menswear Group also markets dress shirts, primarily under the JOHN HENRY and MANHATTAN trademarks, and pants under the THOMSON trademark. Commencing in 1997, the Salant Menswear Group will manufacture men's casual slacks under Sears' CANYON RIVER BLUES KHAKIS trademark. Prior to the restructuring, the Company marketed sportswear under the JJ. FARMER and MANHATTAN trademarks. As a result of the restructuring, the Company (i) ceased marketing sportswear under the JJ. FARMER label and determined to sell or license the trademark and (ii) discontinued marketing sportswear under the MANHATTAN trademark. Children's Sleepwear and Underwear. The children's sleepwear and underwear business is conducted by the Company's Children's Apparel Group (the "Children's Group"). The Children's Group markets blanket sleepers primarily using a number of well-known licensed cartoon characters created by DISNEY and WARNER BROS., among others. The Children's Group also markets pajamas under the OSHKOSH B'GOSH trademark, and sleepwear and underwear under the JOE BOXER trademark. Commencing in the fall of 1997, the Children's Group will begin marketing boys' sportswear under the JOE BOXER trademark. Other Businesses. The other businesses of the Company consist of (i) the women's junior apparel business, conducted by the Company's Made in The Shade division ("Made In the Shade"), and (ii) a chain of factory outlet stores (the "Stores division"), through which the Company sells its own products and those of other apparel manufacturers. Principal Product Lines. The following table sets forth, for fiscal years 1994 through 1996, the percentage of the Company's total net sales contributed by each category of product:
Fiscal Year 1994 1995 1996 Men's Apparel 82% 85% 81% Children's Sleepwear and Underwear 8% 8% 10% Other Businesses 10% 7% 9%
For more detailed information regarding the Company's product categories, see Note 10 to the Consolidated Financial Statements. In 1996, approximately 13% of the Company's net sales were made to Sears. Approximately 11% of the Company's net sales in 1996 were made to Federated Department Stores, Inc. ("Federated"), which includes all 1996 net sales to Macy's Department Stores ("Macy's"), which was acquired by Federated in 1994, and the Broadway Stores, Inc. ("Broadway"), which was acquired by Federated in February 1996. In 1995 and 1994, net sales to a combined Federated/Macy's/Broadway would have represented approximately 12% and 15% of the Company's net sales, respectively. In each of 1995 and 1994, approximately 11% of the Company's net sales were made to TJX Corporation ("TJX"), which includes all 1995 and 1994 net sales to Marshall's Corporation, which was acquired by TJX in February 1996. In 1995, approximately 13% of the Children's Group's net sales were made to Dayton Hudson Corporation. In 1996, approximately 27% and 22% of the net sales of Other Businesses were made to K-Mart Corporation and JC Penney Company, respectively. In 1995, net sales to JC Penney represented 19% of the net sales of the other businesses segment. No other customer accounted for more than 10% of the net sales of the Company or any of its business segments during 1994, 1995 or 1996. The markets in which the Company operates are highly competitive. The Company competes primarily on the basis of brand recognition, quality, fashion, price, customer service and merchandising expertise. 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 71% of the Company's net sales for 1996 was attributable to products sold under Company owned or licensed designer trademarks and other internationally recognized brand names and the balance was attributable to products sold under retailers' private labels, including Sears' CANYON RIVER BLUES. The following table lists the principal owned or licensed trademarks under which the Company's products were sold in 1996 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 101 DALMATIANS *................................................. Children's sleepwear BATMAN *......................................................... Children's sleepwear DISNEY Characters *.............................................. Children's sleepwear and underwear DR. DENTON....................................................... Children's sleepwear and underwear GANT *........................................................... Men's dress shirts, neckwear, belts and suspenders JJ. FARMER....................................................... Men's and women's sportswear JOE BOXER *...................................................... Children's sleepwear and underwear JOHN HENRY....................................................... Men's dress shirts, neckwear, belts and suspenders; men's jeans 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 and neckwear PERRY ELLIS *.................................................... Men's sportswear, dress shirts, neckwear, belts and suspenders PERRY ELLIS AMERICA *............................................ Men's casual sportswear and jeans PORTFOLIO BY PERRY ELLIS *....................................... Men's dress slacks, dress shirts, neckwear, belts and suspenders SAVE THE CHILDREN *.............................................. Men's neckwear and suspenders SPACE JAM *...................................................... Children's sleepwear THOMSON.......................................................... Men's casual and dress slacks UNICEF *......................................................... Men's neckwear
During 1996, approximately 35% 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 to Sears under its exclusive brand CANYON RIVER BLUES accounted for 11% of the Company's net sales during 1996. No other line of products accounted for more than 10% of the Company's net sales during 1996. Trademarks Owned by the Company and Related Licensing Income. The Company owns the DR. DENTON, JJ. FARMER, JOHN HENRY, LADY MANHATTAN, MADE IN THE SHADE, MANHATTAN and THOMSON 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 and Trademark 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 1996, licenses were outstanding to approximately 21 licensees to make or sell apparel products and accessories in the United States and to 34 licensees in 31 other countries under the MANHATTAN, LADY MANHATTAN, JOHN HENRY, THOMSON and VERA trademarks, which produced royalty income of approximately $6.2 million in 1996. Products under license include men's belts, dress shirts, gloves, handkerchiefs, leather accessories, neckwear, optical frames, outerwear, pajamas, robes, scarves, shorts, slacks, socks, sportcoats, sunglasses, suspenders and underwear, and women's blouses and tops, gloves, intimate apparel, lingerie, optical frames, scarves and shirts. 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 Company also has rights of first refusal worldwide for certain new licenses granted by PEI for men's apparel and accessories. The Company is also a licensee of various trademarks, including certain DISNEY characters (including 101 DALMATIANS), GANT, JOE BOXER, OSH KOSH B'GOSH, PEANUTS, SAVE THE CHILDREN, UNICEF and certain WARNER BROS. characters (including BATMAN and SPACE JAM), for various categories of products under license agreements expiring between 1997 and 2002. 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 should be able to extend, if it so desires, the term of any material licenses when they expire. Design and Manufacturing. Products sold by the Company's various divisions are manufactured to the designs and specifications (including fabric selections) of designers employed by those divisions. In limited cases, the Company's designers may receive input from one or more of the Company's licensors on general themes or color palettes. During 1996, approximately 17% 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 81% of its domestic-made products and 30% of its foreign-made products; the balance in each case was attributable to unaffiliated contract manufacturers. In 1996, approximately 44% of the Company's foreign production was manufactured in Mexico, approximately 12% was manufactured in Guatemala and approximately 10% was manufactured in the Dominican Republic . The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations (although the predominant currency used is the U. S. dollar), quotas and, in certain parts of the world, political instability. Although the Company's operations have not been materially adversely 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. 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. Substantially all of the Company's foreign purchases are denominated in U.S. currency. No single supplier accounted for more than 10% of Salant's raw material purchases during 1996. The Company has not engaged in financial activities through the use of derivatives or otherwise to hedge or diminish currency risks or fluctuations. Employees. As of the end of 1996, the Company employed approximately 3,800 persons, of whom 3,200 were engaged in manufacturing and distribution 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. Substantially all of the manufacturing employees are covered by collective bargaining agreements with various unions, which expire between 1997 and 2000. The Company believes that its relations with its employees are satisfactory. Management. On March 7, 1997, the Company announced that Nicholas P. DiPaolo, Chairman and Chief Executive Officer, had notified the Board of Directors of his intent to leave the Company in 1997. On April 1, 1997, Jerald S. Politzer will join the Company as Chief Executive Officer and a member of the Board of Directors. 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. Many of the Company's competitors have greater financial resources than the Company. 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, are not expected to have a material effect on the business, capital expenditures, earnings or competitive position of the Company. 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 "Reorganization Plan"). The Reorganization Plan was consummated on September 20, 1993 (the "Consummation Date"), as further described in Item 3. Legal Proceedings and in Note 18 to the financial statements. Vera Scarf Division - Discontinued Operation. In February 1995, the Company discontinued its Vera Scarf division, which imported and marketed women's scarves under (i) the Company-owned trademarks VERA and ACUTE, (ii) trademarks licensed to the Company, including PERRY ELLIS, and (iii) retailers' private labels. The Company closed the Vera Scarf division in 1995. The financial statements of the Company included in this report treat the Vera Scarf division as a discontinued operation. Seasonality of Business and Backlog of Orders. This information is included under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 (2), New York, Tennessee and Texas, four manufacturing facilities located in Mexico, and six distribution centers located in Georgia, New York, South Carolina (2) and Texas (2). At the end of 1996, the Company was in the process of closing the two manufacturing facilities and one distribution facility in Georgia. The Company owns approximately 1,279,000 square feet of space devoted to manufacturing and distribution and leases approximately 554,000 square feet of such space. The Company owns approximately 34,000 square feet of combined office, design and showroom space and leases approximately 163,000 square feet of such space. The Children's Group has exclusive use of the Tennessee manufacturing facility, shares one of the Mexican manufacturing facilities with the Texas Apparel division and has its distribution center in a building in Texas which it shares with the Texas Apparel division. As of the end of 1996, the Company's Stores division operated 65 factory outlet stores, comprising approximately 204,000 square feet of selling space, all of which are leased. Except as noted above, substantially all of the owned and leased property of the Company is used in connection with its men's apparel business or general corporate administrative functions. The Company believes that its plant and equipment are adequately maintained, in good operating condition, and are adequate for the Company's present 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 Reorganization Plan. The Reorganization Plan was consummated on September 20, 1993. From that date through December 28, 1996 (approximately 39 months), the Company made cash payments of $9.4 million, issued $111.9 million of new 10-1/2% senior secured notes, and issued 11.0 million shares of common stock in settlement of certain undisputed and disputed claims in the chapter 11 proceedings. Salant anticipates that an additional $4.2 million in cash and an additional 325 thousand shares of common stock will ultimately be distributed in connection with the resolution of all remaining claims. Provisions for such distributions were made in the consolidated financial statements at the time of emergence from the bankruptcy during the year ended January 1, 1994. The process of resolving claims is continuing and, pursuant to the Reorganization Plan, remains under the jurisdiction of the Bankruptcy Court. (b) Other. The Company is a defendant in several other legal actions. In the opinion of the Company's management, based upon the advice of the respective attorneys handling such cases, such actions are not expected to have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of the Company's shareholders was held on May 14, 1996 (the "Annual Meeting"). Subsequent to that date, there have been no other matters submitted to a vote of the Company's shareholders. (b) At the Annual Meeting, the shareholders approved the election of four Directors for a three-year term expiring at the 1999 Annual Meeting of the Company's shareholders, with the votes for such election as follows:
Director For Withheld Mr. Robert H. Falk 13,566,487 91,524 Ms. Ann Dibble Jordan 13,565,186 92,825 Mr. Robert Katz 13,567,186 90,825 Mr. John S. Rodgers 13,566,793 91,218
(c) At the Annual Meeting, the shareholders approved the 1996 Stock Plan, which provides for 600,000 shares of Common Stock for the granting of options, stock appreciation rights and restricted stock to employees of the Company and the granting of options to non-employee directors of the Company. The shares voting for the 1996 Stock Plan were 12,262,974, the shares voting against were 1,333,543 and the shares abstaining were 61,484. (d) At the Annual Meeting, the shareholders ratified the reappointment of Deloitte & Touche LLP as the Company's independent auditors for the 1996 fiscal year. The shares voting for the ratification were 13,616,171, the shares voting against the ratification were 20,258 and the shares abstaining were 21,580. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Salant's Common Stock is traded on the New York Stock Exchange (the "NYSE") under the trading 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 quarter of 1995 and 1996 are set forth below. The Company did not declare or pay any dividends during such years. The indenture governing Salant's 10-1/2% Senior Secured Notes due December 31, 1998, and the revolving credit, factoring and security agreement, dated September 20, 1993, as amended, 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. As of December 28, 1996, Salant was prohibited from paying cash dividends under the most restrictive of these provisions.
High and Low Sale Prices Per Share of the Common Stock Quarter High Low 1996 Fourth $3 7/8 $3 1/8 Third 4 2 3/4 Second 4 7/8 3 1/2 First 5 3/4 3 1/8 1995 Fourth $ 5 7/8 $ 3 3/8 Third 6 3 1/4 Second 4 1/4 2 3/4 First 5 7/8 3 1/4
On March 11, 1997, there were 1,098 holders of record of shares of Common Stock, and the closing market price was $5.00. 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 CONSOLIDATED FINANCIAL DATA (Amounts in thousands except share, per share and ratio data) The following selected consolidated financial data presented for fiscal years 1994 through 1996 has been derived from the Consolidated Financial Statements of the Company, which has been audited by Deloitte & Touche LLP, whose report thereon appears under Item 8, "Financial Statements and Supplementary Data". The selected consolidated financial data for fiscal years 1992 and 1993 has been derived from audited consolidated financial data which are not included herein. Such consolidated financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Consolidated Financial Statements, including the related notes thereto, included elsewhere herein.
Dec. 28, Dec. 30, Dec. 31, Jan. 1, Jan. 2, 1996 1995 1994 1994 1993 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) For The Year Ended: Continuing Operations: Net sales $438,119 $501,522 $419,285 $402,098 $411,021 Restructuring costs (a) (11,730) (3,550) - (5,500) (4,824) Income/(loss) from continuing operations (9,323) (498) 3,507 7,816 (4,687) Discontinued Operations: Loss from operations, net of income taxes - - (9,639) (589) (1,299) Estimated loss on disposal, net of income taxes - - (1,796) - (11,772) Reversal of estimated loss on disposal, net of income taxes - - - 11,772 - Extraordinary gain (b) - 1,000 63 24,707 - Net income/(loss)(a) (9,323) 502 (7,865) 43,706 (17,758) Income/(loss) per share from continuing operations before extraordinary gain $(0.62) $(0.03) $0.23 $1.10 $(1.35) Income/(loss) per share from discontinued operations - - (0.76) 1.57 (3.78) Income per share from extraordinary gain - 0.06 - 3.48 - Net income/(loss) per share (a) (0.62) 0.03 (0.53) 6.15 (5.13) Cash dividends per share - - - - -
At Year End: Current assets $147,203 $160,826 $168,411 $157,622 $160,146 Total assets 236,038 255,720 267,216 253,232 259,466 Current liabilities 60,353 63,454 72,163 45,713 55,093 Long-term debt 106,231 110,040 109,908 111,851 - Deferred liabilities 8,863 11,373 13,479 16,766 2,462 Liabilities deferred pursuant to chapter 11 cases - - - - 266,420 Working capital 86,850 97,372 96,248 111,909 105,053 Current ratio 2.4:1 2.5:1 2.3:1 3.4:1 2.9:1 Shareholders' equity/(deficiency) $60,591 $70,853 $71,666 $78,902 $(64,509) Book value per share $4.01 $4.71 $4.78 $5.34 $(18.62) Number of shares outstanding 15,094 15,041 15,008 14,781 3,463
(a) Includes, for the year ended December 28, 1996, a provision of $11,730 (78 cents per share; tax benefit not available) for restructuring costs principally related to (i) the write-off of goodwill and the write-down of other assets for a product line which has been put up for sale, (ii) the write-off of certain assets and accrual for future royalties for a licensed product line and (iii) employee costs related to closing certain facilities; for the year ended December 30, 1995, a provision of $3,550 (24 cents per share; tax benefit not available) for restructuring costs principally related to (i) fixed asset write-downs at locations to be closed and (ii) inventory markdowns for discontinued product lines; for the 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; and for the 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). (b) Includes, for the year ended December 30, 1995, a gain of $1,000 (6 cents per share) related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the Chapter 11 proceeding; for the year ended December 31, 1994, a gain of $63 (no per share effect) related to the purchase and retirement of a portion of the Company's 10 1/2% Senior Secured Notes at a price below the principal amount thereof; and for the year ended January 1, 1994, a gain of $24,707 ($3.48 per share) related to the settlement and anticipated settlement of claims arising from the Chapter 11 proceeding. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview In the second half of 1995, the Company formulated a strategic business plan to enhance the profitability of its men's apparel operations and to further improve its overall liquidity. At the core of the plan was a decision to concentrate the Company's resources on a limited number of key menswear brand names (including continuing to emphasize and cohesively market the Company's leading Perry Ellis brand) to further expand the Company's private label business, and to selectively target the sale of the Company's products to those channels of distribution deemed most likely to generate higher profit margins. Implementation of this plan, which began in the fourth quarter of 1995 and will have been substantially completed by the end of the first quarter of 1997, included (i) the discontinuation of unprofitable or marginally profitable brands and product lines (including the Company's JJ. Farmer and Manhattan sportswear lines and its Nino Cerruti, Liberty of London, Thomson, Ron Chereskin, and AXXA dress shirt lines), (ii) the liquidation of remaining inventories within those discontinued brands and product lines, (iii) the closure of two of the Company's six domestic manufacturing facilities and one of its domestic distribution centers, and (iv) the consolidation of the Company's sourcing, manufacturing, and distribution functions under a central corporate operations group in order to eliminate duplicate sourcing functions and to maximize the impact of its corporate buying power. As more fully discussed under "Results of Operations" below, these actions significantly affected the Company's operating results in 1996. The discontinuation of various product lines and the redirection of other product lines to different channels of distribution in accordance with the strategic plan resulted in a $58.8 million reduction in net sales compared to 1995. The implementation of the strategic plan also involved the incurrence of significant charges during 1996, including the write-down of goodwill and other assets associated with discontinued product lines, expenses related to the shut-down of manufacturing and distribution facilities, markdowns related to the liquidation of inventories of product lines being discontinued or redirected, and severance costs related to terminated employees. In connection therewith, during 1996, the Company recorded a restructuring charge of $11.7 million and incurred other charges related to the implementation of the strategic plan of approximately $5.2 million to cost of goods sold and $1.1 million to selling, general and administrative expenses. As a result of these actions, however, gross profits as a percentage of sales increased in the men's apparel business segment and on a Company-wide basis compared to 1995, and the Company significantly reduced its inventory levels through the liquidation of excess inventories and the manufacture of fewer stock keeping units. The cash savings associated with the elimination of unprofitable product lines and business units and lower investment in inventory enabled the Company to significantly reduce its average outstanding revolving credit borrowings and associated interest expense. Results of Operations Fiscal 1996 Compared with Fiscal 1995 Net Sales The following table sets forth the net sales of each of the Company's three principal business segments for the fiscal years ended December 28, 1996 ("Fiscal 1996") and December 30, 1995 ("Fiscal 1995") and the percentage contribution of each of those segments to total net sales:
Percentage Increase/ Fiscal 1996 Fiscal 1995 (Decrease) (dollars in millions) Men's Apparel $354.7 81% $423.9 85% (16.3%) Children's Sleepwear and Underwear 45.8 10% 39.9 8% 14.8% Other Businesses (a) 37.6 9% 37.7 7% (0.3%) Total $438.1 100% $501.5 100% (12.6%)
(a) Represents the Made in the Shade division (a women's junior sportswear business) and the retail outlet stores division (the "Stores division"). As noted under "Overview," $58.8 million (85.0%) of the $69.2 million decline in net sales in the men's apparel segment was attributable to the discontinuation of various product lines and the redirection of other product lines to different channels of distribution pursuant to the Company's strategic business plan. Of the balance, $7.4 million resulted from a decision by Sears, Roebuck & Co. ("Sears") to source its knit and woven Canyon River Blues tops through its own internal sourcing operations and $3.6 million was due to reduced sales of Perry Ellis sportswear as a result of a reduction of $12.3 million in sales to off-price retailers, partially offset by an increase of $8.7 million in sales to department stores. Sales of children's sleepwear and underwear increased by $5.9 million, or 14.8%, in Fiscal 1996. This increase was primarily a result of the continuing expansion of the Joe Boxer children's product lines. Gross Profit The following table sets forth the gross profit and gross profit margin (gross profit as a percentage of net sales) for each of the Company's business segments for each of Fiscal 1996 and Fiscal 1995:
Fiscal 1996 Fiscal 1995 (dollars in millions) Men's Apparel $74.4 21.0% $79.1 18.7% Children's Sleepwear and Underwear 11.5 25.1% 10.8 26.9% Other Businesses 12.0 31.9% 14.0 37.1% Total $ 97.9 22.3% $103.9 20.7%
The decline in gross profit in the men's apparel segment and for the Company as a whole was primarily attributable to the reduction in net sales discussed above. The gross profit margin for the men's apparel segment and the Company as a whole, however, improved significantly, primarily as a result of (i) a greater percentage of sales of the Company's higher margin Perry Ellis product lines as a percentage of net sales, (ii) planned reductions in sales of lower-margin brands and products, (iii) increased efficiencies at the Company's manufacturing facilities in Mexico, and (iv) reduced markdowns of accessories due to improved consumer acceptance of the Company's neckwear product lines. The gross profit margin for the men's apparel segment was adversely affected, however, by charges of (i) $3.0 million (0.8% of men's apparel net sales) for markdowns related to the discontinuation of the JJ. Farmer and Manhattan sportswear product lines and a change in the primary channel of distribution for products sold under the John Henry label and (ii) $1.9 million (0.5% of men's apparel net sales) related to the closing of manufacturing and distribution facilities in Americus and Thomson, Georgia. The gross profit margin of the children's sleepwear and underwear segment declined as a result of an increased percentage of off-price sales of licensed character products in that segment's total sales mix. The gross profit margin of the Company's other businesses declined primarily as a result of margin pressures in both the Company's juniors' sportswear business and the Company's outlet store business as well as charges of $0.3 million (0.8% of other businesses net sales) due to markdowns of discontinued product lines at the Company's outlet stores. Selling, General and Administrative Expenses Selling, general and administrative ("S,G&A") expenses for Fiscal 1996 were $85.9 million (19.6% of net sales) compared with $85.4 million (17.0% of net sales) for Fiscal 1995. While implementation of the Company's strategic plan resulted in the elimination of certain S,G&A expenses in Fiscal 1996, such eliminations were partially offset by higher amortization costs attributable to the installation of new store fixtures for Perry Ellis sportswear shops in department stores and Canyon River Blues shops in Sears stores, which installations commenced in 1995. The amortization of these store fixtures accounted for approximately $1.6 million of the total S,G&A expenses in Fiscal 1996 as compared with $0.4 million in Fiscal 1995. The Company's merchandise coordinator and retail specialist programs, which provide support for the presentation and coordination of the Company's products in retail stores was also enlarged in 1996, primarily to support the expansion of the Perry Ellis sportswear shop program; this increase accounted for a further $1.2 million of the S,G&A expense increase in Fiscal 1996. Total expenses related to these programs were $3.3 million in Fiscal 1996, as compared with $2.1 million in Fiscal 1995. As indicated in the "Overview", S,G&A expenses for Fiscal 1996 also included charges of $1.1 million principally associated with the reorganization of the men's apparel segment. Other Income Other income for Fiscal 1996 included a gain of $2.7 million related to the sale of a leasehold interest in a facility located in Glen Rock, New Jersey. Provision for Restructuring As noted under "Overview," the Company recorded a restructuring charge of $11.7 million in Fiscal 1996 as a consequence of the implementation of its strategic business plan. Of this amount, (i) $5.7 million was primarily related to the write-off of goodwill and the write-down of other assets of the JJ. Farmer product line, (ii) $2.9 million was attributable to the write-off of certain assets related to the licensing of the Gant brand name for certain of the Company's dress shirt and accessories product lines and the accrual of a portion of future royalties payable under the Gant licenses that are not expected to be covered by future sales, (iii) $1.8 million was primarily related to employee costs associated with the closing of a manufacturing and distribution facility in Thomson, Georgia, (iv) $0.7 million was primarily related to employee costs associated with the closing of a manufacturing facility in Americus, Georgia and (v) $0.6 million related to other severance costs. The restructuring charge was comprised of $5.1 million of non-cash charges and $6.6 million requiring cash payments over a period of time. Of the cash portion, $2.5 million was expended during 1996 and the balance is expected to be expended in the following manner: $2.1 million in 1997, $1.2 million in 1998 and $0.8 million in 1999. Income from Continuing Operations Before Interest, Income Taxes and Extraordinary Gain The following table sets forth income from continuing operations before interest, income taxes and extraordinary gain for each of the Company's three business segments, expressed both in dollars and as a percentage of net sales, for each of Fiscal 1996 and Fiscal 199
Fiscal 1996 Fiscal 1995 (dollars in millions) Men's Apparel (a) $ 6.4 1.8% $ 19.8 4.7% Children's Sleepwear and Underwear 5.4 11.8% 5.2 13.0% Other Businesses (3.9) (10.4%) (2.2) (5.9%) 7.9 1.8% 22.8 4.5% Corporate expenses (b) (6.2) (9.2) Licensing division income 5.0 5.6 Income from continuing operations before interest, income taxes and extraordinary gain $ 6.7 1.5% $ 19.2 3.8%
(a) Includes restructuring charges of $11.7 million in Fiscal 1996 and $3.6 million in Fiscal 1995. (b) Includes other income of $2.7 million in Fiscal 1996 related to the sale of a leasehold interest. The $12.5 million reduction in income from continuing operations before interest, income taxes and extraordinary gain in Fiscal 1996 was primarily a result of the $11.7 million restructuring charge (compared with $3.6 million in Fiscal 1995) and $6.3 million of other charges associated with the implementation of the strategic business plan, which was partially offset by a $2.7 million gain on the sale of a leasehold interest, as previously discussed. Interest Expense, Net Net interest expense was $16.0 million for Fiscal 1996 compared with $19.4 million for Fiscal 1995. The $3.4 million decrease is a result of lower average borrowings during Fiscal 1996 primarily due to reduced average levels of inventory. Loss from Continuing Operations In Fiscal 1996, the Company reported a loss from continuing operations of $9.3 million, or $0.62 per share, as compared with a loss from continuing operations before extraordinary gain of $0.5 million, or $0.03 per share, in Fiscal 1995. Extraordinary Gain The extraordinary gain of $1.0 million recorded in the fourth quarter of Fiscal 1995 related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the Company's prior chapter 11 cases. Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring Charges and Extraordinary Gain Earnings before interest, taxes, depreciation, amortization, restructuring charges and extraordinary gain was $26.8 million (6.1% of net sales) in Fiscal 1996, compared to $30.9 million (6.2% of net sales) in Fiscal 1995, a decrease of $4.1 million, or 13.2%. The Fiscal 1996 amount was negatively affected by $6.3 million of charges primarily associated with the implementation of the Company's strategic business plan. The Company believes this information is helpful in understanding cash flow from operations that is available for debt service and capital expenditures. This measure is not contained in Generally Accepted Accounting Principles and is not a substitute for operating income, net income or net cash flows from operating activities. Fiscal 1995 Compared with Fiscal 1994 Net Sales The following table sets forth the net sales (and relative contributions to total sales) of each of the Company's business segments for Fiscal 1995 and the fiscal year ended December 31, 1994 ("Fiscal 1994")
Percentage Increase/ Fiscal 1995 Fiscal 1994 (Decrease) (dollars in millions) Men's Apparel $423.9 85% $343.5 82% 23.4% Children's Sleepwear and Underwear 39.9 8% 35.5 8% 12.5% Other Businesses 37.7 7% 40.3 10% (6.5%) Total $501.5 100% $419.3 100% 19.6%
Of the total increase in net sales of men's apparel, $41.7 million (51.9%) was attributable to the introduction of the Company's Canyon River Blues jeans product line at Sears, $18.2 million (22.6%) was attributable to the growth of the Company's Perry Ellis sportswear business, $11.2 million (13.9%) was a result of increased dress shirt sales and $6.0 million (7.5%) was attributable to higher sales of sportswear under the Manhattan brand. Excluding net sales of dress shirts under the Gant label, for which the Company obtained a license in June 1994, net sales of dress shirts increased by 7.4% in Fiscal 1995. The increase in net sales of children's sleepwear and underwear was primarily a result of the expansion of the Joe Boxer children's product lines, which were introduced in Fiscal 1994. The decrease in net sales of other businesses was attributable primarily to lower shipments by the Made in the Shade division in response to declining margins. Gross Profit The following table sets forth the gross profit and gross profit margin of each of the Company's business segments for each of Fiscal 1995 and Fiscal 1994:
Fiscal 1995 Fiscal 1994 (dollars in millions) Men's Apparel $79.1 18.7% $70.9 20.6% Children's Sleepwear and Underwear 10.8 26.9% 7.9 22.2% Other Businesses 14.0 37.1% 14.4 35.7% Total $103.9 20.7% $93.2 22.2%
The reduction in gross profit as a percentage of net sales in the men's apparel segment was primarily a result of continuing pressure on selling prices in all product categories and at all levels of distribution, which were, in large part, a result of the slow retail economy. In addition, certain product lines introduced or expanded in Fiscal 1995 (Canyon River Blues and Manhattan sportswear) yielded a lower gross profit margin than traditionally earned by the Company's merchandise. The Company's gross profit margin was also negatively affected by costs associated with the start-up of the Canyon River Blues program. Selling, General and Administrative Expenses S,G&A expenses increased by $6.1 million (7.7%) in Fiscal 1995. However, as a percentage of net sales S,G&A expenses declined to 17.0% from 18.9% in Fiscal 1994 due, in part, to the introduction or expansion of certain businesses in Fiscal 1995 (as indicated above) that required minimal incremental expenses. Provision for Restructuring The restructuring charge of $3.6 million related primarily to the planned closing in Fiscal 1996 of a manufacturing facility in Thomson, Georgia, as well as certain expenses related to the planned discontinuation of several dress shirt lines, including Liberty of London, Nino Cerruti and Ron Chereskin. Income From Continuing Operations Before Interest, Income Taxes and Extraordinary Gain The following table sets forth income from continuing operations before interest, income taxes and extraordinary gain for each of the Company's business segments, expressed both in dollars and as a percentage of net sales, for each of Fiscal 1995 and Fiscal 1994:
Fiscal 1995 Fiscal 1994 (dollars in millions) Men's Apparel (a) $ 19.8 4.7% $ 17.4 5.1% Children's Sleepwear and Underwear 5.2 13.0% 3.1 8.8% Other Businesses (2.2) (5.9%) (0.5) (1.3%) 22.8 4.5% 20.0 4.8% Corporate expenses (9.2) (6.2) Licensing division income 5.6 5.7 Income from continuing operations before interest, income taxes and extraordinary gain $ 19.2 3.8% $ 19.5 4.6%
(a) Includes a restructuring charge of $3.6 million in Fiscal 1995 Income from continuing operations before interest, income taxes and extraordinary gain as a percentage of net sales decreased to 3.8% in Fiscal 1995 from 4.6% in Fiscal 1994 primarily as a result of the decreases in gross margins, S,G&A expense changes and the provision for restructuring discussed above. Interest Expense, Net Net interest expense for Fiscal 1995 increased by $3.8 million compared with Fiscal 1994. Of this amount, $2.7 million was attributable to a higher average outstanding loan balance in Fiscal 1995. The remainder was attributable to an increase in the weighted average interest rate on borrowings from 7.8% in Fiscal 1994 to 9.9% in Fiscal 1995, due primarily to an increase in the average prime rate. Loss From Continuing Operations The loss from continuing operations before extraordinary gain was $0.5 million, or $0.03 per share, in Fiscal 1995 compared with income from continuing operations before extraordinary gain of $3.5 million, or $0.23 per share, in Fiscal 1994, primarily as a result of the $3.6 million restructuring charge in Fiscal 1995. Loss From Discontinued Operations In Fiscal 1994, the Company recorded a charge of $11.4 million, or $0.76 per share, for the discontinuance of the Vera Scarf division. The Vera Scarf division had net sales of $5.1 million in 1994 Extraordinary Gain In the fourth quarter of Fiscal 1995, the Company recorded an extraordinary gain of $1.0 million related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from its prior chapter 11 cases. Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring Charges, Discontinued Operations and Extraordinary Gain Earnings before interest, taxes, depreciation, amortization, restructuring charges, discontinued operations and extraordinary gain was $30.9 million (6.2% of net sales) in Fiscal 1995, compared with $27.0 million (6.4% of net sales) in Fiscal 1994, an increase of $3.9 million, or 14.4%. The Company believes this information is helpful in understanding cash flow from operations that is available for debt service, taxes and capital expenditures. This measure is not contained in Generally Accepted Accounting Principles and is not a substitute for operating income, net income or net cash flows from operating activities. Liquidity and Capital Resources The Company is a party to a revolving credit, factoring and security agreement, as amended (the "Credit Agreement"), with The CIT Group/Commercial Services, Inc. ("CIT"). The Credit Agreement provides the Company with working capital financing, in the form of direct borrowings and letters of credit, up to an aggregate of $135 million (the "Maximum Credit"), subject to an asset-based borrowing formula. 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. On February 20, 1997, the Company and CIT executed the Tenth Amendment to the Credit Agreement (the "Amendment"). The Amendment extended the term of the Credit Agreement from March 31, 1997 until September 30, 1998. The Amendment provided for a reduction in the interest rate charged on direct borrowings from one percent in excess of the base rate of the Chase Manhattan Bank, N.A. (the "Prime Rate", which was 8.25% at December 28, 1996) to one-half of one percent in excess of the Prime Rate. The Amendment also provided the Company with the option to borrow funds at 2.75% above the London Late Eurodollar rate (the "Eurodollar Rate", which was 5.625% at December 28, 1996). Based upon Eurodollar Rates currently in effect, the Company's effective rate of interest under the Eurodollar option is approximately 100 basis points below its borrowing rate in effect prior to the Amendment. The Amendment also modified or eliminated certain financial covenants. As a result of the Amendment, the Company will only be required to maintain certain minimum levels of stockholders' equity and to comply with one other financial covenant limiting the maximum loss the Company may incur over any four or eight consecutive calendar quarters. At the end of Fiscal 1996, direct borrowings and letters of credit outstanding under the Credit Agreement were $7.7 million and $32.3 million, respectively, and the Company had unused availability of $28.1 million. At the end of Fiscal 1995, direct borrowings and letters of credit outstanding under the Credit Agreement were $14.4 million and $31.4 million, respectively, and the Company had unused availability of $27.5 million. During Fiscal 1996, the maximum aggregate amount of direct borrowings and letters of credit outstanding under the Credit Agreement was $101.0 million at which time the Company had unused availability of $19.6 million. During Fiscal 1995, the maximum aggregate amount of direct borrowings and letters of credit outstanding under the Credit Agreement was $134.2 million at which time the Company had unused availability of $828,000. On October 28, 1996, the Company completed the sale of a leasehold interest in a facility located in Glen Rock, New Jersey. Pursuant to the indenture governing the Company's outstanding 10 1/2% Senior Secured Notes due 1998 (the "Senior Secured Notes"), the $3,372,000 net cash proceeds of that sale were applied to the repurchase of a like principal amount of the Senior Secured Notes immediately following the end of the 1996 fiscal year. The instruments governing the Company's outstanding debt contain numerous financial and operating covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock, or all or a substantial part of the assets of another person, selling property and paying cash dividends. In addition, under the Credit Agreement, the Company is required during the year, to maintain a minimum level of stockholders' equity and to satisfy a maximum cumulative net loss test. The Company was at December 28, 1996, and currently is, in compliance with all of its covenants. The following table indicates the Company's compliance with the two remaining financial covenants contained in the Credit Agreement: December 28, 1996 Credit Agreement Covenants Covenant Level Actual Level Stockholders' Equity no less than $52.0 million $ 60.6 million Maximum Loss (a) no more than $(10.0) million positive income (a) Maximum loss excludes write-offs for goodwill, restructuring expenses or other unusual or non-recurring expenses during the first two quarters of 1996, up to a maximum of $13.0 million. The indenture governing the Company's outstanding Senior Secured Notes requires the Company to reduce its outstanding indebtedness (excluding outstanding letters of credit) to $20 million or less for fifteen consecutive days during each twelve month period commencing on the first day of February. This covenant has been satisfied for the balance of the term of the Senior Secured Notes. The Company's cash flow from operating activities for Fiscal 1996 was $16.9 million, which reflects a $17.5 million reduction in inventories due to improved inventory management, and the effects of the implementation of its strategic business plan for the men's apparel group. The lower inventory balance was partially offset by an increase in accounts receivable, due to changes in the Company's factoring arrangements with CIT, which reduced the amount of accounts receivable sold to CIT and the related factoring costs. Cash used in Fiscal 1996 for investing activities was $9.8 million and primarily related to capital expenditures of $7.1 million and the installation of store fixtures in department stores of $3.9 million, partially offset by the sale of assets of $1.9 million. During Fiscal 1997, the Company plans to make capital expenditures of approximately $10.7 million and to spend an additional $4.2 million for the installation of store fixtures in department stores. Cash used in financing activities in Fiscal 1996 was $6.7 million, which represented repayments of short-term borrowings under the Credit Agreement using cash generated from operations. The Company's principal sources of liquidity, both on a short-term and a long-term basis, are cash flow from 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 the cash flow anticipated from its future operations, the Company believes that its future cash flows together with funds available under the Credit Agreement will be adequate to meet the financing requirements it anticipates during 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. The Company's Senior Secured Notes, of which $104.9 million principal amount was outstanding at March 24, 1997, mature December 31, 1998. The Company does not expect to generate sufficient cash flow from operations to repay those notes at maturity and will seek to refinance the notes prior to maturity. There can be no assurance that the Company will obtain such refinancing or that the terms of such refinancing, if obtained, will not be less favorable to the Company than those of the Senior Secured Notes. Seasonality Although the Company typically introduces and withdraws various individual products throughout the year, its principal products are organized into the customary retail seasonal lines: for the Spring, Fall and Christmas. The Company's products are designed as much as one year in advance and manufactured approximately one season in advance of the related retail selling season. Backlog 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 the Company's computers. As a result, orders are placed closer to the required delivery date than had been the case prior to EDI technology. At March 1, 1997, the Company's backlog of orders was approximately $99.0 million, 13% less than the backlog of orders of approximately $114.0 million that existed at March 2, 1996. Factors that May Affect Future Results and Financial Condition. This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company or its management expresses an expectation or belief as to future results, there can be no assurance that the statement of the expectation or belief will result or be achieved or accomplished. The words "believe", "expect", "estimate", "project", "seek", "anticipate" and similar expressions may identify forward-looking statements. The Company's future operating results and financial condition are dependent upon the Company's ability to successfully design, manufacture, import and market apparel. Taking into account the foregoing, the following are identified as important factors that could cause results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company: 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 large number of specialty manufacturers. The Company faces substantial competition in its markets from manufacturers in both categories. Many of the Company's competitors have greater financial resources than the Company. The Company also competes for private label programs with the internal sourcing organizations of many of its own customers. Apparel Industry Cycles and other Economic Factors. The apparel industry historically has been subject to substantial cyclical variation, with consumer spending on apparel tending to decline during recessionary periods. A decline in the general economy or uncertainties regarding future economic prospects may affect consumer spending habits, which, in turn, could have a material adverse effect on the Company's results of operations and its financial condition. Retail Environment. Various retailers, including some of the Company's customers, have experienced declines in revenue and profits in recent periods and some have been forced to file for bankruptcy protection. To the extent that these financial difficulties continue, there can be no assurance that the Company's financial condition and results of operations would not be adversely affected. Seasonality of Business and Fashion Risk. The Company's principal products are organized into seasonal lines for resale at the retail level during the Spring, Fall and Christmas Seasons. Typically, the Company's products are designed as much as one year in advance and manufactured approximately one season in advance of the related retail selling season. Accordingly, the success of the Company's products is often dependent on the ability of the Company to successfully anticipate the needs of the Company's retail customers and the tastes of the ultimate consumer up to a year prior to the relevant selling season. Substantial Level of Indebtedness. The Company had indebtedness of $117.3 million as of December 28, 1996. This level of indebtedness could adversely affect the Company's operations because a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest and would, therefore, not be available for other purposes. Further, this level of indebtedness might inhibit the Company's ability to obtain financing in the future for working capital needs, capital expenditures, acquisitions, investments, general corporate purposes or other purposes. Foreign Operations. The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations (although the predominant currency used is the U.S. dollar), quotas and, in certain parts of the world, political instability. Any substantial disruption of its relationship with its foreign suppliers could adversely affect the Company's 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 amount 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 allocation could adversely affect the Company's operations. Dependence on Contract Manufacturing. The Company currently produces 61% of all of its products (in units) through arrangements with independent contract manufacturers. The use of such contractors and the resulting lack of direct control could subject the Company to difficulty in obtaining timely delivery of products of acceptable quality. In addition, as is customary in the industry, the Company does not have any long-term contracts with its fabric suppliers or product manufacturers. While the Company is not dependent on one particular product manufacturer or raw material supplier, the loss of several such product manufacturers and/or raw material suppliers in a given season could have a material adverse effect on the Company's performance. Because of the foregoing factors, as well as other factors affecting the Company's operating results and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors are cautioned not to use historical trends to anticipate results or trends in the future. In addition, the Company's participation in the highly competitive apparel industry often results in significant volatility in the Company's common stock price. 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 December 28, 1996 and December 30, 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 28, 1996, December 30, 1995 and December 31, 1994. Our audits also included the financial statement schedule listed in the index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 December 28, 1996 and December 30, 1995, and the results of their operations and their cash flows for the years ended December 28, 1996, December 30, 1995 and December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP March 4, 1997 New York, New York
SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data) Year Ended December 28, December 30, December 31, 1996 1995 1994 Net sales $ 438,119 $ 501,522 $ 419,285 Cost of goods sold 340,203 397,630 326,059 Gross profit 97,916 103,892 93,226 Selling, general and administrative expenses (85,867) (85,372) (79,273) Royalty income 6,154 6,606 6,699 Goodwill amortization (2,372) (2,575) (2,376) Other income/(expense) 2,642 244 1,196 Division restructuring costs (Note 2) (11,730) (3,550) -- Income from continuing operations before interest, income taxes and extraordinary gain 6,743 19,245 19,472 Interest expense, net (Notes 8 and 9) 15,963 19,425 15,617 Income/(loss) from continuing operations before income taxes and extraordinary gain (9,220) (180) 3,855 Income taxes (Note 11) 103 318 348 Income/(loss) from continuing operations before extraordinary gain (9,323) (498) 3,507 Discontinued operations (Note 17): Loss from operations -- -- (9,639) Estimated loss on disposal -- -- (1,796) Extraordinary gain (Notes 3 and 9) -- 1,000 63 Net income/(loss) $ (9,323) $ 502 $ (7,865) Income/(loss) per share: Income/(loss) per share from continuing operations before extraordinary gain $ (0.62) $ (0.03) $ 0.23 Loss per share from discontinued operations -- -- (0.76) Extraordinary gain -- 0.06 -- Net income/(loss) per share $ (0.62) $ 0.03 $ (0.53) Weighted average common stock outstanding 15,078 15,102 14,954
See Notes to Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data) December 28, December 30, 1996 1995 ASSETS Current assets: Cash and cash equivalents $ 1,501 $ 1,400 Accounts receivable - net of allowance for doubtful accounts of $2,806 in 1996 and $3,007 in 1995 (Notes 8 and 9) 40,214 35,290 Inventories (Notes 4 and 8) 101,619 119,120 Prepaid expenses and other current assets 3,869 5,016 Total current assets 147,203 160,826 Property, plant and equipment, net (Notes 5 and 8) 25,185 24,526 Other assets (Notes 6, 9 and 11) 63,650 70,368 $ 236,038 $ 255,720 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable (Note 8) $ 7,677 $ 14,422 Accounts payable 28,327 26,755 Reserve for business restructuring (Note 2) 2,969 1,569 Accrued salaries, wages and other liabilities (Note 7) 18,008 20,708 Current portion of long term debt (Note 9) 3,372 -- Total current liabilities 60,353 63,454 Long term debt (Notes 9 and 16) 106,231 110,040 Deferred liabilities (Note 14) 8,863 11,373 Commitments and contingencies (Notes 8, 9, 12, 13 and 15) Shareholders' equity (Note 13): Preferred stock, par value $2 per share: Authorized 5,000 shares; none issued -- -- Common stock, par value $1 per share: Authorized 30,000 shares; 15,328 15,275 issued and issuable - 15,328 shares in 1996; issued and issuable - 15,275 shares in 1995 Additional paid-in capital 107,130 107,071 Deficit (57,147) (47,824) Excess of additional pension liability over unrecognized prior service cost adjustment (Note 12) (3,182) (2,185) Accumulated foreign currency translation adjustment 76 130 Less - treasury stock, at cost - 234 shares (1,614) (1,614) Total shareholders' equity 60,591 70,853 $ 236,038 $ 255,720
See Notes to Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Amounts in thousands) Excess of Additional Pension Liability Over Unrecog- Cumulative nized Foreign Total Common Stock Add'l Prior Currency Treasury Stock Share- Number Paid-In Service Translation Number of holders' of Shares Amount Capital Deficit Cost Adjustment Shares Amount Equity Balance at January 1, 1994 15,016 $15,016 $106,726$(40,461) $ (986) $ 221 234 $(1,614) $78,902 Stock options exercised 226 226 291 517 Net loss (7,865) (7,865) Excess of additional pension liability over unrecognized prior service cost adjustment 213 213 Foreign currency translation adjustments (101) (101) Balance at December 31, 1994 15,242 15,242 107,017 (48,326) (773) 120 234 (1,614) 71,666 Stock options exercised 33 33 54 87 Net income 502 502 Excess of additional pension liability over unrecognized prior service cost adjustment (1,412) (1,412) Foreign currency translation adjustments 10 10 Balance at December 30, 1995 15,275 15,275 107,071 (47,824) (2,185) 130 234 (1,614) 70,853 Stock options exercised 53 53 59 112 Net loss (9,323) (9,323) Excess of additional pension liability over unrecognized prior service cost adjustment (997) (997) Foreign currency translation adjustments (54) (54) Balance at December 28, 1996 15,328 $15,328 $107,130$(57,147) $ (3,182) $ 76 234 $(1,614) $60,591
See Notes to Consolidated Financial Statements
SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 28, December 30, December 31, 1996 1995 1994 Cash Flows from Operating Activities Income/(loss) from continuing operations $ (9,323) $ (498) $ 3,507 Adjustments to reconcile income from continuing operations to net cash provided by/(used in) operating activities: Depreciation 5,986 5,542 5,113 Amortization of intangibles 2,372 2,575 2,376 Write-down of fixed assets 263 1,850 -- Write-down of other assets 6,264 -- -- Loss on sale of fixed assets 17 132 -- Changes in operating assets and liabilities: Accounts receivable (4,924) 1,293 (11,965) Inventories 17,501 5,479 (19,262) Prepaid expenses and other current assets 1,066 248 (947) Other assets (760) 916 (1,302) Accounts payable 1,572 (1,838) 6,869 Accrued salaries, wages and other liabilities (2,410) (191) (5,786) Reserve for business restructuring 1,400 1,569 (2,038) Deferred liabilities (2,148) (598) 330 Net cash provided by/(used in) operating activities 16,876 16,479 (23,105) Cash Flows from Investing Activities Capital expenditures, net (7,103) (4,286) (4,926) Store fixture expenditures (3,855) (2,988) -- Acquisition (694) -- (5,720) Proceeds from sale of assets 1,854 122 294 Net cash used in investing activities (9,798) (7,152) (10,352) Cash Flows from Financing Activities Net short-term borrowings/(repayments) (6,745) (9,484) 36,516 Retirement of long-term debt -- -- (3,537) Exercise of stock options 112 87 517 Other, net (54) 10 (101) Net cash (used in)/provided by financing activities (6,687) (9,387) 33,395 Net cash provided by/(used in) continuing operations 391 (60) (62) Cash used in discontinued operations (290) (505) (119) Net increase/(decrease) in cash and cash equivalents 101 (565) (181) Cash and cash equivalents - beginning of year 1,400 1,965 2,146 Cash and cash equivalents - end of year $ 1,501 $ 1,400 $ 1,965 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 16,307 $ 20,280 $ 16,150 Income taxes $ 189 $ 331 $ 674
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. (As used herein, the "Company" includes Salant and its subsidiaries but excludes Salant's Vera Scarf division.) In February 1995, Salant discontinued its Vera Scarf division. As further described in Note 17, the Consolidated Financial Statements and the Notes thereto reflect the Vera Scarf division as a discontinued operation, and the financial results of the Vera Scarf division are not included in the presentation of income/(loss) from continuing operations. Significant intercompany balances and transactions are eliminated in consolidation. The Company's principal business is the designing, manufacturing, importing and marketing of apparel. The Company sells its products to retailers, including department and specialty stores, national chains, major discounters and mass volume retailers, throughout the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (such as accounts receivable, inventories, restructuring reserves and valuation allowances for income taxes), disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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, Inc. (the "Reorganization Plan"). The Reorganization Plan was consummated on September 20, 1993 (the "Consummation Date"), as further described in Note 18. Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. The 1994, 1995 and 1996 fiscal years were each comprised of 52 weeks. Reclassifications Certain reclassifications were made to the 1994 and 1995 Consolidated Financial Statements to conform with the 1996 presentation. Cash and Cash Equivalents The Company treats cash on hand and deposits in banks as cash and cash equivalents for the purposes of the statements of cash flows. Accounts Receivable The Company is a party to an agreement with a factor, as further described in Note 8, whereby it sells, without recourse, certain eligible accounts receivable. The credit risk for such accounts is thereby transferred to the factor. The amounts due from the factor have been offset against advances from the factor in the accompanying balance sheets. The amounts which have been offset were $16,355 at December 28, 1996 and $33,792 at December 30, 1995. The decrease in the amounts which have been offset resulted from a change in the agreement with the factor. 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 and improvements 2.5% - 10.0% Machinery, equipment and autos 6.7% - 33.3% Furniture and fixtures 10.0% - 50.0% Leasehold improvements Over the life of the asset or the term of the lease, whichever is shorter
Other Assets Intangible assets are being amortized on a straight-line basis over their respective useful lives, ranging from 7 1/2 to 40 years. Costs in excess of fair value of net assets acquired, which relate to the acquisition of the net assets of Manhattan Industries, Inc. ("Manhattan") are assessed for recoverability on a periodic basis. In evaluating the value and future benefits of these intangible assets, their carrying value would be reduced by the excess, if any, of the intangibles over management's best estimate of undiscounted future operating income of the acquired businesses before amortization of the related intangible assets over the remaining amortization period. Long-Lived Assets In 1996, the Company adopted Statement of Financial Accounting Standard No. 121, which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Adoption of this statement did not have a material impact on the Company. Income Taxes Deferred income taxes are provided to reflect the tax effect of temporary differences between financial statement income and taxable income in accordance with the provisions of Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes". Fair Value of Financial Instruments For financial instruments, including cash and cash equivalents, accounts receivable and payable, and accruals, the carrying amounts approximated fair value because of their short maturity. Long-term debt, which was issued at a market rate of interest, currently trades at approximately 93% of principal amount. In addition, deferred liabilities have carrying amounts approximating fair value. Income/(Loss) Per Share Income/(loss) per share is based on the weighted average number of common shares (including, as of December 28, 1996 and December 30, 1995, 324,810 and 375,889 shares, respectively, anticipated to be issued pursuant to the Reorganization Plan) and common stock equivalents outstanding, if applicable. Loss per share for 1994 and 1996 did not include common stock equivalents, inasmuch 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. Restructuring Costs In 1996, the Company recorded a provision for restructuring of $11,730, consisting of (i) $5,718 in connection with the decision to sell or license the JJ. Farmer sportswear product line, which charge is primarily related to the write-off of goodwill and write-down of other assets, (ii) $2,858 related to the write-off of certain assets related to the licensing of the Gant dress shirt and accessories product lines, and the accrual of a portion of the future minimum royalties under the Gant licenses, which are not expected to be covered by future sales, (iii) $1,837 primarily related to employee costs in connection with the closing of a manufacturing and distribution facility in Thomson, Georgia, (iv) $714 primarily related to employee costs in connection with the closing of a manufacturing facility in Americus, Georgia and (v) $603 related primarily to other severance costs. In the fourth quarter of 1995, the Company recorded a $3,550 restructuring provision, which included (i) fixed asset write-downs at locations to be closed and (ii) inventory markdowns for discontinued product lines. Note 3. Extraordinary Gain In the fourth quarter of 1995, the Company recorded an extraordinary gain of $1,000 related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the chapter 11 proceeding. Note 4. Inventories
December 28, December 30, 1996 1995 Finished goods $ 58,663 $ 72,850 Work-in-process 16,011 15,829 Raw materials and supplies 26,945 30,441 $101,619 $119,120
Finished goods inventory includes in transit merchandise of $5,400 and $6,500 at December 28, 1996 and December 30, 1995, respectively. Note 5. Property, Plant and Equipment
December 28, December 30, 1996 1995 Land and buildings $14,975 $14,779 Machinery, equipment, furniture and fixtures 30,815 40,347 Leasehold improvements 6,895 8,315 Property held under capital leases 117 1,345 52,802 64,786 Less accumulated depreciation and amortization 27,617 40,260 $25,185 $24,526
Note 6. Other Assets
December 28, December 30, 1996 1995 Excess of cost over net assets acquired, net of accumulated amortization of $13,058 in 1996 and $12,014 in 1995 $45,008 $50,641 Trademarks and license agreements, net of accumulated amortization of $3,619 in 1996 and $3,274 in 1995 13,943 14,588 Leasehold interests, net of accumulated amortization of $965 in 1995 -- 1,478 Other 4,699 3,661 $63,650 $70,368
In June 1996, the company wrote-off other assets of $4,325 which consisted of $4,075 for the unamortized portion of the excess of cost over net assets acquired related to the JJ. Farmer division and $250 related to the license agreements for the Gant product lines. In November 1996, the Company sold its leasehold interest in a closed facility in Glen Rock, New Jersey, resulting in a gain of $2,712, which is included in other income. Note 7. Accrued Salaries, Wages and Other Liabilities
December 28, December 30, 1996 1995 Accrued salaries and wages $ 1,765 $ 3,268 Accrued pension and retirement benefits 4,080 3,737 Accrued royalties 1,959 1,716 Accrued interest 3,716 3,716 Other accrued liabilities 6,488 8,271 $18,008 $20,708
Note 8. Financing and Factoring Agreements The Company is a party to a revolving credit, factoring and security agreement, as amended (the "Credit Agreement"), with The CIT Group/Commercial Services, Inc. ("CIT") which provides the Company with seasonal working capital financing, consisting of direct borrowings and letters of credit, of up to $135,000 (the "Maximum Credit"), subject to an asset based borrowing formula. As collateral for borrowings under the Credit Agreement, the Company has granted to CIT a security interest in substantially all of the assets of the Company. On February 20, 1997, the Company and CIT executed the Tenth Amendment to the Credit Agreement (the "Amendment"). The Amendment extended the term of the Credit Agreement from March 31, 1997 until September 30, 1998. The Amendment provided for a reduction in the interest rate charged on direct borrowings from one percent in excess of the base rate of the Chase Manhattan Bank, N.A. (the "Prime Rate", which was 8.25% at December 28, 1996) to one-half of one percent in excess of the Prime Rate. The Amendment also provided the Company with the option to borrow funds at 2.75% above the London Late Eurodollar rate (the "Eurodollar Rate", which was 5.625% at December 28, 1996). Based upon Eurodollar Rates currently in effect, the Company's effective rate of interest under the Eurodollar option is approximately 100 basis points below its borrowing rate in effect prior to the Amendment. The Amendment also modified or eliminated certain financial covenants. As a result of the Amendment, the Company will only be required to maintain certain minimum levels of stockholders' equity and to comply with one other financial covenant limiting the maximum loss the Company may incur over any four or eight consecutive calendar quarters. As of December 28, 1996 and December 30, 1995, direct borrowings were $7,677 and $14,422, respectively. As of December 28, 1996 and December 30, 1995, letters of credit outstanding under the Credit Agreement were $32,337 and $31,415, respectively. The weighted average interest rate on borrowings under the Credit Agreement for the years ended December 28, 1996 and December 30, 1995 was 9.4% and 9.9%, respectively. In addition to the two financial covenants discussed above, the Credit Agreement contains a number of other covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock, or all or a substantial part of the assets of another person, selling property and paying cash dividends. Note 9. Long-Term Debt On September 20, 1993, Salant issued $111,851 principal amount of 10 1/2% Senior Secured Notes due December 31, 1998 (the "Secured Notes"). The Secured Notes 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 2.1% in 1997 to 0% in 1998. The Secured Notes are secured by a first lien (subordinated to the lien securing borrowings under 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 indenture governing the Secured Notes (the "Indenture") contains various restrictions pertaining to the incurrence of 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. On October 28, 1996, the Company completed the sale of a leasehold interest in a facility located in Glen Rock, New Jersey. The Net Cash Proceeds (as defined in the Indenture) of such sale were $3,372. Such amount was included in current liabilities at December 28, 1996. Pursuant to the Indenture, on December 30, 1996, the Company repurchased Secured Notes in a principal amount equal to the Net Cash Proceeds at 100% of the principal amount thereof. In May 1994, the Company purchased and retired $3,600 of the Secured Notes in an open market transaction at a price below the principal amount thereof. As a result of this transaction, the Company recorded an extraordinary gain of $63 in 1994. Note 10. Segment Information and Significant Customers The Company's principal business is the designing, manufacturing, importing and marketing of apparel. The Company sells its products to retailers, including department and specialty stores, national chains, major discounters and mass volume retailers, throughout the United States. As an adjunct to its apparel manufacturing operations, the Company operates 65 factory outlet stores in various parts of the United States. Foreign operations, other than sourcing, are not significant. The Company's products have been classified in the following industry segments: (i) men's apparel, (ii) children's sleepwear and underwear and (iii) other products, consisting of women's junior apparel and retail factory outlet store operations. Information concerning the Company's business segments in 1996, 1995 and 1994 is as follows:
1996 1995 1994 NET SALES Men's Apparel $354,723 $423,894 $343,455 Children's Sleepwear and Underwear 45,754 39,936 35,513 Other Businesses 37,642 37,692 40,317 Total net sales $438,119 $501,522 $419,285
OPERATING INCOME Men's Apparel $ 6,400 $ 19,819 $ 17,366 Children's Sleepwear and Underwear 5,401 5,184 3,119 Other Businesses (3,912) (2,205) (522) 7,889 22,798 19,963 Corporate expenses (6,137) (9,176) (6,171) Licensing division income 4,991 5,623 5,680 Interest expense, net (15,963) (19,425) (15,617) Income/(loss) from continuing operations before income taxes and extraordinary gain $ (9,220) $ (180) $ 3,855
IDENTIFIABLE ASSETS Men's Apparel $138,024 $170,203 $161,751 Children's Sleepwear and Underwear 20,709 16,349 14,273 Other Businesses 18,846 20,179 18,092 Corporate 58,459 48,989 73,100 Total identifiable assets $236,038 $255,720 $267,216
CAPITAL EXPENDITURES Men's Apparel $ 4,046 $ 1,389 $ 2,629 Children's Sleepwear and Underwear 546 492 435 Other Businesses 439 584 1,140 Corporate 2,072 1,821 722 Total capital expenditures $ 7,103 $ 4,286 $ 4,926
DEPRECIATION AND AMORTIZATION Men's Apparel $ 3,672 $ 2,960 $ 2,549 Children's Sleepwear and Underwear 399 345 311 Other Businesses 526 514 473 Corporate 3,761 4,298 4,156 Total depreciation and amortization $ 8,358 $ 8,117 $ 7,489
In 1996, approximately 13% of the Company's net sales were made to Sears, Roebuck & Co. ("Sears"). Approximately 11% of the Company's net sales in 1996 were made to Federated Department Stores, Inc. ("Federated"), which includes all 1996 net sales to Macy's Department Stores ("Macy's"), which was acquired by Federated in 1994, and the Broadway Stores, Inc. ("Broadway"), which was acquired by Federated in February 1996. In 1995 and 1994, net sales to a combined Federated/Macy's/Broadway would have represented approximately 12% and 15% of the Company's net sales, respectively. In each of 1995 and 1994, approximately 11% of the Company's net sales were made to TJX Corporation ("TJX"), which includes all 1995 and 1994 net sales to Marshall's Corporation, which was acquired by TJX in February 1996. In 1995, approximately 13% of the Children's Group's net sales were made to Dayton Hudson Corporation. In 1996, approximately 27% and 22% of the net sales of Other Businesses were made to K-Mart Corporation and JC Penney Company, respectively. In 1995, net sales to JC Penney represented 19% of the net sales of the Other Businesses. No other customer accounted for more than 10% of the net sales of the Company or any of its business segments during 1996, 1995 or 1994. Note 11. Income Taxes The provision for income taxes consists of the following:
December 28, December 30, December 31, 1996 1995 1994 Current: Federal $(106) $100 $100 State -- -- 20 Foreign 209 218 228 $ 103 $318 $348
The following is a reconciliation of the tax provision/(benefit) at the statutory Federal income tax rate to the actual income tax provision:
1996 1995 1994 Income tax provision/ (benefit), at 34% $(3,135) $ (61) $1,097 Loss producing no current tax benefit 3,135 61 Utilization of net operating loss carryforward (1,097) Alternative minimum tax 100 100 Tax refunds from prior years (106) State, local and foreign taxes 209 218 248 Income tax provision $ 103 $ 318 $ 348
The following are the tax effects of significant items comprising the Company's net deferred tax asset:
December 28, December 30, 1996 1995 Deferred tax liabilities: Differences between book and tax basis of property $(3,659) $ (6,253) Deferred tax assets: Reserves not currently deductible 13,983 17,155 Operating loss carryforwards 45,041 43,182 Tax credit carryforwards 2,958 3,055 Expenses capitalized into inventory 4,657 4,959 66,639 68,351 Net deferred asset 62,980 62,098 Valuation allowance (62,980) (62,098) Net deferred tax asset $ -- $ --
At December 28, 1996, the Company had net operating loss carryforwards ("NOLs") for income tax purposes of approximately $115,000, expiring from 1999 to the year 2011, which can be used to offset future taxable income. Approximately $51,000, which arose from the acquisition of Manhattan in April 1988, will offset goodwill when utilized. The implementation of the Reorganization Plan and transactions that have occurred within the three-year period preceding the Consummation Date have caused an "ownership change" for federal income tax purposes as of the Consummation Date. As a result of such ownership change, the use of the NOLs to offset future taxable income has been limited by the requirements of section 382 of the Internal Revenue Code of 1986, as amended. The annual limit under section 382 is approximately $7,200. Upon consummation of the Reorganization Plan, the Company realized cancellation of indebtedness income for tax purposes of approximately $917 and the NOLs have been reduced or limited accordingly. In addition, at December 28, 1996, the Company had available tax credit carryforwards of $2,798 which expire between 1997 and 1999. Of these tax credits, $1,986 will reduce goodwill and the balance will reduce income tax expense when utilized. Utilization of these credits may be limited in the same manner as the NOLs, as described above. Note 12. 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:
1996 1995 1994 Service cost-benefit earned during the period $1,270 $1,029 $1,125 Interest cost on projected benefit obligation 2,912 2,714 2,626 Loss/(return) on assets (4,126) (4,697) 1,331 Net amortization 1,564 2,286 (3,437) Net periodic pension cost $1,620 $1,332 $1,645
The reconciliation of the funded status of the plans at December 28, 1996 and December 30, 1995 is as follows:
December 28, December 30, 1996 1995 Accumulated Accumulated Plan Plan Benefits Benefits Exceed Exceed Plan Assets Plan Assets Actuarial present value of benefit obligation Vested benefit obligation $(41,578) $(36,211) Nonvested benefit obligation (661) (597) Accumulated benefit obligation $(42,239) $(36,808) Projected benefit obligation (46,811) $(40,833) Plan assets at fair value 35,980 30,900 Projected benefit obligation in excess of plan assets (10,831) (9,933) Unrecognized net obligation at date of initial application, amortized over 15 years 624 810 Unrecognized net loss 7,188 4,616 Unrecognized prior service cost (1,222) (1,176) Recognition of minimum liability under SFAS No. 87 (3,332) (2,524) Accrued pension cost $ (7,573) $ (8,207)
Assumptions used in accounting for defined benefit pension plans are as follows:
1996 1996 1995 1995 1994 1994 Non- Qualified Non- Qualified Non- Qualified Qualified Plans Qualified Plans Qualified Plans Plan Plan Plan Discount rate 7.25% 7.25% 7.0% 7.0% 8.5% 8.5% Rate of increase in compensation levels N/A 5.0% N/A 5.0% N/A 5.5% Expected long-term rate of return on assets 8.0% 8.5% 8.0% 8.5% 8.0% 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. 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 $4,095, $4,263 and $4,693 in 1996, 1995 and 1994, 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. In 1996, 1995 and 1994 Salant's aggregate contributions to the Long Term Savings and Investment Plan amounted to $229, $239 and $239, respectively. Note 13. Stock Options, Warrants and Shareholder Rights On May 14, 1996, the stockholders of the Company approved the 1996 Stock Plan. Pursuant to the 1996 Stock Plan, directors receive an automatic grant of stock options pursuant to a formula contained in such plan, and options or awards may be granted to key employees of the Company for the purchase of an aggregate of 600,000 shares of the Company's common stock. The 1993, 1988 and 1987 Stock Plans authorized the Company to grant stock options or stock awards aggregating 1,800,000 shares of Salant common stock to officers, key employees and, in the case of the 1993 and 1988 Stock Plans, directors. The 1996, 1993, 1988 and 1987 Stock Plans authorized such grants (subject to certain restrictions applicable to 1996 and 1993 Stock Plan stock options granted to directors) 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. Exercise prices of options are ordinarily equal to 100% of the fair market value of the Company's shares on the date of grant of the options. Options expire no later than ten years from the date of grant and become exercisable in varying amounts over periods ranging from the date of grant to five years from the date of grant. The following table summarizes stock option transactions during 1994, 1995 and 1996:
Weighted Average Exercise Shares Price Range Price Options outstanding at January 1, 1994 1,362,774 $1.00-15.125 Options granted during 1994 61,050 $4.94-6.69 Options exercised during 1994 (226,666) $2.00-2.63 Options surrendered or canceled during 1994 (39,950) $5.125-12.00 Options outstanding at December 31, 1994 1,157,208 $1.00-15.125 Options granted during 1995 205,300 $3.3125-5.1875 Options exercised during 1995 (33,334) $2.625 Options surrendered or canceled during 1995 (65,601) $3.00-12.00 Options outstanding at December 30, 1995 1,263,573 $1.00-15.125 $6.50 Options granted during 1996 51,600 $3.32-3.94 $3.62 Options exercised during 1996 (53,000) $1.00-2.00 $1.94 Options surrendered or canceled during 1996 (228,433) $2.75-12.00 $6.63 Options outstanding at December 28, 1996 1,033,740 $1.625-15.125 $6.56 Options exercisable at December 28, 1996 910,028 $1.625-15.125 $6.88 Options exercisable at December 30, 1995 904,209 $1.00-15.125
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 of the Company's common stock 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. In summary, as of December 28, 1996, there were 1,033,740 shares of Common Stock reserved for the exercise of stock options and 953,175 shares of Common Stock reserved for future grants of stock options or awards. All stock options are granted at fair market value of the Common Stock at the grant date. The weighted average fair value of the stock options granted during 1996 and 1995 was $3.42 and $4.52, respectively. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1996: risk-free interest rate of 6.18%; expected dividend yield of 0%; expected life of 4.44 years; and expected volatility of 220%. The outstanding stock options at December 28, 1996 have a weighted average contractual life of 5.65 years. The number of stock options exercisable at December 28, 1996 was 910,028. These stock options have a weighted average exercise price of $6.88 per share. The Company accounts for the 1987, 1988, 1993 and 1996 Stock Plans in accordance with Accounting Principles Board Opinion No. 25, under which no compensation cost is recognized for stock option awards. Had compensation cost been determined consistent with Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company's pro forma net income/(loss) for 1996 and 1995 would have been $(9,692) and $192, respectively. The Company's pro forma net income/(loss) per share for 1996 and 1995 would have been ($0.64) and $0.01, respectively. Because the SFAS 123 method of accounting has not been applied to options granted prior to 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Note 14. Deferred Liabilities
December 28, December 30, 1996 1995 Lease obligations $ 93 $ 1,206 Deferred pension obligations 4,865 5,087 Liability for settlement of chapter 11 claims 3,905 4,600 Other -- 480
$ 8,863 $11,373 Note 15. Commitments and Contingencies (a) Lease Commitments The Company conducts a portion of its operations in premises occupied under leases expiring at various dates through 2012. 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 1996, 1995 and 1994, rental expense was $7,563, $7,265 and $5,914, respectively. As of December 28, 1996, future minimum rental payments under noncancelable operating leases (exclusive of renewal options, percentage rentals, and adjustments for property taxes and operating expenses) were as follows:
Fiscal Year 1997 $ 6,907 1998 6,004 1999 4,739 2000 3,015 2001 2,566 Thereafter 15,709 Total $38,940
(b) Employment Agreements The Company has employment agreements with certain executives, which provide for the payment of compensation aggregating approximately $2,108 in 1997 and $490 in 1998 . In addition, such employment agreements provide for incentive compensation based on various performance criteria. Note 16. Acquisition On June 10, 1994, the Company acquired all the capital stock of JJ. Farmer Clothing Inc. (a Canadian corporation) and the assets of JJ. Farmer International Limited (a Hong Kong corporation) (collectively "JJ. Farmer") for approximately $5,311 in cash. The purchase price is subject to adjustment based on a number of items, including the future profitability of JJ. Farmer. As part of the acquisition, the Company agreed to pay to the former owners of JJ. Farmer, certain minimum amounts in the years 1996 through 1999. The present value of such future payments is $1,352, which is included in long-term debt. Through December 28, 1996, the Company had made additional payments of $1,157 in accordance with the acquisition agreement. The acquisition has been accounted for as a purchase, and accordingly, JJ. Farmer's operating results have been included in the Company's consolidated results of operations commencing June 11, 1994. Pro forma results of operations have not been presented as the effect would not be significant. JJ. Farmer's net sales for the five months ended May 31, 1994 were $3,392. The excess of cost over the book value of net assets acquired ($4,589 subject to adjustment) was being amortized over a period of not more than 15 years on a straight-line basis, prior to the write-off in the second quarter of 1996. Note 17. Discontinued Operations In February 1995, the Company discontinued the operations of the Vera Scarf division, which imported and marketed women's scarves. The loss from operations of the division in 1994 was $9,639, which included a fourth quarter charge of $9,004 for the write-off of goodwill and other intangible assets. Net sales of the division were $1,673 and $5,087 in 1995 and 1994, respectively. Additionally, in 1994 the Company recorded a fourth quarter charge of $1,796 to accrue for expected operating losses during the phase-out period through June 1995. No income tax benefits have been allocated to the division's 1994 loss. Note 18. Consummation of the Plan of Reorganization From the Consummation Date through December 28, 1996, pursuant to the Reorganization Plan, the Company made cash payments of $9,400, issued $111,851 of new 10-1/2% senior secured notes and issued 11.0 million shares of common stock to creditors in settlement of certain claims in the chapter 11 proceedings. Salant anticipates that an additional $4,161 in cash and an additional 325 thousand shares of common stock ultimately will have been distributed to creditors upon the final resolution of all remaining claims. Provisions for such distributions had previously been made in the consolidated financial statements. Note 19. Quarterly Financial Information (Unaudited) Fiscal year ended December 28, 1996
Total 4th Qtr.3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $438,119 $119,317 $122,599 $97,010 $99,193 Gross profit 97,916 27,371 29,935 18,030 22,580 Net income/(loss) (9,323) 6,116 6,335 (18,862) (2,912) Net income/(loss) per share (a) $ (0.62) $ 0.40 $ 0.42 $ (1.25) $ (0.19)
Fiscal year ended December 30, 1995
Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $501,522 $127,347 $148,313 $122,061 $103,801 Gross profit 103,892 23,152 33,752 24,521 22,467 Income/(loss) from continuing operations (498) (5,509) 6,318 392 (1,699) Extraordinary gain (See note 3) 1,000 1,000 -- -- -- Net income/(loss) 502 (4,509) 6,318 392 (1,699) Income/(loss) per share from continuing operations (a) $ (0.03) $ (0.36) $ 0.42 $ 0.03 $ (0.11) Income per share from extraordinary gain 0.06 0.06 -- -- -- Net income/(loss) per share (a) 0.03 (0.30) 0.42 0.03 (0.11)
Reference is made to Notes 2, 3 and 6 concerning fourth quarter adjustments during the years ended December 28, 1996 and December 30, 1995. (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 and, when appropriate, the inclusion of common stock equivalents. 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 SCHEDULE 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 Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Financial Statement Schedule The following Financial Statement Schedule for the years ended December 28, 1996, December 30, 1995 and December 31, 1994 is filed as part of this Annual Report: Schedule II - Valuation and Qualifying Accounts and Reserves 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 II -- 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 Description of Period Expenses -- Describe -- Describe of Period YEAR ENDED DECEMBER 28, 1996: Accounts receivable allowance for doubtful accounts $3,007 $(112) $ -- $89 (A) $2,806 Reserve for business restructuring $1,569 $11,730 $ -- $10,330 (B) $2,969 YEAR ENDED DECEMBER 30, 1995: Accounts receivable - allowance for doubtful accounts $2,565 $1,510 $ -- $1,068 (A) $3,007 Reserve for business restructuring $ -- $3,550 $ -- $1,981 (B) $1,569 YEAR ENDED DECEMBER 31, 1994: Accounts receivable - allowance for doubtful accounts $2,261 $1,068 $ -- $ 764 (A) $2,565 Reserve for business restructuring $2,038 $2,038 $ -- $ -- $ --
NOTES: (A) Uncollectible accounts written off, less recoveries. (B) Costs incurred in plant closings and business restructuring. Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended December 28, 1996. 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 July 28, 1993. Mills, Inc., dated May 12,1993. 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 July 28, 1993. 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. July 28, 1993. 3.2 Form of Bylaws, as amended, of Salant Corporation, effective September 21, 1994. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report December 8, 1987 between Salant on Form 8-K dated December 8, 1987. 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. July 29, 1993. 4.3 Indenture, dated as of Exhibit 10.34 to September 20, 1993, 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 October 2, 1993. Secured Notes due December 31, 1998. 10.1 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated September 29, 1993, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial October 2, 1993. Services, Inc. 10.2 Salant Corporation 1987 Stock Plan. Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.3 Salant Corporation 1987 Stock Plan Exhibit 10.12 to Form S-2 Agreement, dated as of June 13, Registration Statement filed 1988, between Nicholas P. DiPaolo June 17, 1988. and Salant Corporation. 10.4 Salant Corporation 1988 Stock Plan. Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.5 First Amendment, effective Exhibit 19.1 to Quarterly Report as of July 25, 1989, to the Salant on Form 10-Q for the quarter Corporation 1988 Stock Plan. ended September 30, 1989. 10.6 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. Form 10-K for fiscal year 1988. 10.7 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. Form 10-K for fiscal year 1988. 10.8 Employment Agreement, dated as of Exhibit 19.4 to December 31, 1990, between Herbert Annual Report on R. Aronson and Salant Corporation. * Form 10-K for fiscal year 1990. 10.9 Letter Agreement, dated Exhibit 19.1 to Quarterly June 20, 1992, amending the Report on Form 10-Q for Employment Agreement, dated as of the quarter ended October 3, 1992. December 31, 1990, between Herbert R. Aronson and Salant Corporation. * 10.10 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. 10.11 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. 10.12 Employment Agreement, Exhibit 10.32 to dated as of June 1, 1993, Quarterly Report on between Todd Kahn Form 10-Q for the and Salant Corporation. * quarter ended July 8, 1993. 10.13 Employment Agreement, dated Exhibit 10.36 to as of September 20, 1993, between Quarterly Report on Nicholas P. DiPaolo and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.14 Employment Agreement, dated Exhibit 10.38 to as of July 30, 1993, between Quarterly Report on Richard P. Randall and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.15 Employment Agreement, dated Exhibit 10.32 to Annual Report on as of December 21, 1993, between Form 10-K for Fiscal Year 1993. Elliot M. Lavigne and Salant Corporation. * 10.16 Agreement, dated as of Exhibit 10.33 to Annual Report on September 22, 1993, between Nicholas Form 10-K for Fiscal Year 1993. P. DiPaolo and Salant Corporation. * 10.17 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Stock Plan Directors' Option Report on Form Agreement. * 10-K for Fiscal Year 1993. 10.18 Letter Agreement, dated as of Exhibit 10.45 to August 24, 1994, amending the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated quarter ended October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.19 Letter Agreement, dated Exhibit 10.46 to October 18, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the December 31, 1990, between Herbert quarter ended October 1, 1994. R. Aronson and Salant Corporation. * 10.20 Letter Agreement, dated Exhibit 10.47 to October 25, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the July 30, 1993, between Richard quarter ended October 1, 1994. Randall and Salant Corporation. * 10.21 Third Amendment to Credit Agreement, Exhibit 10.48 to Current Report on dated February 28, 1995, to the Form 8-K, dated March 2, 1995. Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, as amended, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.22 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.23 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.24 Salant Corporation Long Term Savings Exhibit 10.25 to Annual Report on and Investment Plan as amended Form 10-K for Fiscal Year 1994. and restated. * 10.25 Letter Agreement, dated Exhibit 10.26 to Annual Report on February 15, 1995, amending the Form 10-K for Fiscal Year 1994. Employment Agreement, dated July 30, 1993, between Richard Randall and Salant Corporation. * 10.26 Fourth Amendment to Credit Exhibit 10.27 to Agreement, dated as of March 1, Quarterly Report 1995, to the Revolving Credit, on Form 10-Q for Factoring and Security Agreement, the quarter dated as of September 20, 1993, ended April 1, as amended, between Salant 1995. Corporation and The CIT Group/ Commercial Services, Inc. 10.27 Letter Agreement, dated April 12, Exhibit 10.28 to 1995, amending the Employment Quarterly Report Agreement, dated June 1, 1993, on Form l0-Q for between Todd Kahn and Salant the quarter Corporation. * ended April 1, 1995. 10.28 Fifth Amendment to Credit Exhibit 10.29 Agreement, dated as of to Quarterly June 28, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.29 Sixth Amendment to Credit Exhibit 10.30 Agreement, dated as of to Quarterly August 15, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.30 Letter from The CIT Group/ Exhibit 10.31 Commercial Services, Inc., to Quarterly dated as of July 11, 1995, Report on regarding the waiver of a Form l0-Q for default. the quarter ended July 1, 1995. 10.31 Letter Agreement between Exhibit 10.31 Salant Corporation and The to Quarterly CIT Group/Commercial Services, Report on Inc. dated as of July 11, 1995, Form l0-Q for regarding the Seasonal Overadvance the quarter Subfacility. ended July 1, 1995. 10.32 Letter Agreement, dated as of Exhibit 10.33 to August 31, 1995, amending the Quarterly Report Employment Agreement, dated on Form l0-Q for September 20, 1993, between the quarter Nicholas P. DiPaolo and ended September Salant Corporation. * 30, 1995. 10.33 Letter Agreement, dated Exhibit 10.33 to December 1, 1995, between Annual Report on Lubin, Delano & Company and Form 10-K for Salant Corporation. fiscal year 1995. 10.34 Seventh Amendment to Credit Exhibit 10.34 to Agreement, dated as of Annual Report on March 27, 1996, to the Form 10-K for Revolving Credit, Factoring fiscal year 1995. and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.35 First Amendment to the Salant Exhibit 10.35 to Corporation Retirement Plan, dated Quarterly Report on as of January 31, 1996. Form 10-Q for the quarter ended March 30, 1996. 10.36 First Amendment to the Salant Exhibit 10.36 to Corporation Long Term Savings and Quarterly Report on Investment Plan, effective as of Form 10-Q for the January 1, 1994. quarter ended March 30, 1996. 10.37 Eighth Amendment to Credit Agreement, Exhibit 10.37 to dated as of June 1, 1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commerical Services, Inc. 10.38 Ninth Amendment to Credit Agreement, Exhibit 10.38 to dated as of August 16,1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commerical Services, Inc. 10.39 Employment Agreement, dated as of January 1, 1997, between Nicholas P. DiPaolo and Salant Corporation. * 10.40 Salant Corporation 1996 Stock Plan 10.41 Tenth Amendment to Credit Agreement, dated as of February 20, 1997, to the Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commerical Services, Inc. 10.42 Employment Agreement, dated as of February 11, 1997, between Michael A. Lubin and Salant Corporation. * 10.43 Employment Agreement, dated as of March 24, 1997, between Jerald S. Politzer and Salant Corporation. * 21 List of Subsidiaries of the Company 27 Financial Data Schedule
* constitutes a 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 28, 1997 By: /s/ Richard P. Randall Senior Vice President and Chief Financial Officer 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 and on March 28, 1997. Signature Title /s/ Nicholas P. DiPaolo Chairman of the Board, Nicholas P. DiPaolo President and Chief Executive Officer (Principal Executive Officer); Director /s/ Michael A. Lubin Executive Vice President and Michael A. Lubin Chief Operating Officer /s/ Richard P. Randall Senior Vice President Richard P. Randall and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Craig M. Cogut /s/ Jerald S. Politzer Craig M. Cogut Director Jerald S. Politzer Director /s/ Robert Falk /s/ Bruce F. Roberts Robert Falk Director Bruce F. Roberts Director /s/ Ann Dibble Jordan /s/ John S. Rodgers Ann Dibble Jordan Director John S. Rodgers /s/ Robert Katz /s/ Marvin Schiller Robert Katz Director Marvin Schiller Director /s/ Harold Leppo /s/ Edward M. Yorke Harold Leppo Director Edward M. Yorke Director
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS to FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996 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 July 28, 1993. Mills, Inc., dated May 12,1993. 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 July 28, 1993. 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. July 28, 1993. 3.2 Form of Bylaws, as amended, of Salant Corporation, effective September 21, 1994. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report December 8, 1987 between Salant on Form 8-K dated December 8, 1987. 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. July 29, 1993. 4.3 Indenture, dated as of Exhibit 10.34 to September 20, 1993, 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 October 2, 1993. Secured Notes due December 31, 1998. 10.1 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated September 29, 1993, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial October 2, 1993. Services, Inc. 10.2 Salant Corporation 1987 Stock Plan. Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.3 Salant Corporation 1987 Stock Plan Exhibit 10.12 to Form S-2 Agreement, dated as of June 13, Registration Statement filed 1988, between Nicholas P. DiPaolo June 17, 1988. and Salant Corporation. 10.4 Salant Corporation 1988 Stock Plan. Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.5 First Amendment, effective Exhibit 19.1 to Quarterly Report as of July 25, 1989, to the Salant on Form 10-Q for the quarter Corporation 1988 Stock Plan. ended September 30, 1989. 10.6 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. Form 10-K for fiscal year 1988. 10.7 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. Form 10-K for fiscal year 1988. 10.8 Employment Agreement, dated as of Exhibit 19.4 to December 31, 1990, between Herbert Annual Report on R. Aronson and Salant Corporation. * Form 10-K for fiscal year 1990. 10.9 Letter Agreement, dated Exhibit 19.1 to Quarterly June 20, 1992, amending the Report on Form 10-Q for Employment Agreement, dated as of the quarter ended October 3, 1992. December 31, 1990, between Herbert R. Aronson and Salant Corporation. * 10.10 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. 10.11 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. 10.12 Employment Agreement, Exhibit 10.32 to dated as of June 1, 1993, Quarterly Report on between Todd Kahn Form 10-Q for the and Salant Corporation. * quarter ended July 8, 1993. 10.13 Employment Agreement, dated Exhibit 10.36 to as of September 20, 1993, between Quarterly Report on Nicholas P. DiPaolo and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.14 Employment Agreement, dated Exhibit 10.38 to as of July 30, 1993, between Quarterly Report on Richard P. Randall and Form 10-Q for the Salant Corporation. * quarter ended October 2, 1993. 10.15 Employment Agreement, dated Exhibit 10.32 to Annual Report on as of December 21, 1993, between Form 10-K for Fiscal Year 1993. Elliot M. Lavigne and Salant Corporation. * 10.16 Agreement, dated as of Exhibit 10.33 to Annual Report on September 22, 1993, between Nicholas Form 10-K for Fiscal Year 1993. P. DiPaolo and Salant Corporation. * 10.17 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Stock Plan Directors' Option Report on Form Agreement. * 10-K for Fiscal Year 1993. 10.18 Letter Agreement, dated as of Exhibit 10.45 to August 24, 1994, amending the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated quarter ended October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.19 Letter Agreement, dated Exhibit 10.46 to October 18, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the December 31, 1990, between Herbert quarter ended October 1, 1994. R. Aronson and Salant Corporation. * 10.20 Letter Agreement, dated Exhibit 10.47 to October 25, 1994, amending the Quarterly Report on Employment Agreement, dated Form 10-Q for the July 30, 1993, between Richard quarter ended October 1, 1994. Randall and Salant Corporation. * 10.21 Third Amendment to Credit Agreement, Exhibit 10.48 to Current Report on dated February 28, 1995, to the Form 8-K, dated March 2, 1995. Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, as amended, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.22 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.23 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.24 Salant Corporation Long Term Savings Exhibit 10.25 to Annual Report on and Investment Plan as amended Form 10-K for Fiscal Year 1994. and restated. * 10.25 Letter Agreement, dated Exhibit 10.26 to Annual Report on February 15, 1995, amending the Form 10-K for Fiscal Year 1994. Employment Agreement, dated July 30, 1993, between Richard Randall and Salant Corporation. * 10.26 Fourth Amendment to Credit Exhibit 10.27 to Agreement, dated as of March 1, Quarterly Report 1995, to the Revolving Credit, on Form 10-Q for Factoring and Security Agreement, the quarter dated as of September 20, 1993, ended April 1, as amended, between Salant 1995. Corporation and The CIT Group/ Commercial Services, Inc. 10.27 Letter Agreement, dated April 12, Exhibit 10.28 to 1995, amending the Employment Quarterly Report Agreement, dated June 1, 1993, on Form l0-Q for between Todd Kahn and Salant the quarter Corporation. * ended April 1, 1995. 10.28 Fifth Amendment to Credit Exhibit 10.29 Agreement, dated as of to Quarterly June 28, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.29 Sixth Amendment to Credit Exhibit 10.30 Agreement, dated as of to Quarterly August 15, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.30 Letter from The CIT Group/ Exhibit 10.31 Commercial Services, Inc., to Quarterly dated as of July 11, 1995, Report on regarding the waiver of a Form l0-Q for default. the quarter ended July 1, 1995. 10.31 Letter Agreement between Exhibit 10.31 Salant Corporation and The to Quarterly CIT Group/Commercial Services, Report on Inc. dated as of July 11, 1995, Form l0-Q for regarding the Seasonal Overadvance the quarter Subfacility. ended July 1, 1995. 10.32 Letter Agreement, dated as of Exhibit 10.33 to August 31, 1995, amending the Quarterly Report Employment Agreement, dated on Form l0-Q for September 20, 1993, between the quarter Nicholas P. DiPaolo and ended September Salant Corporation. * 30, 1995. 10.33 Letter Agreement, dated Exhibit 10.33 to December 1, 1995, between Annual Report on Lubin, Delano & Company and Form 10-K for Salant Corporation. fiscal year 1995. 10.34 Seventh Amendment to Credit Exhibit 10.34 to Agreement, dated as of Annual Report on March 27, 1996, to the Form 10-K for Revolving Credit, Factoring fiscal year 1995. and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.35 First Amendment to the Salant Exhibit 10.35 to Corporation Retirement Plan, dated Quarterly Report on as of January 31, 1996. Form 10-Q for the quarter ended March 30, 1996. 10.36 First Amendment to the Salant Exhibit 10.36 to Corporation Long Term Savings and Quarterly Report on Investment Plan, effective as of Form 10-Q for the January 1, 1994. quarter ended March 30, 1996. 10.37 Eighth Amendment to Credit Agreement, Exhibit 10.37 to dated as of June 1, 1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commerical Services, Inc. 10.38 Ninth Amendment to Credit Agreement, Exhibit 10.38 to dated as of August 16,1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commerical Services, Inc. 10.39 Employment Agreement, dated as of January 1, 1997, between Nicholas P. DiPaolo and Salant Corporation. * 10.40 Salant Corporation 1996 Stock Plan 10.41 Tenth Amendment to Credit Agreement, dated as of February 20, 1997, to the Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commerical Services, Inc. 10.42 Employment Agreement, dated as of February 11, 1997, between Michael A. Lubin and Salant Corporation. * 10.43 Employment Agreement, dated as of March 24, 1997, between Jerald S. Politzer and Salant Corporation. * 21 List of Subsidiaries of the Company 27 Financial Data Schedule
* constitutes a 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 JJ. Farmer Clothing, Inc., a Canadian 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 Salant Canada, Inc., a Canadian corporation SLT Sourcing, Inc., a New York corporation Vera Licensing, Inc., a Nevada corporation Vera Linen Manufacturing, Inc., a Delaware corporation EX-1 2 TENTH AMENDMENT TO CREDIT AGREEMENT TENTH AMENDMENT TO CREDIT AGREEMENT, dated as of February __, 1997 (this "Amendment"), to the Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended by letter agreement Re: Amendment to Credit Agreement with respect to the Mississippi Property, dated June 14, 1994 (the "First Amendment") and by letter agreement Re: Amendment to Credit Agreement with respect to Additional Guarantors, dated August 24, 1994 (the "Second Amendment"), and by the Third Amendment to Credit Agreement, dated as of February 28, 1995 (the "Third Amendment"), and by the Fourth Amendment to Credit Agreement, dated as of March 1, 1995 (the "Fourth Amendment"), and by the Fifth Amendment to Credit Agreement, dated as of June 28, 1995 (the "Fifth Amendment") and by the Sixth Amendment to Credit Agreement, dated as of August 15, 1995 (the "Sixth Amendment") the Seventh Amendment to Credit Agreement, dated as of March 27, 1996 (the "Seventh Amendment"), by the Eighth Amendment to Credit Agreement, dated as of June 1, 1996 (the "Eighth Amendment"), and by the Ninth Amendment to Credit Agreement, dated as of August 16, 1996 (the "Ninth Amendment") (as so amended, and as further amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), between THE CIT GROUP/COMMERCIAL SERVICES, INC. ("Lender") and SALANT CORPORATION ("Borrower"). W I T N E S S E T H : WHEREAS, Lender and Borrower are parties to the Credit Agreement; WHEREAS, Borrower has requested Lender to amend the Credit Agreement to (i) extend the Renewal Date, as defined therein, (ii) provide Borrower with the option of requesting a portion of the Revolving Loans that bear interest at the Effective Eurodollar Rate (as defined below) and (iii) to amend certain financial covenants set forth therein; and WHEREAS, Lender is willing to make such amendments to the Credit Agreement upon the terms and subject to the conditions set forth in this Amendment; NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree, effective as of the Effective Date, as defined below, as follows: 1. Credit Agreement Defined Terms. Initially capitalized terms used and not otherwise defined herein shall have their respective meanings as defined in the Credit Agreement. 2. Amendments to Section 1. Section 1 of the Credit Agreement is hereby amended as follows: (a) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.5A thereof: "1.5A 'Applicable Margin' shall mean (a)(i) in the case of Prime Rate Loans, one-half (.50%) percent, and (ii) in the case of Eurodollar Loans, two and three-quarters (2.75%) percent, and (b) from after the occurrence of (i) declaration by Lender of any Event of Default (so long as such Event of Default is continuing and unwaived), (ii) termination of this Agreement, or (iii) the non-renewal of this Agreement on the Renewal Date pursuant to Section 10.1(a) hereof, the amount described in clause (a)(i) and clause (a)(ii) of this definition plus one (1%) percent." (b) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.13A thereof: "1.13A 'Business Day' shall mean any day that is not a Saturday, Sunday or day on which commercial banks in New York, New York are required or permitted to close." (c) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.27A thereof: "1.27A 'Effective Eurodollar Rate' shall mean, for each Eurodollar Loan, a rate per annum equal to the Eurodollar Base Rate in effect for the Interest Period with respect to such Eurodollar Loan, plus the Applicable Margin." (d) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.27B thereof: "1.27B 'Effective Prime Rate' shall mean, for each Prime Rate Loan, a rate per annum equal to the Prime Rate plus the Applicable Margin." (e) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.33A thereof: "1.33A 'Eurodollar Base Rate' shall mean, with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate of interest published in The Wall Street Journal, Eastern Edition, two business days prior to the first day of such Interest Period as the highest rate in the range of rates quoted for one, two or three month 'London Late Eurodollars'. In the event that The Wall Street Journal, Eastern Edition, is not published or such rate does not appear in The Wall Street Journal, Eastern Edition, the 'Eurodollar Base Rate' shall be the rate determined by Lender to be the rate at which deposits in Dollars are offered by The Chase Manhattan Bank to first class banks in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its eurodollar loans are then being conducted at approximately 11:00 a.m., New York City time, two Business Days prior to the beginning of such Interest Period, in an amount approximately equal to the principal amount of the Eurodollar Loan to which such Interest Period is to apply and for a period of time comparable to such Interest Period." (f) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.33B thereof: "1.33B 'Eurodollar Loan' shall mean a Revolving Loan bearing interest based on the Eurodollar Rate." (g) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.33C thereof: "1.33C 'Eurodollar Rate' shall mean with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100 of 1%): Eurodollar Base Rate 1.00 -- Reserve Requirements" (h) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.37A thereof: "1.37A 'Funding Date' shall mean, with respect to any Revolving Loan, the date of the funding of such Revolving Loan, and in the case of a Eurodollar Loan which is continued pursuant to Section 3.1A(c), the first day of the Interest Period with respect thereto." (i) The following subsection is hereby added to Section 1 of the Credit Agreement as Section 1.39A thereof: "1.39A 'Governmental Authority' shall mean any nation, state, sovereign, or government, any federal, regional, state, local or political subdivision thereof and any entity exercising executive, legislative, regulatory or administrative functions of or pertaining to government." (j) Section 1.47 of the Credit Agreement is hereby deleted in its entirety and the following is substituted therefor: "1.47 'Interest Period' shall mean, with respect to each Eurodollar Loan, the period commencing on the Funding Date for such loan and ending, as Borrower may select, pursuant to Section 3.1A(a), on the numerically corresponding day in the first, second or third calendar month thereafter, provided, however, that: (i) An Interest Period based on a one, two or three calendar month period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month; (ii) In no event shall an Interest Period extend beyond the Renewal Date; and (iii) If an Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended to the next Business Day, unless such Business Day would fall in the next calendar month, in which event such Interest Period shall end on the immediately preceding Business Day." (k) The following subsection is hereby added to Section 1 of the Credit Agreement as subsection 1.62A.1 thereof: "1.62A.1 'Notice of Borrowing' shall mean, with respect to a request for a Eurodollar Loan pursuant to Section 3.1, a written notice in substantially the form of Exhibit O (or telephonic or telecopy notice, as provided in Section 3.1A(a) hereof)." (l) Section 1.69 of the Credit Agreement is hereby amended by deleting therefrom all references to "Chemical Bank" and substituting "The Chase Manhattan Bank" in lieu thereof in each instance where such term appears. (m) The following subsection is hereby added to Section 1 of the Credit Agreement as subsection 1.69A thereof: "1.69A 'Prime Rate Loans' shall mean any and all Revolving Loans (or any portion thereof) requested to be made by Lender as Revolving Loans bearing interest when, and to the extent that, the interest rate therefor is determined by reference to the Prime Rate." (n) The following subsection is hereby added to Section 1 of the Credit Agreement as subsection 1.72A thereof: "1.72A 'Reserve Requirements' shall mean for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such date (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board of Governors of the Federal Reserve System of the United States) maintained by a member bank of the Federal Reserve System. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to Lender or any Participant or any Affiliate of Lender or of any Participant under Regulation D." 3. Amendment of Section 3.1(a) (iii). Section 3.1(a) (iii) of the Credit Agreement is amended in its entirety to read as follows: "(iii) Fifty percent (50%) of the value of Eligible Inventory, provided, however, that solely for, and at all times during the months of May, June, July and August of 1997 and of 1998, such advance rate shall be sixty percent (60%) of the value of Eligible Inventory." 4. (i) Amendment of Section 3.1(c). Section 3.1(c) of the Credit Agreement is amended in its entirety to read as follows: "(c) Notwithstanding anything to the contrary contained herein or in any of the other Financing Agreements, except in Lender's discretion, the aggregate unpaid principal amount of Revolving Loans outstanding at any time based on the value of all Eligible Inventory shall not exceed $60,000,000 (the "Inventory Sublimit"), provided, however, that solely for, and at all times during, the months of May, June, July and August of 1997 and of 1998, the Inventory Sublimit shall not exceed $70,000,000. On or before September 10, 1997 and September 10, 1998, respectively, Borrower shall pay in full to Lender that portion of the Revolving Loans which is equal to the difference (such amount, the "Inventory Overadvance") between: (i) the aggregate amount of Revolving Loans then outstanding with respect to Eligible Inventory, and (ii) the lesser of: (A) the maximum amount of Revolving Loans with respect to Eligible Inventory to which Borrower is entitled on September 1 of the applicable Contract Year based on an advance rate of fifty percent (50%) of the value of Eligible Inventory, and (B) the Inventory Sublimit as in effect on September 1 of such Contract Year. Borrower's failure to pay the Inventory Overadvance in full on or before September 10, 1997 or on or before September 10, 1998 (as applicable) shall constitute an Event of Default under Section 8.1(a) of this Agreement." 5. Additions to Section 3.1. Section 3.1 of the Credit Agreement is hereby amended by adding thereto the following subsections as subsections (g) and (h) thereof: "(g) Eurodollar Loans made on any Funding Date shall be in the aggregate minimum amount of $5,000,000 and in integral multiples of $1,000,000 in excess of that amount." "(h) There shall not exist at any time more than three (3) borrowings (or any portion thereof) of Eurodollar Loans outstanding, including, without limitation, Eurodollar Loans arising as a result of the conversion of a Prime Rate Loan to a Eurodollar Loan in accordance with the provisions of Section 3.1A(b) hereof or the continuation of a Eurodollar Loan as such upon the expiration of an Interest Period with respect thereto in accordance with the provisions of Section 3.1A(c) hereof." 6. Addition of Section 3.1A. The Credit Agreement is hereby amended by adding thereto the following Section 3.1A immediately following Section 3.1(h) thereof: "3.1A. Notice of Borrowing; Interest Rate Option. (a) Notice of Borrowing. (i) Each borrowing of a Eurodollar Loan under Section 3.1 shall be made on notice given by Borrower to Lender no later than three (3) Business Days prior to the requested Funding Date for such Eurodollar Loan. The Notice of Borrowing shall specify (i) the requested Funding Date (which shall be a Business Day), (ii) the amount of the proposed borrowing, and (iii) the Interest Period elected by Borrower with respect to such proposed Eurodollar Loan. Failure by the Borrower to deliver a Notice of Borrowing with respect to a request for a Eurodollar Loan or a request for a borrowing of a Eurodollar Loan which would exceed the limitations set forth in Section 3.1(h) shall be deemed and shall constitute the Borrower's election that such proposed borrowing shall be a Prime Rate Loan; and failure by Borrower to make such election described in the immediately preceding clause (iii) shall be deemed and shall constitute Borrower's election that the Interest Period with respect to the proposed borrowing shall be a one (1) month period. In lieu of delivering a Notice of Borrowing, Borrower may give Lender telephonic notice of any requested borrowing of a Eurodollar Loan by the time required under this Section 3.1A(a); provided, that such notice shall be confirmed in writing by delivery to Lender (x) on the same Business Day, of a telecopy of a written Notice of Borrowing which has been signed by an authorized officer of Borrower and (y) promptly (and in no event later than three (3) Business Days after the Funding Date in respect of the applicable Eurodollar Loans), of a Notice of Borrowing containing the original signature of an authorized officer of Borrower. (ii) Borrower shall notify Lender in writing of the names of the officers authorized to request Revolving Loans on behalf of Borrower, and shall provide Lender with a specimen signature of each such officer. Lender shall be entitled to rely conclusively on such officers' authority to request Revolving Loans on behalf of Borrower, the proceeds of which are requested to be transferred to an account of Borrower, until Lender receives written notice to the contrary. Lender shall have no duty to verify the authenticity of the signature appearing on any Notice of Borrowing or other writing delivered pursuant to Section 3.1A(a)(i) above and, with respect to an oral request for Revolving Loans, Lender shall have no duty to verify the identity of any individual representing himself as one of the officers authorized to make such request on behalf of Borrower. Lender shall not incur any liability to Borrower as a result of acting upon any telephonic notice referred to in this Section 3.1A(a) which notice Lender believes in good faith to have been given by a duly authorized officer or other individual authorized to request Revolving Loans on behalf of Borrower or for otherwise acting in good faith under this Section 3.1A(a) and, upon the funding of Revolving Loans by Lender in accordance with this Agreement, pursuant to any such telephonic notice, Borrower shall be deemed to have requested and received Revolving Loans hereunder. Any Notice of Borrowing made pursuant to this Section 3.1A(a) shall be irrevocable. (b) Conversion Option. Borrower may elect from time to time to convert, on a Business Day, Eurodollar Loans to Prime Rate Loans and Prime Rate Loans to Eurodollar Loans by giving Lender at least three (3) Business Days prior irrevocable written notice of such election, provided that any such conversion of a Eurodollar Loan shall only be made on the last day of an Interest Period with respect thereto. Each conversion of a Eurodollar Loan to a Prime Rate Loan or of a Prime Rate Loan to a Eurodollar Loan shall be for an amount of $5,000,000, or, if more, in increments of any multiple of $1,000,000, in each instance. Notwithstanding anything to the contrary set forth herein, the conversion provided for in this Section 3.1A(b) shall be subject to the limitations contained in Section 3.1(h) and shall be permitted only so long as no Event of Default has occurred and is continuing. (c) Continuation of Eurodollar Loan. Any Eurodollar Loan may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by Borrower with the notice provisions contained in Section 3.1A(a) above for request of a Eurodollar Loan; provided, however, that (i) the Effective Eurodollar Rate with respect to any such continued Eurodollar Loan shall be determined by Lender with respect to such Eurodollar Loan as of two (2) Business Days prior to the first day of the continued Interest Period elected by Borrower with respect thereto, and (ii) any Eurodollar Loan may be continued as such subject to the limitations contained in Section 3.1(h) and only so long as no Event of Default has occurred and is continuing, in either of which events, any such Eurodollar Loan shall be automatically converted to a Prime Rate Loan on the last day of the then current Interest Period with respect thereto. (d) Revocation of Interest Rate Election. With respect to each requested Eurodollar Loan, in the event that Lender shall have determined (which determination shall be conclusive and binding upon Borrower) that by reason of circumstances affecting the London interbank market and/or the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of The Chase Manhattan Bank in respect of its eurodollar loans are then being conducted, adequate and reasonable means do not exist for ascertaining the Effective Eurodollar Rate, then Lender shall forthwith give written or telephonic notice of such determination to Borrower at least one (1) Business Day prior to (i) the requested Funding Date for such Eurodollar Loan, (ii) the conversion date of such Prime Rate Loan, or (iii) the last day of such Interest Period, as the case may be. In the event such notice is given, then (i) any requested Eurodollar Loan shall be made as a Prime Rate Loan, (ii) any Prime Rate Loan which Borrower elected to have converted to a Eurodollar Loan shall be continued as a Prime Rate Loan, and (iii) any outstanding Eurodollar Loan shall be converted to a Prime Rate Loan on the last day of the then current Interest Period with respect thereto. Further, until such notice has been withdrawn by Lender, no further Eurodollar Loans shall be made or continued, nor shall Borrower have the right to convert any Prime Rate Loan to a Eurodollar Loan." 7. Amendment of Section 3.2(c). The last sentence of Section 3.2(c) of the Credit Agreement is hereby amended by deleting therefrom the previously existing defined term, "Interest Rate", and substituting "Effective Prime Rate" in lieu thereof. 8. Amendment of Section 3.3. Section 3.3 of the Credit Agreement is amended in its entirety to read as follows: "3.3 Maximum Credit The aggregate principal amount of the Revolving Loans and Letter of Credit Accommodations at any time outstanding shall not exceed $120,000,000, provided, however, that solely for, and at all times during, the months of March, April, May, June, July, August, September and October of 1997 and the months of March, April, May, June, July, August and September of 1998, such outstanding amount shall not exceed the amount set forth opposite each such month and provided, further, however, that during the first twenty (20) days of each month, the Maximum Credit may equal but shall not exceed the higher of (i) the Maximum Credit on the last day of the immediately preceding month or (ii) the amount set forth below opposite such month:
Month Amount March, 1997 $132,000,000 April, 1997 $135,000,000 May, 1997 $130,000,000 June, 1997 $132,000,000 July,1997 $130,000,000 August, 1997 $135,000,000 September, 1997 $135,000,000 October, 1997 $130,000,000 March, 1998 $132,000,000 April, 1998 $135,000,000 May, 1998 $130,000,000 June, 1998 $132,000,000 July, 1998 $130,000,000 August, 1998 $135,000,000 September, 1998 $135,000,000
Notwithstanding anything to the contrary contained herein, from and after November 21, 1997 and through and including February 28, 1998, the Maximum Credit shall not exceed $120,000,000." 9. Interest. Section 3.5(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "(a) Each Revolving Loan shall bear interest on the unpaid principal amount thereof from the date such Revolving Loan is made until it is paid in full at a fluctuating rate per annum equal to (i) in the case of Prime Rate Loans, the Effective Prime Rate, and (ii) in the case of Eurodollar Rate Loans, the Effective Eurodollar Rate. Interest accrued on the Revolving Loans in any calendar month shall be payable in arrears (i) on the first Business Day of the immediately succeeding calendar month, and (ii) upon the termination of this Agreement or, in the event this Agreement is not renewed in accordance with Section 10.1(a) hereof, on the Renewal Date. Interest on the Revolving Loans shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days." 10. Amendment of Section 3.6(g). The first sentence of Section 3.6(g) of the Credit Agreement is hereby amended by deleting therefrom the previously existing defined term, "Interest Rate", in each instance where such term appears and substituting "Effective Prime Rate" in lieu thereof. 11. Amendment of Section 3.6(k). Section 3.6(k) of the Credit Agreement is hereby amended in its entirety to read as follows: "3.6(k) Notwithstanding anything to the contrary contained in this Agreement, Borrower shall have the right to cease factoring Notification Accounts upon not less than sixty (60) days prior written notice to Lender, provided, however, that all Accounts shall at all times constitute security for all Obligations." 12. Addition of Sections 3.10, 3.11 and 3.12. Section 3 of the Credit Agreement is amended hereby by adding thereto the following Sections 3.10, 3.11 and 3.12: "3.10 Increased Costs for Revolving Loans and Letters of Credit Accommodations. If any Governmental Authority, central bank or other comparable authority shall at any time impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board, including, but not limited to, in respect of the making and maintaining of Eurodollar Loans), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, Lender, or by any Participant, or shall impose on Lender, or on any Participant, or the market for revolving loans or letters of credit, any other condition affecting a revolving loan or letter of credit (any such event, an "Increased Cost Event"); and the result of any Increased Cost Event is to increase the cost to Lender or to such Participant of making or participating in a Revolving Loan or the cost to Lender or to any other issuer issuing, maintaining or creating a Letter of Credit Accommodation, as the case may be, or to reduce the amount of any sum received or receivable by Lender or such Participant in respect of any Revolving Loan or by Lender or any such other issuer of any Letter of Credit Accommodations, then, upon demand by Lender, Borrower shall pay to Lender for the account of Lender, such other issuer of a Letter of Credit Accommodation, or such Participant, as the case may be, such additional amount or amounts as will compensate Lender, such other issuer of a Letter of Credit Accommodation or such Participant, for such increased cost or reduction. Lender will promptly notify Borrower of any Increased Cost Event occurring after the date hereof, of which it has knowledge, which would entitle Lender to compensation pursuant to this Section 3.10. A certificate of Lender delivered to Borrower claiming compensation under this Section 3.10 and setting forth the additional amount or amounts to be paid to Lender hereunder, determined by Lender on a reasonable basis and prepared in good faith and in reasonable detail, shall, in the absence of manifest or demonstrable error, be conclusive and binding for all purposes. Notwithstanding the foregoing, Lender shall only seek such compensation from Borrower for any such increased cost or reduction if Lender, or such Participant (as applicable), in connection with the Increased Cost Event that has given rise to such increased cost or reduction, similarly seeks such compensation generally from other commercial borrowers of Lender or such Participant in respect of which borrowers the respective financing agreements then in effect between Lender or such Participant (as applicable) and each such borrower give Lender or such Participant the right to demand compensation from such borrower upon the occurrence of such Increased Cost Event." "3.11 Increased Capital. If either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance by Lender or Participant with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful), including, without limitation, any "Reserve Requirement" used in determining the Eurodollar Base Rate, affects or would affect the amount of capital required or expected to be maintained by Lender or any corporation controlling Lender or any Participant and Lender or such Participant reasonably determines that the amount of such capital is increased by or based upon the existence of the commitments to make Revolving Loans and/or other commitments of this type on the terms and conditions set forth in this Agreement (any such event, an "Increased Capital Event") then, upon demand by Lender, Borrower shall immediately pay to Lender, from time to time as specified by Lender, additional amounts sufficient to compensate Lender, such corporation controlling Lender or such Participant (as applicable) in the light of such circumstances, to the extent that Lender or such Participant reasonably determines such increase in capital to be allocable to the occurrence of the Increased Capital Event. A certificate as to such amounts delivered by Lender to Borrower, determined by Lender or such Participant (as applicable) on a reasonable basis and prepared in good faith and in reasonable detail by Lender or such Participant (as applicable) shall, in the absence of manifest or demonstrable error, be conclusive and binding for all purposes. Notwithstanding the foregoing, Lender or such Participant shall only seek such compensation from Borrower if Lender or such Participant, in connection with the Increased Capital Event that has given rise to such increased capital requirement, similarly seeks such compensation generally from other commercial borrowers of Lender or such Participant in respect of which the respective financing agreements then in effect between Lender or such Participant (as applicable) and each such borrower give Lender or such Participant the right to demand compensation from such borrower upon the occurrence of such Increased Capital Event." "3.12 Funding Loss Indemnification. Borrower shall pay to Lender for the account of Lender or of a Participant (as applicable) such amount or amounts as shall be certified by Lender or such Participant in good faith to compensate Lender or such Participant for any loss, cost, or expense incurred by Lender or such Participant as a result of: (a) Payment of a Eurodollar Loan on a date other than the last day of the Interest Period relating thereto, including but not limited to, as a result of acceleration of the Obligations pursuant to Section 8.2 hereof; or (b) The failure by Borrower to (i) borrow or continue a Eurodollar Loan on the Funding Date specified in the Notice of Borrowing relating thereto, or (ii) convert a Prime Rate Loan to a Eurodollar Loan pursuant to irrevocable written notice of its election thereof pursuant to Section 3.1A(b) including but not limited to as a result of the operation of the last sentence of Section 3.1A(b)." 13. Deletion of Section 7.18. Section 7.18 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "7.18 [Intentionally Deleted]" 14. Amendment of Section 7.19. Section 7.19 of the Credit Agreement is amended in its entirety to read as follows: "7.19 Stockholders' Equity Borrower shall not permit its consolidated stockholders' equity to be less than $55,000,000 at any time during the period from the Consummation Date through the day before the last day of its 1993 fiscal year, $60,000,000 at any time during the period from the last day of its 1993 fiscal year through June 28, 1996, $45,000,000 during the period from June 29, 1996 through the day before the last day of its 1996 fiscal year, $52,000,000 during the period from January 1, 1997 through the day before the last day of its 1997 fiscal year and $68,000,000 thereafter. Notwithstanding anything to the contrary contained herein, write-offs for goodwill arising during Borrower's 1997 fiscal year which Borrower would otherwise be required to include in the determination of Borrower's consolidated stockholders' equity under this Section 7.19 shall, in an aggregate amount not to exceed $5,000,000, be excluded from such determination of such consolidated stockholders' equity solely during the period from and after the last day of Borrower's 1997 fiscal year." 15. Deletion of Section 7.20. Section 7.20 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "7.20 [Intentionally Deleted]" 16. Deletion of Section 7.21. Section 7.21 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "7.21 [Intentionally Deleted]" 17. Amendment of Section 7.22. Section 7.22 of the Credit Agreement is amended in its entirety to read as follows: "7.22 Maximum Loss Borrower shall not incur, in any four consecutive fiscal quarters, commencing after the date of this Agreement, on a cumulative basis, a net loss of $10,000,000 or more, or in any period of eight consecutive fiscal quarters, commencing after the date of this Agreement on a cumulative basis, a net loss of $15,000,000 or more. Notwithstanding anything to the contrary contained herein, write-offs for goodwill, restructuring expense or other unusual or non-recurring expense arising during the first two fiscal quarters of Borrower's 1996 fiscal year (ending June 29, 1996) in connection with or pursuant to a restructuring and which Borrower would otherwise be required to include in the determination of Borrower's net loss under this Section 7.22, shall, in an aggregate amount not to exceed $13,000,000, be excluded from such determination of such net loss of Borrower." 18. Deletion of Section 7.23. Section 7.23 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "7.23 [Intentionally Deleted]" 19. Amendment of Section 8.1(l). Section 8.1(l) of the Credit Agreement is amended in its entirety to read as follows: "(l) one or more judgments are entered against Borrower or any Guarantor in excess of $750,000 in any one case or in the aggregate and the same shall not have been paid, vacated, discharged, stayed or bonded pending appeal on or before the earlier of (x) the date required by the terms (if any) of such judgment for the completion of the foregoing and (y) thirty (30) days after the entry thereof." 20. Amendment of Section 9.1(a). Section 9.1(a) of the Credit Agreement is amended in its entirety to read as follows: "(a) All invoices relating to Non-Notification Accounts and Non-Factored Accounts shall indicate that remittances with respect thereto are to be made to: SALANT CORPORATION, P.O. BOX 4076, CHURCH STREET STATION, NEW YORK, NEW YORK 10261-4076, a lock box opened by Lender pursuant to a Lock Box Deposit Service Agreement dated June 25, 1990 with Manufacturers Hanover Trust Company, predecessor-in-interest to The Chase Manhattan Bank (the "Lock Box Agreement"). Notwithstanding the foregoing, upon not less than thirty (30) days prior written request made by Borrower to Lender, Lender shall, as soon as possible thereafter, open a new lock box pursuant to an agreement entered into between Lender and a different bank designated by Borrower in such written request and reasonably acceptable to Lender ("Successor Lock Box Bank"). Upon execution of such agreement with such Successor Lock Box Bank, such agreement shall be deemed and shall constitute the "Lock Box Agreement" for all purposes of this Agreement, and all invoices relating to Non-Notification Accounts and Non-Factored Accounts shall indicate, from and after the date of execution of such agreement, that remittances with respect thereto are to be made to the lock box address designated in the Lock Box Agreement entered into with the Successor Lock Box Bank. All such remittances shall be deposited in Lender's account with The Chase Manhattan Bank or with the Successor Lock Box Bank (as applicable) pursuant to the Lock Box Agreement (the "CIT Account")." 21. Amendment of Section 10.1(a). Section 10.1(a) of the Credit Agreement is amended in its entirety to read as follows: "10.1 Term. (a) This Agreement and the other Financing Agreements shall become effective as of the date hereof and shall continue in full force and effect for a term ending on September 30, 1998 (the "Renewal Date") and from year to year thereafter, unless sooner terminated pursuant to the terms hereof." 22. Amendment of Section 10.2(c). The first sentence of Section 10.2(c) of the Credit Agreement is hereby amended by deleting therefrom the previously defined term, "Interest Rate", and substituting "Effective Prime Rate" in lieu thereof. 23. Addition of Exhibit O. The Credit Agreement is hereby amended by adding to the List of Exhibits, "EXHIBIT O -- Form of Notice of Borrowing", and by adding to the Exhibits attached to and made a part of the Credit Agreement the "EXHIBIT O -- Form of Notice of Borrowing" attached to and made a part of this Amendment. 24. Representations and Warranties. Borrower hereby represents and warrants to Lender that the representations and warranties set forth in Section 6 of the Credit Agreement are true on and as of the date hereof as if made on and as of the date hereof after giving effect to this Amendment, except to the extent any such representation or warranty expressly relates to a prior date, and breach of any of the representations and warranties made in this paragraph 8 shall constitute an Event of Default under Section 8.1(b) or 8.1(c) of the Credit Agreement, as applicable. Borrower further represents and warrants that, after giving effect to this Amendment, no Event of Default or event which, with the lapse of time or the giving of notice or both, would become an Event of Default has occurred and is continuing. 25. Effectiveness. This Amendment shall become effective on the date (the "Effective Date") Lender shall have received each of the following: (a) The written consent of all Participants to the execution and delivery of this Amendment by Lender. (b) Counterparts of this Amendment, duly executed and delivered by Borrower and Lender. (c) A duly executed copy of the Consent of Guarantors substantially in the form of Exhibit A hereto. 26. Continuing Effect of Credit Agreement. This Amendment shall not constitute a waiver or amendment of any provision of the Credit Agreement not expressly referred to herein and shall not be construed as a consent to any further or future action on the part of Borrower that would require consent of Lender. Except as expressly amended, the provisions of the Credit Agreement are and shall remain in full force and effect. 27. Counterparts. This Amendment may be executed in counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 28. Governing Law. This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the state of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. THE CIT GROUP/COMMERCIAL SERVICES, INC. By: Title: SALANT CORPORATION By: Title: EXHIBIT O FORM OF NOTICE OF BORROWING NOTICE OF BORROWING THE CIT GROUP/COMMERCIAL SERVICES, INC. 1211 Avenue of the Americas New York, New York 10036 Attn: Kenneth Wendler Gentlemen: The undersigned, SALANT CORPORATION (the "Borrower"), refers to the Revolving Credit, Factoring and Security Agreement dated as of September 20, 1993 (as amended, the "Credit Agreement", the terms defined therein being used herein as therein defined), between Borrower and The CIT Group/Commercial Services, Inc. ("Lender"), and hereby gives Lender notice, irrevocably, pursuant to Section 3.1A of the Credit Agreement, that the Borrower hereby requests a Eurodollar Loan under the Credit Agreement, and sets forth below the information relating to such Eurodollar Loan (the "Proposed Eurodollar Borrowing") as required by Section 3.1A of the Credit Agreement: (A) The Business Day of the Proposed Eurodollar Borrowing is , 199 . (B) The aggregate principal amount of the Proposed Eurodollar Borrowing is $_____________. (C) The Interest Period elected with respect to the to the Proposed Eurodollar Borrowing is (check appropriate box): |_| one (1) month |_| two (2) months |_| three (3) months The Borrower hereby certifies that before and after giving effect to the Proposed Eurodollar Borrowing, no Event of Default shall have occurred or would result from such extension of credit. Very truly yours, SALANT CORPORATION By: Title: EXHIBIT A CONSENT OF GUARANTORS Each of the undersigned, CLANTEXPORT, INC., DENTON MILLS, INC., FROST BROS. ENTERPRISES, INC., SLT SOURCING, INC., each a Guarantor under its respective Guarantee, each dated as of September 20, 1993, and SALANT CANADA INC. and J.J. FARMER CLOTHING INC., each a guarantor under its respective Guaranty (Unlimited Liability), each dated as of September 20, 1994 (individually, in the case of each of the foregoing Guarantors, its "Guarantee"), made in favor of the CIT Group/Commercial Services, Inc. ("Lender"), pursuant to the Credit Agreement as defined in the Tenth Amendment to Credit Agreement, dated as of February __, 1997 between Lender and Salant Corporation (the "Amendment"), to which this Consent is attached, hereby consents to the Amendment and the matters contemplated thereby, and hereby confirms and agrees that its Guarantee is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, on and after the effective date of the Amendment, each reference in its Guarantee to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by the Amendment. IN WITNESS WHEREOF, each of the undersigned has caused this Consent of Guarantors to be duly executed and delivered by its authorized officer this __ day of February, 1997. CLANTEXPORT, INC. FROST BROS. ENTERPRISES, INC. By: By: Title: Title: DENTON MILLS, INC. SLT SOURCING, INC. By: By: Title: Title: VERA LICENSING, INC. SALANT CANADA INC. By: By: Title: Title: JJ. FARMER CLOTHING, INC. By: Title: EX-2 3 - 14 - SALANT CORPORATION 1996 STOCK PLAN SECTION 1. Establishment, Purpose, and Effective Date of Plan 1.1 Establishment. Salant Corporation, a Delaware corporation (the "Company"), hereby establishes the "1996 STOCK PLAN" (the "Plan") for key employees and directors. The Plan permits the grant of Stock Options, Stock Appreciation Rights and Restricted Stock. 1.2 Purpose. The purpose of the Plan is to advance the interests of the Company and its Subsidiaries and promote continuity of management by encouraging and providing key employees and directors with the opportunity to acquire an equity interest in the Company and to participate in the increase in shareholder value as reflected in the growth in the price of the shares of the Company's Stock and by enabling the Company to attract and retain the services of key employees and directors upon whose judgment, interest, skills, and special effort the successful conduct of its operations is largely dependent. 1.3 Effective Date. The Plan shall become effective on May 15, 1996. SECTION 2. Definitions; Construction 2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of the Company. (c) A "Change in Control" means a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act, as amended; provided that, without limitation, such a change in control shall be deemed to have occurred (i) if, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof, unless the election or nomination for election by the Company's stockholders of each new director was approved by a vote of at least two-thirds of the directors then in office who were then Continuing Directors, (ii) when the Company acquires actual knowledge that any person (as such term is used in Sections 13(d) and 14(d)(2) of the Act) (other than an employee benefit plan of the Company or any Subsidiary, or trustee thereof, acting on behalf of such plan) is or has become the beneficial owner (as such term is defined in Rule 13d-3 promulgated under the Act) directly or indirectly, of securities of the Company representing 25% or more of the outstanding shares of the Company's capital stock entitled to vote generally in the election of directors, (iii) upon any purchase pursuant to a tender or exchange offer, which purchase results in a person (as such term is used in Sections 13(d) and 14(d)(2) of the Act) (other than an employee benefit plan of the Company or any Subsidiary, or trustee thereof, acting on behalf of such plan) beneficially owning, directly or indirectly, 25% or more of the outstanding shares of the Company's capital stock entitled to vote generally in the election of directors, (iv) upon the approval by the Company's stockholders of (A) a merger or consolidation of the Company with or into another corporation (other than a merger or consolidation in which the Company is the surviving corporation and which does not result in any reclassification or reorganization of the Company's then outstanding shares of common stock), (B) a sale or disposition of all or substantially all of the Company's assets or (C) a plan of liquidation or dissolution of the Company; provided, however, that the acquisition of Stock by Apollo Apparel Partners, Inc. shall not constitute a "Change of Control" under this Plan. (d) "Cause" - mean an Eligible Employee's (i) commission of an act of fraud or intentional misrepresentation or an act of embezzlement, misappropriation or conversion of assets or opportunities of the Company or any Subsidiary, (ii) intentional failure to perform reasonably assigned duties, (iii) dishonesty or willful misconduct in the performance of duties, (iv) involvement in a transaction in connection with the performance of duties to the Company or any of its Subsidiaries thereof which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit or (v) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses). (e) "Change in Capitalization" means any increase or reduction in the number of shares of Stock, or any change (including, but not limited to, a change in value) in the shares of Stock or exchange of shares of Stock for a different number or kind of shares or other securities of the Company or any other corporation or other entity, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, extraordinary dividend, property dividend, combination or exchange of shares or otherwise. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means a committee of the Board designated to administer the Plan which shall consist of two or more members of the Board each of whom is "disinterested" within the meaning of Rule 16b-3 under the Act and an Outside Director. (h) "Company" means Salant Corporation, a Delaware corporation. (i) "Director Option" means an Option granted to a Nonemployee Director pursuant to Section 6. (j) "Disability" shall have the meaning assigned to the terms "total disability" or "totally disabled" in the Salant Corporation long-term disability program for salaried employees, provided the Participant remains totally disabled for six consecutive months; or, if the Company does not maintain a long-term disability program, an individual shall have a "Disability" if he is unable to engage in any substantial activity by reason of any medically determinable, physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. (k) "Eligible Employee" means any person designated by the Committee as eligible to participate in the Plan pursuant to Section 3.1. (l) "Employee Option" means an Option granted to an Eligible Employee pursuant to Section 7. (m) "Fair Market Value" means the mean between the highest and lowest sale price of the Stock for the date in question, as published in The Wall Street Journal for such date, or, if no sale prices are quoted in The Wall Street Journal for such date, for the next preceding date for which such sale prices are quoted. (n) "Nonemployee Director" means a director of the Company who is not otherwise an employee or consultant of the Company or any Subsidiary. (o) "Option" means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan an Option may be either (i) an "incentive stock option" within the meaning of Section 422 of the Code or (ii) a "nonstatutory stock option." (p) "Option Price" means the price at which an Option states Stock may be purchased. (q) "Optionee" means a person to whom an Option has been granted under the Plan. (r) "Outside Director" means a member of the Board who is an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. (s) "Participant" means an Eligible Employee or Nonemployee Director who has been granted and, at the time of reference, holds an Option or share of Restricted Stock. (t) "Period of Restriction" means the period during which the transfer of shares of Restricted Stock is restricted pursuant to Section 10 of the Plan. (u) "Restricted Stock" means Stock granted to an Eligible Employee pursuant to Section 10 of the Plan. (v) "Retirement" shall have the meaning assigned to such term in the Salant Corporation Retirement Plan, or if such plan is not in effect, such term shall mean the termination of employment with the Company by reason of the attainment of the age which the Company, by policy or otherwise, has established as the age at which salaried employees may or shall be required to terminate their employment and receive retirement benefits. (w) "Stock" means the Common Stock of the Company, par value of $1.00 per share. (x) "Stock Appreciation Right" means the right to receive the increase in the value of Stock subject to an Option in lieu of purchasing such Stock. (y) "Subsidiary" means any present or future subsidiary of the Company, as defined in Section 424(f) of the Code. 2.2 Number. Except when otherwise indicated by the context, the singular shall include the plural, and the plural shall include the singular. SECTION 3. Eligibility and Participation 3.1 Eligibility and Participation. Eligible Employees in the Plan shall be selected by the Committee from among those officers and other key employees of the Company and its Subsidiaries who, in the opinion of the Committee, are in a position to contribute materially to the Company's continued growth and development and to its long-term financial success. All Nonemployee Directors shall participate in the Plan in accordance with Section 6. SECTION 4. Stock Subject to Plan 4.1 Number. The total number of shares of Stock subject to issuance under the Plan may not exceed 600,000; provided, however, that the maximum number of shares of Stock subject to an Option (whether or not connected with Stock Appreciation Rights) granted to any Eligible Employee may not exceed 150,000. The total number of shares of Stock that may be awarded under the Plan and the maximum number of shares of Stock that may be awarded to any Eligible Employee are subject to adjustment upon occurrence of any of the events indicated in Subsection 4.4. The shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Stock or treasury Stock, not reserved for any other purpose. 4.2 Unused Stock; Unexercised Rights. In the event any shares of Stock are subject to an Option, which for any reason, expires or is terminated unexercised as to such shares, or any shares of Stock, subject to a Restricted Stock grant made under the Plan are reacquired by the Company pursuant to Section 10 of the Plan, such shares again shall become available for issuance under the Plan. 4.3 Exercise of Stock Appreciation Right. Whenever a Stock Appreciation Right is exercised and payment of the amount determined in Subsection 9.1(b) is made in cash, the shares of Common Stock allocable to the portion of the Option surrendered may again be the subject of Options and Awards hereunder. Whenever a Stock Appreciation Right is exercised and payment of the amount determined in Subsection 9.1(b) is made in shares of Common Stock, no shares of Common Stock with respect to which the Stock Appreciation Right is exercised may again be the subject of Options and Awards hereunder. 4.4 Adjustment in Capitalization. (a) In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the (i) maximum number and class of shares of Stock or other securities with respect to which Options or Restricted Stock may be granted under the Plan or to any individual, (ii) the number and class of shares of Stock or other securities which are subject to Director Options issuable under Section 6; and (iii) the number and class of shares of Stock or other securities which are subject to outstanding Options or Awards granted under the Plan, and the purchase price therefor, if applicable. (b) Any such adjustment in the shares of Stock or other securities subject to outstanding incentive stock options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. (c) Any stock adjustment in the shares of Stock or other securities subject to outstanding Director Options (including any adjustments in the purchase price) shall be made only to the extent necessary to preserve, without exceeding, the value of such Director Option. (d) If, by reason of a Change in Capitalization, a grantee of Restricted Stock shall be entitled to, or an Optionee shall be entitled to exercise an Option or Stock Appreciation Rights with respect to, new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Restricted Stock, or shares of Stock or Stock Appreciation Rights subject to the Option, as the case may be, prior to such Change in Capitalization. SECTION 5. Duration of Plan 5.1 Duration of Plan. The Plan shall remain in effect, subject to the Board's right to earlier terminate the Plan pursuant to Subsection 13.3 hereof, until all Stock subject to it shall have been purchased or acquired pursuant to the provisions hereof. Notwithstanding the foregoing, no Option or Restricted Stock may be granted under the Plan on or after May 14, 2006. SECTION 6. Option Grants for Nonemployee Directors. 6.1 Grant. (a) Initial Grant. An initial grant of Director Options shall be made to each Nonemployee Director upon the date the individual becomes a Nonemployee Director (an "Initial Grant"). (b) Annual Grant. Director Options shall be granted in each year that the Plan is in effect to (i) each Nonemployee Director who participated in the Salant Corporation 1993 Stock Plan (the "1993 Stock Plan") on each anniversary (or the next business day if such anniversary is not a business day) of the "First Initial Grant Date," as that term is defined in the 1993 Stock Plan, and (ii) each other Nonemployee Director on each anniversary (or the next business day if such anniversary is not a business day) of his Initial Grant (each an "Annual Grant"); provided, however, that no Annual Grant shall be made to a Nonemployee Director unless such person has been a director of the Company for at least six months prior to the date of grant. 6.2 Option Agreement. Each Director Option shall be evidenced by an Option Agreement that shall reflect the Option Price, the duration of the Option, the number of shares of Stock to which the Option pertains, all as specified in this Section 6, and such other terms and conditions not inconsistent with the provisions of this Plan as determined by the Board; provided that such terms shall not vary the timing of awards of Director Options, including provisions dealing with forfeitures or termination of such Director Options. Director Options shall be nonstatutory stock options. 6.3 Number of Shares. Each Initial Grant shall be in respect of a number of shares of Stock equal to 1,000 (in each case adjusted proportionately pursuant to Section 4.4), less any shares of Stock being made as an "Initial Grant" at the same time pursuant to Section 6.1(a) of the 1993 Stock Plan, and each Annual Grant shall be in respect of a number of shares of Stock equal to 300 (in each case adjusted proportionately pursuant to Section 4.4), less any shares of Stock being made as an "Annual Grant" at the same time pursuant to section 6.1(b) of the 1993 Stock Plan. 6.4 Option Price. The Option Price for shares of Stock under each Director Option shall be equal to 100% of the Fair Market Value of a share of Stock on the date the Director Option is granted. 6.5 Duration of Director Options. Director Options shall be for a term of ten years. 6.6 Vesting. Director Options shall be exercisable in whole or in part at any time from the date of grant thereof. 6.7 Amendments. Notwithstanding anything in this Plan to the contrary, neither the provisions in this Section 6 nor any other provision of the Plan to the extent it relates to Director Options may be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations thereunder, if such an amendment would cause any Nonemployee Director to be other than a "disinterested" person within the meaning of Rule 16b-3 under the Act or would cause the provisions of the Plan relating to the granting of Director Options to fail to qualify under Rule 16b-3(c)(2)(ii) of the Act. SECTION 7. Option Grants for Eligible Employees 7.1 Grant of Employee Options. Subject to the provisions of Sections 4 and 5, Employee Options may be granted to Eligible Employees at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining whether to grant Employee Options and, subject to Section 4.1, the number of Options granted to each Eligible Employee. The Committee also shall determine whether an Employee Option is to be an incentive stock option within the meaning of Section 422 of the Code or a nonstatutory stock option. Nothing in this Section 7 of the Plan shall be deemed to prevent the grant of nonstatutory stock options in excess of the maximum established by Section 422 of the Code. 7.2 Option Agreement. Each Employee Option shall be evidenced by an Option Agreement that shall specify the type of Option granted, the Option Price, the duration of the Option, the number of shares of Stock to which the Option pertains and such other provisions as the Committee shall determine. 7.3 Option Price. The Option Price for each Employee Option shall be determined by, or in the manner specified by, the Committee; provided, that no incentive stock option granted pursuant to the Plan shall have an Option Price that is less than the Fair Market Value of the Stock on the date the Option is granted (110% of Fair Market Value in the case of an incentive stock option granted to any person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary (a "Ten Percent Stockholder")). 7.4 Duration of Employee Options. Each Employee Option shall expire at such time as the Committee shall determine at the time it is granted; provided, however, that no Employee Option shall be exercisable later than the tenth anniversary date of its grant (the fifth anniversary in the case of an incentive stock option granted to a Ten Percent Stockholder). 7.5 Exercise of Employee Options. Employee Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for all Eligible Employees. SECTION 8. Terms and Conditions Applicable to All Options. 8.1 Exercise. Options shall be exercised by an Optionee only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of shares of Stock with respect to which the Option is being exercised. If requested by the Committee, the Optionee shall deliver the agreement evidencing the Option being exercised to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such agreement to the Optionee. In addition, Options may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures as are, from time to time, deemed acceptable by the Committee. 8.2 Payment. The Option price upon exercise of any Option shall be payable to the Company in full either (i) in cash or its equivalent, or (ii) in the case of Employee Options, at the discretion of the Committee, and in the case of Director Options, in all instances, by tendering shares of previously acquired Stock having a Fair Market Value at the time of exercise equal to the total Option Price or (iii) by a combination of (i) and (ii). The proceeds from such a payment shall be added to the general funds of the Company and shall be used for general corporate purposes. 8.3 Restrictions on Stock Transferability. The Committee may impose such restrictions on any shares of Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under applicable Federal securities law, under the requirements of any stock exchange upon which such shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares. 8.4 Termination of Employment Due to Death or Disability. In the event the employment of the Optionee is terminated by reason of death or Disability, the Committee may provide in the Option Agreement, and in the event the service as a Nonemployee Director is terminated by reason of death, the Option Agreement shall provide, that any outstanding Options granted to the Optionee shall become immediately exercisable and shall thereafter be fully exercisable at any time prior to the expiration date of the Options or within twelve months after the date of death or Disability, whichever period is the shorter. In the event the employment of an Optionee who is an Employee is terminated by reason of death or Disability and the Committee has made no special provision in the Option Agreement, the rights under any then outstanding Option granted to the Optionee pursuant to the Plan shall, to the extent not then exercisable, terminate immediately and, to the extent then exercisable, terminate upon the expiration date of the Option or sixty days after such date of termination of employment, whichever first occurs. 8.5 Termination of Employment Due to Retirement. In the event the employment of the Optionee is terminated by reason of Retirement, the rights under any then outstanding Employee Option granted to the Optionee pursuant to the Plan shall, to the extent not then exercisable, terminate immediately and, to the extent then exercisable, terminate upon the expiration date of the Option or three months after such date of termination of employment, whichever first occurs, subject to such exceptions applicable only to Employee Options (which shall be set forth in the Option Agreement) as the Committee may, in its sole discretion, approve. 8.6 Termination of Employment Other than for Death, Disability or Retirement. If the employment of the Optionee shall terminate for any reason other than death, Disability or Retirement or, in the event the service of a Nonemployee Director is terminated for any reason other than death, the rights under any then outstanding Option granted to the Optionee pursuant to the Plan shall, to the extent not then exercisable, terminate immediately and, to the extent then exercisable, terminate upon the expiration date of the Option or sixty days after such date of termination of employment or service, whichever first occurs, subject to such exceptions applicable only to Employee Options (which shall be set forth in the Option Agreement) as the Committee may, in its sole discretion, approve. Notwithstanding the foregoing, if the employment of the Optionee is terminated by the Company for Cause, any then outstanding Option granted pursuant to the Plan to the Optionee shall terminate immediately upon the termination of employment; provided, that the Committee may with respect to Employee Options, in its sole discretion, waive, in whole or in part, the automatic forfeiture of such Employee Options and may set forth such waiver or condition in the Option Agreement or at any other time, including following the termination of employment. 8.7 Nontransferability and Exercisability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all Options granted to an Optionee under the Plan shall be exercisable during his lifetime only by such Optionee. Notwithstanding any provision of the Plan to the contrary, no Option shall be exercisable prior to the time a registration statement under the Securities Act of 1933 is effective with respect to the shares of Stock issuable upon the exercise of such Option. 8.8 Modification. Subject to the terms of the Plan, the Committee may modify outstanding Options or accept the surrender of outstanding Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Option shall adversely alter or impair any rights or obligations under the agreement granting such Option without the Optionee's consent. SECTION 9. Stock Appreciation Rights. 9.1 Stock Appreciation Rights. The Committee may, in its discretion, in connection with the grant of an Employee Option, grant to the Optionee Stock Appreciation Rights, the terms and conditions of which shall be set forth in an Agreement. A Stock Appreciation Right shall cover the same shares of Stock covered by the Option (or such lesser number of shares of Stock as the Committee may determine) and shall, except as provided in this Section 9, be subject to the same terms and conditions as the related Option. Stock Appreciation Rights shall be subject to the following terms and provisions: (a) A Stock Appreciation Right may be granted: (i) either at the time of grant, or at any time thereafter during the term of the Option if related to a nonstatutory stock option; or (ii) only at the time of grant if related to an incentive stock option. (b) A Stock Appreciation Right will entitle the holder of the related Option, upon exercise of the Stock Appreciation Right, to surrender such Option, or any portion thereof to the extent unexercised, and to receive payment of an amount determined by multiplying (i) the excess of the Fair Market Value of a share of Stock on the date of exercise of such Stock Appreciation Right over the purchase price of a share of Stock under the related Option, by (ii) the number of shares as to which such Stock Appreciation Right has been exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the agreement evidencing the Stock Appreciation Right at the time it is granted. (c) A Stock Appreciation Right will be exercisable at such time or times and only to the extent that a related Option is exercisable, and will not be transferable except to the extent that such related Option may be transferable. A Stock Appreciation Right granted in connection with an incentive stock option shall be exercisable only if the Fair Market Value of a share of Stock on the date of exercise exceeds the purchase price of a share of Stock specified in the related Option. (d) Upon the exercise of a Stock Appreciation Right, the related Option shall be canceled to the extent of the number of shares of Stock as to which the Stock Appreciation Right is exercised, and upon the exercise of an Option granted in connection with a Stock Appreciation Right, the Stock Appreciation Right shall be canceled to the extent of the number of shares of Stock as to which the Option is exercised or surrendered. (e) Stock Appreciation Rights shall be exercised by an Optionee only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of shares of Stock with respect to which the Stock Appreciation Right is being exercised. If requested by the Committee, the Optionee shall deliver the agreement evidencing the Stock Appreciation Right being exercised and the agreement evidencing any related Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such agreement to the Optionee. (f) Payment of the amount determined under Subsection (b) may be made in the discretion of the Committee, solely in whole shares of Stock in a number determined at their Fair Market Value on the date preceding the date of exercise of the Stock Appreciation Right, or solely in cash, or in a combination of cash and Stock. If the Committee decides to make full payment in Stock and the amount payable results in a fractional share, payment for the fractional share will be made in cash. Notwithstanding the foregoing, no payment in the form of cash may be made upon the exercise of a Stock Appreciation Right pursuant to Subsection (b) to an individual who may be subject to liability under Section 16(b) of the Exchange Act, unless the exercise of such Stock Appreciation Right is made during the period beginning on the third business day and ending on the twelfth business day following the date of release for publication of the Company's quarterly or annual statements of sales and earnings. (g) No Stock Appreciation Right may be exercised before the date six months after the date it is granted. (h) Subject to the terms of the Plan, the Committee may modify outstanding awards of Stock Appreciation Rights or accept the surrender of outstanding awards of Stock Appreciation Rights (to the extent not exercised) and grant new awards in substitution for them. Notwithstanding the foregoing, no modification of an award of Stock Appreciation Rights shall adversely alter or impair any rights or obligations under the agreement granting such Stock Appreciation Rights without the Optionee's consent. SECTION 10. Restricted Stock 10.1 Grant of Restricted Stock. Subject to the provisions of Sections 4 and 5, the Committee, at any time and from time to time, may grant shares of Restricted Stock under the Plan to such Eligible Employees and in such amounts as it shall determine in its sole discretion. Each grant of Restricted Stock shall be in writing. 10.2 Transferability. Except as provided in this Section 10, the shares of Restricted Stock granted hereunder may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated for such period of time as shall be determined by the Committee and shall be specified in the Restricted Stock grant, or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in the Restricted Stock grant; provided that Restricted Stock granted to an individual who may be subject to liability under Section 16(b) of the Exchange Act may not be sold for at least six months after the date of grant. 10.3 Other Restrictions. The Committee may impose such other restrictions on any shares of Restricted Stock granted to any Eligible Employee pursuant to the Plan as it may deem advisable including, without limitation, restrictions under applicable federal or state securities laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. 10.4 Certificate Legend. In addition to any legends placed on certificates pursuant to Subsection 10.3 hereof, each certificate representing shares of Restricted Stock granted pursuant to the Plan shall bear the following legend: "The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer set forth in Salant Corporation's 1996 Stock Plan, rules of administration adopted pursuant to such Plan and a Restricted Stock grant dated . A copy of the Plan, such rules and such Restricted Stock grant may be obtained from the Secretary of Salant Corporation." 10.5 Removal of Restrictions. Except as otherwise provided in this Section 10, shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Eligible Employee after the last day of the Period of Restriction. Once the shares are released from the restrictions, the Eligible Employee shall be entitled to have the legend required by Subsection 10.4 removed from his Stock certificate. 10.6 Voting Rights. During the Period of Restriction, Eligible Employees holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those shares. 10.7 Dividends and Other Distributions. During the Period of Restriction, Eligible Employees holding shares of Restricted Stock granted hereunder shall be entitled to receive all dividends and other distributions paid with respect to those shares while they are so held. If any such dividends or distributions are paid in shares of Stock, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. SECTION 11. Beneficiary Designation. 11.1 Beneficiary Designation. Subject to Sections 8.7, 9.1(c) and 10.2, each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of the Participant's death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee and will be effective only when filed by the Participant in writing with the Committee during the lifetime of the Participant. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the estate of the Participant. SECTION 12. Rights of Employees and Directors 12.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment or service at any time nor confer upon any Participant any right to continue in the employ or service of the Company. 12.2 Participation. No employee shall have a right to be selected as an Eligible Employee or, having been so selected, to be selected again as an Optionee or recipient of Restricted Stock. The preceding sentence shall not be construed or applied so as to deny an employee any participation in the Plan solely on the basis that the employee was a Participant in connection with a prior grant of benefits under the Plan. SECTION 13. Administration; Powers and Duties of the Committee 13.1 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof, is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final and binding and conclusive for all purposes and upon all persons whomsoever. No member of the Committee shall be personally liable for any action, determination or interpretation made or taken with respect to the Plan and all members of the Committee shall be fully indemnified by the Company with respect to any such action, determination or interpretation. 13.2 Change in Control. Without limiting the authority of the Committee as provided herein, the Committee, either at the time Employee Options or shares of Restricted Stock are granted, or, if so provided in the applicable Employee Option agreement or Restricted Stock grant, at any time thereafter, shall have the authority to accelerate in whole or in part the exercisability of Employee Options and/or the last day of the Period of Restriction upon a Change in Control. The Employee Option agreements and Restricted Stock grants approved by the Committee may contain provisions whereby, in the event of a Change in Control, the acceleration of the exercisability of Employee Options and/or the last day of the Period of Restriction may be automatic or may be subject to the discretion of the Committee or may depend upon whether the Change in Control shall be approved by a majority of the members of the Board or such other criteria as the Committee may specify. Nothing herein shall obligate the Committee to take any action upon a Change of Control. 13.3 Amendment, Modification and Termination of Plan. The Board may at any time terminate, and from time to time may amend or modify the Plan, provided, however, that no such action of the Board, without approval of the stockholders, may: (a) Increase the total amount of Stock which may be issued under the Plan, except as provided in Subsections 4.1 and 4.3 of the Plan. (b) Materially increase the cost of the Plan or materially increase the benefits to Participants. (c) Extend the period during which Options or Restricted Stock may be granted. (d) Extend the maximum period after the date of grant during which Options may be exercised. (e) Change the class of individuals eligible to receive Options or Restricted Stock. No amendment, modification or termination of the Plan shall in any manner adversely affect any Options or Restricted Stock theretofore granted to any Participant under the Plan, without the consent of that Participant. SECTION 14. Tax Withholding 14.1 Tax Withholding. Whenever shares of Stock are to be issued under the Plan, the Company shall have the power to 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. SECTION 15. Requirements of Law. 15.1 Requirements of Law. The granting of Options or Restricted Stock, and the issuance of shares of Stock upon the exercise of an Option shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 15.2 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of New York without giving effect to the choice of law principles thereof, except to the extent that such law is preempted by federal law. EX-3 4 13 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated March 24, 1997 (the "Commencement Date"), between SALANT CORPORATION, a Delaware corporation, (the "Corporation") and Jerald S. Politzer (the "Employee"). WHEREAS, the Employee and the Corporation desire to enter into an agreement of employment between them. 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. Nature of Employee's Services . The Corporation agrees to employ the Employee and the Employee agrees to serve the Corporation as the senior executive officer of the Corporation, having the title, Chief Executive Officer of the Corporation. On the Commencement Date, the Employee shall be elected to the Board of Directors of the Corporation (the "Board of Directors") for a three year term. Upon the termination of his employment under this Agreement, the Employee agrees to resign from the Board of Directors. 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 or the Executive Committee of the Board of Directors during the Employment Period (as hereinafter defined) provided, however, that such duties shall be consistent with those customarily performed by the senior executive officer of other entities doing business in the industries in which the Corporation is primarily engaged. 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 New York metropolitan 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 or otherwise engage in charitable activities and community affairs, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (c) manage personal investments, so long as such activities do not materially interfere with the performance of Employee's responsibilities as an employee of the Corporation in accordance with this Agreement. Section 2. Term of Employment . The term of Employee's employment under this Agreement shall commence on April 1, 1997 and end on March 31, 2000 (the "Employment Period"). The Employment Period shall be automatically renewed for successive one-year terms (the "Renewal Terms") on the same terms set forth herein (except salary which shall be at the annual rate for the third Employment Year) unless at least 180 days prior to the expiration of the original Employment Period or any Renewal Term, either Party notifies the other Party in writing that he or it is electing to terminate this Agreement at the expiration of the then current Employment Period. "Employment Period" shall mean the original Employment Period (i.e. April 1, 1997 to March 31, 2000) and all Renewal Terms. In the event that this Agreement is not renewed because the Corporation has given the 180-day notice prescribed in the preceding paragraph on or before the expiration of the original Employment Period or any Renewal Term, such non-renewal shall be treated as a termination following non-renewal pursuant to Section 6 (f) below. Section 3. 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, the annual compensation set forth below. (a) Salary. As annual salary for the services to be rendered by the Employee the Corporation shall pay a salary at the rate of $650,000 per annum for the first twelve month period of the Employment Period, $700,000 for the second twelve month period of the Employment Period and $750,000 for the third twelve month period of the Employment Period (each such twelve month period being hereafter referred to as an "Employment Year") payable in equal bi-weekly installments during the Employment Period (the "Salary"). (b) Incentive Compensation. Employee shall be entitled to receive a bonus (the "Bonus") in accordance with the schedule annexed hereto as Exhibit 1 comparing the Corporation's performance during each fiscal year which ends within a particular Employment Year, to operating targets for each such fiscal year. Each bonus shall be paid by the Corporation to the Employee within ninety (90) days after the end of the fiscal year to which such bonus relates. For the 1997 Fiscal Year, and no other Fiscal Year thereafter, the Employee shall receive as a minimum bonus the amount provided in paragraph (a) of Exhibit 1. If the employment of the Employee is terminated or if the Employment Period terminates on a day other than the last day of a fiscal year, the bonus amount payable with respect to such fiscal year 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 the number of months of employment completed by the Employee during that fiscal year bears to twelve (12). Notwithstanding anything contained herein to the contrary, no bonus shall be payable to the Employee (i) if the Employment Period is terminated pursuant to Section 6(c) or (ii) if the Employee terminates the Employment Period other than pursuant to Section 6(e). Section 4. 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 the Corporation's senior level executives or its employees generally (together, the "Benefit Plans"). In the event any new Benefit Plan is established which is in addition to, and not an alternative to, any existing Benefit Plan, the Employee shall also be entitled to participate in such Benefit Plan to the extent permitted by the terms thereof. 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. A list of the existing Benefit Plans is annexed hereto as Exhibit 2. Section 5. Expenses: Apartment; Other Perquisites. (a) 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. (b) In order to enable the Employee to devote additional time to his duties hereunder, the Corporation also agrees to reimburse the Employee during the Employment Period, up to a maximum of $3,000 per month (the "NYC Amount") for the reasonable expenses actually incurred by the Employee in either (i) renting in his own name and occupying an apartment in New York City or (ii) staying a hotel in New York City. (c) The Corporation shall pay all reasonable legal expenses, up to $10,000 incurred by Employee in connection with the negotiation of this Agreement. (d) During the Employment Period, the Corporation will provide the Employee with an automobile allowance in the amount of $680 per month, payable with the first pay period of each month. Section 6. Termination. (a) Definition of the Termination Date The "Termination Date" shall be the date which is earlier of (i) the last day of the Employment Period, (ii) the effective date of termination of employment as set forth in the notice which Corporation delivers to the Employee indicating that the Employee's employment hereunder is terminated, or (iii) the date on which Employee delivers written notice to the Corporation that he is terminating his employment hereunder. (b) Termination Due to Death or Disability. In the event the Employee's employment is terminated due to his death or Disability (as hereinafter defined), he, his estate or his beneficiaries, as the case may be shall be entitled to: (i) Salary through the date of death or disability and any Bonus for any Fiscal Year earned but not yet paid; (ii) pro-rated Bonus through the date of death or Disability, payable in accordance with Section 3(b), provided that if the death or Disability occurs in the first Employment Year, the full amount of the minimum Bonus shall be paid promptly after his death or, in the case of Disability, promptly after his termination, with any additional amount due paid in accordance with Section 3(b); (iii) in the case of death only, a lump sum payment equal to three months Salary at the annual rate in effect at the date of death, paid promptly after his death; (iv) the right to exercise all stock options granted to Employee at the time of his death or Disability (whether or not then vested) for a period of one year following such event or for the remainder of the exercise period, if shorter; (vi) any amounts earned, accrued or owing to the Employee but not yet paid under Sections 4 or 5; (vii) the right to receive all applicable benefits pursuant to the Corporation's Employee Long Term Disability Coverage plan (the "Plan") as if he were fully covered thereunder, provided however, if the Employee is precluded from receiving such benefits (e.g. due to the fact that he is no longer employed by the Corporation), the Corporation shall pay to Employee cash payments equal, on an after-tax basis, to the amount of benefits he would have received had he continued to be eligible to participate in the Plan; and (viii) other or additional benefits then due or earned in accordance with applicable plans and programs of the Corporation. For purposes of this Agreement, "Disability" shall mean any physical or mental illness which as a result thereof, the Employee is unable to discharge his duties for a period of six (6) consecutive months or for a total of 180 days during any twelve month period. (c) Termination by the Corporation for Cause . (i) "Cause" shall mean: (A) the Employee is convicted of a felony or engages in conduct which is determined by a court to constitute an act involving moral turpitude; or (B) the Employee engages in conduct that constitutes (i) willful gross neglect, (ii) willful gross misconduct in carrying out his duties under this Agreement or (iii) a violation of the Company's Code of Conduct, resulting, in each case, in material harm to the financial condition or reputation of the Corporation. (iii) In the event the Corporation terminates the Employee's employment for Cause he shall be entitled to: (A) Salary through the Termination Date; (B) any amounts earned, accrued or owing to the Employee but not yet paid under Sections 4 or 5; and (C) other or additional benefits then due or earned in accordance with applicable plans or programs of the Corporation. (d) Termination by the Corporation Without Cause . In the event the Employee's employment is terminated by the Corporation without Cause (which termination shall be effective as of the date specified by the Corporation in a written notice to the Employee), other than due to death or Disability the Employee shall be entitled to and his sole remedies under this Agreement shall be: (i) Salary through the Termination Date; (ii) Salary, at the annualized rate in effect on the Termination Date for a period which is the longer of twelve (12) months following such termination or the balance of the then existing Employment Period (the "Severance Period"); (iii) pro-rated Bonus for the Fiscal Year in which termination occurs, payable in accordance with Section 3(b), and any Bonus for any Fiscal Year earned, but not yet paid, including, without limitation, the entire minimum Bonus for the first year of the Employment Period, payable in a lump sum within fifteen (15) days after the Termination Date; (iv) the right to exercise any stock option held by the Employee at the Termination Date (whether or not then vested), such option to remain exercisable for six (6) months after the Termination Date, or for the remainder of the exercise period, if shorter; (v) Any amounts earned, accrued, or owing to the Employee but not yet paid under Sections 4 or 5; and (vi) continued participation in all medical, dental, health and life insurance plans and in other employee benefit plans or programs at the same benefit level at which he was participating on the Termination Date until the earlier of: (A) the end of the Severance Period; or (B) the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage, or benefit-by-benefit, basis); provided that if the Employee is precluded from continuing his participation in any benefit plan or program as provided in this clause (vi) of this Section 6(d) as a matter of law or in the case of life insurance, as a result of the requirements of such benefit plan or program, the Corporation shall have no obligation to continue to provide such benefits; and (vii) other or additional benefits then due or earned in accordance with applicable plans and programs of the Corporation. "Termination Without Cause" shall mean the Employee's employment is terminated by the Company for any reason other than death, Disability or Cause (as defined in Section 6 (c)). (e) Termination by Employee for Good Reason . The Employee shall have the right to terminate the Employment Period for "good reason" (as hereinafter defined), provided that the Employee shall have given the Corporation written notice of the Employee's decision to terminate his employment (specifying the alleged "good reason" in reasonable detail) and, if it is possible to cure, the Corporation shall not have cured the same within sixty (60) days after receipt of such notice, or, if cure cannot be fully accomplished within sixty (60) days, the Corporation shall not have commenced cure within sixty (60) days after receipt of such notice and cured the alleged "good reason" as soon as possible thereafter. For purposes of the foregoing, "good reason" shall mean (i) the assignment to the Employee of duties inconsistent with, or the diminution of, the Employee's positions, titles, offices, duties, responsibilities or status with the Corporation as its most senior executive officer, or a change without good cause in the Employee's reporting responsibilities, or any removal of the Employee from, or any failure to elect the Employee to any positions, titles or offices specified in this Agreement and held by the Employee, (ii) a reduction in the Employee's Salary, (iii) a material reduction in the Employee's benefits or perquisites (other than a reduction pursuant to the second to last sentence of Section 4 hereof); or (iv) a requirement that Employee change his place of principal employment to a location other than the metropolitan New York area. In the event that the Employment Period is terminated by the Employee for "good reason", the Employee shall be entitled to, and his sole remedies shall be, the same benefits provided for in Section 6(d) "Termination by the Corporation Without Cause". (f) Termination following Non-renewal. In the event that the Corporation notifies the Employee in writing at least 180 days prior to the expiration of the original Employment Period or any Renewal Term that it is electing to terminate this Agreement at the expiration of the then current Employment Period and the Employee's employment terminates upon such expiration, whether at the Corporation's initiative or the Employee's initiative, the Employee shall be entitled to: (i) Salary through the Termination Date; (ii) Salary, at the annualized rate in effect on the Termination Date for a period of six (6) months following the Termination Date (the "Non-renewal Severance Period"); (iii) pro-rated Bonus for the Fiscal Year in which termination occurs payable in accordance with Section 3(b) and any Bonus for any Fiscal Year earned but not yet paid, payable in a lump sum within fifteen (15) days after the Termination Date; (iv) the right to exercise any stock option held by the Employee at the date of his termination, to the extent vested at such date, during the Non-renewal Severance Period and for sixty (60) days thereafter, or for the remainder of the exercise period, if shorter; (v) any amounts earned, accrued or owing to the Executive but not yet paid under Sections 4 or 5; and (vi) continued participation in all medical dental health and life insurance plans at the same benefit level at which he was participating on the Termination Date until the earlier of: (A) the end of the Non-renewal Severance Period; or (B) the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer (such coverage and benefits to be determined on a coverage-by-coverage, or benefit-by benefit, basis); provided that if the Employee is precluded from continuing his participation in any benefit plan or program as provided in this clause (vi) of this Section 6(f), as a matter of law or in the case of life insurance, as a result of the requirements of such benefit plan or program, the Corporation shall have no obligation to continue to provide such benefits; and (vii) other or additional benefits then due or earned in accordance with applicable plans and programs of the Corporation. (g) Voluntary Termination. In the event of a termination of employment by the Employee on his own initiative, other than a termination due to death, Disability or Good Reason, the Employee shall have the same entitlement as provided in Section 6 (c) above for a termination for Cause. (i) Condition to Receipt of Severance Payments. The Employee hereby acknowledges that the "Severance Payment" (as hereinafter defined) is greater than the amount provided by the Corporation's normal severance policy and is being offered to the Employee in reliance upon the Employee's agreement to release the Corporation from any liability and to waive any claims the Employee may have against the Corporation, including, without limitation, any claims relating to the Employment or separation from employment. Notwithstanding anything to the contrary contained herein, nothing shall impair the Employee's (i) right to enforce the obligations of the Corporation as set forth in this Agreement, or (ii) right to seek indemnification or contribution from the Corporation in the event the Employee is the subject of any third-party claim arising out of or relating to any act or omission by the Employee during the course of his employment by the Corporation, to the extent such right would have otherwise existed. For purposes of this Agreement, Severance Payment shall mean any amount paid to the Employee during a Severance Period or a Non-renewal Severance Period, as the case may be. Section 7. Covenant Not to Compete . The Employee covenants and agrees that he will not, at any time during the Restriction Period (as defined below), whether as owner, principal, agent, partner, director, 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 own, or 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, the business in which the Corporation, or any of its subsidiaries are primarily engaged, including, without limitation, any retail customer of the Corporation that accounts for 5% or more of the Company's net sales on an annualized basis, without the 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. In addition, for one year after the end of the Restriction Period, the Employee covenants and agrees that he will not, directly or indirectly, hire any person who is employed by the Corporation on the Termination Date whose annual salary on such date is equal to or greater than $100,000, or solicit, induce, entice or hire any such person to leave the employment of the Corporation. For purposes of this Section 7, the "Restriction Period" shall mean the period beginning with April 1, 1997 and ending on the last day of either (i) the Employment Period (determined without giving effect to any termination of employment), (ii) the Severance Period or (iii) the Non-renewal Severance Period, whichever is longer. Section 8. 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 clause (b) above, the Employee will, to the extent legally permissible 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. The provisions of this Section 8, shall not be applicable to information which (i) was at the time of the disclosure by the Corporation to the Employee, in the public domain; (ii) has subsequent, to the disclosure by the Corporation, become part of the public domain, through no fault, act or omission of the Employee, directly or indirectly, in violation of such obligation; (iii) was, at the time of the disclosure by the Corporation to the Employee, in the Employee's possession and was not otherwise, directly or indirectly acquired from the Corporation; (iv) was received by the Employee from any third party, provided that such information was not obtained by said third party from the Corporation improperly, directly or indirectly, and was not improperly disclosed by the third party. Section 9. Indemnification . On the same terms and conditions applicable to other directors and 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 (as hereinafter defined), 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 6(c) of this Agreement, the Corporation shall have no obligation to indemnify the Employee under this Section 9 against any liability, loss or expense arising from conduct that constitutes grounds for the Corporation to terminate the Employment Period pursuant to Section 6(c) of this Agreement. Section 10. Stock Options. Upon the Commencement Date, the Corporation shall grant to the Employee non-qualified Stock Options (the "Stock Options") representing the right to purchase 400,000 shares of the Corporation's common stock, par value $1.00 per share (the "Common Stock"), pursuant to the Corporation's 1996 Stock Plan. The exercise price for the Stock Options will be the market price of the Common Stock on the Commencement Date. Stock Options representing the right to purchase 100,000 shares of common stock will vest upon each of the first two anniversaries of the grant date for the Stock Options, and Stock Options representing the right to purchase 200,000 shares of Common Stock will vest on the third anniversary of the grant date. The Stock Options shall be subject to the terms and conditions set forth in the Corporation's 1996 Stock Plan and an agreement or agreements to be entered into, pursuant to such plan (the "Stock Option Agreements"), between the Corporation and the Employee, provided however, there shall be no restrictions on any Common Stock acquired by Employee by exercise of any options granted by the Corporation, except for those restrictions pursuant to applicable law. Notwithstanding anything contained herein or in the Stock Option Agreements to the contrary, all Stock Options outstanding shall immediately vest upon a "Change of Control" (as hereinafter defined). During the Employment Period, Employee shall also receive such additional options as the Board deems appropriate in its sole discretion. Section 11. Vacations . The Employee shall be entitled to paid vacations in accordance with the policies of the Corporation in effect from time to time, but not 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 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 12. Legal Expenses. The Corporation shall pay all legal fees and related expenses incurred by the Employee as a result of (i) the Employee's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination to employment) if the Corporation has been found to be in breach of its obligations hereunder or (ii) the Employee's seeking to obtain or enforce any right or benefit provided by this Agreement, if the Employee prevails against the Corporation in any proceeding in which rights hereunder are contested. Section 13. 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 13 shall in any way limit, or be construed to limit, the obligations to the Employee under this Agreement or the obligations of the Corporation or the Corporation's successors or assigns. This Agreement shall not be assignable by the Employee. Section 14. 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: Jerald S. Politzer c/o Salant Corporation 1114 Avenue of the Americas New York, New York 10036 With a copy to : Peter Alkalay, Esq. McLaughlin & Stern, LLP 260 Madison Avenue New York, New York 10016 Each party may, by notice or other party, change the above address. Section 15. Entire Agreement; Amendments. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements 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 16. 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 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original. Section 18. Governing Law; Resolution of Disputes. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The Employee hereby acknowledges that irreparable damage will occur in the event that Sections 7 and 8 of this Agreement are not performed in accordance with their specific terms or are otherwise breached by the Employee. It is accordingly agreed that the Corporation shall be entitled to an injunction or injunctions to prevent breaches or such provisions in any Court of the United States or any states having jurisdiction, this being in addition to any other remedy to which the Corporation may be entitled to at law or in equity. Except in the event the Corporation is attempting to seek injunctive or other equitable relief for a breach by the Employee of Sections 7 and 8 of this Agreement, the parties agree that as a condition precedent to the filing of any claim as set forth below, the parties and their attorneys must attempt to confer at least twice, in person, in an effort to resolve any dispute. Should such efforts not be successful, such dispute shall be resolved by binding arbitration, to be held in New York City in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Each party shall bear his or its own costs of the arbitration or litigation, including, without limitation, attorneys' fees. Pending the resolution of any arbitration or court proceeding, the Corporation shall continue payment of all amounts and benefits due the Employee under this Agreement. Section 19. Certain Definitions "Affiliate" shall mean any person, firm, corporation, partnership or other legal entity that, directly or indirectly, controls, is controlled by or is under common control with, the Corporation. "Change of Control" shall mean an event or series of events by which (i) any Person is or becomes the "beneficial owner" (as defined in rules 13d-3 and 13d-5 under the Securities and Exchange Act of 1934, as amended, except that a person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or after the passage of time), directly or indirectly, of a majority of the aggregate Voting Stock of the Corporation; or (ii) the Corporation consolidates with or merges into another Person or conveys, transfers or leases all or substantially all of its assets to any Person, or any Person consolidates with or merges into the Corporation, in either event pursuant to a transaction in which the outstanding Voting Stock of the Corporation is changed into or exchanged for cash, securities or other properties, other than any such transaction where the holders of the Voting Stock of the Corporation immediately prior to such transaction own, directly or indirectly, immediately after such transaction Voting Stock of such surviving corporation entitling them to not less than 50% of the aggregate voting power of all Voting Stock of such surviving corporation. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur if the Person described in clause (i) or (ii) is Apollo Apparel Partners, L.P. or is an Affiliate of Apollo Apparel Partners, L.P. "Voting Stock" shall mean securities of any class or classes (or equivalent interests) of any entity, if the holders of the securities of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of the directors (or natural persons or entities performing similar functions) of such entity, even though the right to so vote has been suspended by the happening of such a contingency. "Control" shall mean the power to direct the affairs of any person, firm, corporation, partnership or other legal entity by reason of ownership of voting stock, by contract or otherwise. "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, or any group of Persons acting in concert. IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates set forth below. SALANT CORPORATION By:_____________________ Date_______, 1997 Todd Kahn Vice President, Secretary and General Counsel ________________________Date_____., 1997 Jerry S. Politzer EXHIBIT 1 INCENTIVE COMPENSATION SCHEDULE (a) If the Corporation's "Pre-tax Income", as shown on its audited financial statements for any Fiscal year during the Employment Period ("Actual Annual Pre-tax Income"), is equal to or greater than 100% of the amount of Pre-tax Income provided for in the Corporation's annual business plan for that Fiscal Year ("Planned Annual Pre-tax Income"), the Employee shall receive a cash bonus equal to 100% of his annual Salary at the end of the applicable Fiscal year ("Annual Salary"). (b) If Actual Annual Pre-tax Income is equal to or greater than 90% and less than 100% of Planned Annual Pre-tax Income, the Employee shall receive a cash bonus equal to 50% of his Annual Salary. (c) If Actual Annual Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income, then in addition to the bonus specified in paragraph (a) above, the Employee shall receive additional cash bonuses, each equal to 1% of his Annual Salary, for each full 1% increment (after rounding to the nearest 1/100th of a percent) by which Actual Annual Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income. (d) The following principles shall apply in calculating the "Pre-tax Income" which term shall mean the aggregate income of the Corporation before provisions for all Federal, State and local income taxes thereon. 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, subject, however, to the provisions of the following subparagraphs: (i) There shall be excluded from income: all extraordinary items of income such as gains and losses on the sale of fixed assets or intangible assets; all insurance recoveries other than for 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 quota. (ii) Deductions from income shall include all interest expenses, fixed charges and reasonable provisions for depreciation,amortization and obsolescence, inventory write-offs and the salary and bonus payable to all of the employees of the Corporation and the Employee hereunder. (iii) The amount of "Planned Annual Pre-tax Income" for each Fiscal Year shall be determined by the Corporation's Board of Directors. EXHIBIT 2 EXISTING EMPLOYEE BENEFIT PLANS EX-4 5 6 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of January 1, 1997 (this "Agreement"), between SALANT CORPORATION, a Delaware corporation, (the "Corporation") and NICHOLAS P. DiPAOLO (the "Employee"). WHEREAS, pursuant to the Employment Agreement, dated September 20, 1993, between the Employee and the Corporation, as modified by the Agreement, dated September 22, 1993, between the Employee and the Corporation and the Letter Agreement, dated August 31, 1995, between the Employee and the Corporation, the Employee is currently the Chairman of the Board of Directors, Chief Executive Officer and President of the Corporation; and WHEREAS, the Board of Directors of the Corporation has determined that it would be in the best interest of the Corporation to extend the term of employment for a one year period. 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. Nature of Employee's Services. The Corporation agrees to employ the Employee and the Employee agrees to serve the Corporation as Chairman of the Board, President and 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") or the Executive Committee of the Board of Directors 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) 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. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the Employment Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Employment Period shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Corporation. Section 2. Term of Employment. For purposes of this Agreement, the term Employment Period shall mean the period commencing January 1, 1997 and ending December 31, 1997, or, if earlier, the Termination Date (as hereinafter defined). Section 3. 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 the annual compensation set forth below. (a) Salary. As annual salary for the services to be rendered by the Employee a salary at the rate of $625,000 per annum from January 1, 1997 through December 31, 1997, payable in equal bi-weekly installments during the Employment Period (the "Salary"). (b) Incentive Compensation. 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. Each bonus 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 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 the number of months of employment completed by the Employee during that fiscal year bears to twelve (12). Notwithstanding anything contained herein to the contrary, no bonus shall be payable to the Employee (i) if the Employee is terminated pursuant to Section 6(d), (ii) if the Employee breaches this Agreement or (iii) if the Employee terminates the Employment Period other than pursuant to Section 6(e). Section 4. 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 5. 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 6. Termination. (a) Termination Date and Termination of Rights and Obligations. On the date (the "Termination Date") which is the earlier of (i) December 31, 1997 or (ii) the date on which the Company delivers to the Employee written notice that the Employee's employment hereunder is terminated for any reason, including a termination of the Employment Period which becomes effective pursuant to subsections (b) through (e) of this Section 6, the Employee's salary and other rights under this Agreement (except as otherwise provided in subsections (e), (f) and (g) of this Section 6) shall terminate, provided, however, that the Corporation shall pay to the Employee his Salary and benefits accrued prior thereto and the Employee shall be entitled to receive an incentive bonus to the extent provided in Section 3(b). (b) Death of Employee. In the event of the death of the Employee, the Employment Period shall terminate on the last day of the third full month after such death. (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 six 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 Corporation (collectively referred to as "For Cause"). (e) Termination by Employee for Good Reason. The Employee shall have the right to terminate the Employment Period for "good reason" (as hereinafter defined), provided that the Employee shall have given the Corporation written notice of the Employee's decision to terminate his employment (specifying the alleged "good reason" in reasonable detail) and the Corporation shall not have cured the same within ninety (90) days after receipt of such notice, or, if cure cannot be fully accomplished within ninety (90) days, the Corporation shall not have commenced cure within ninety (90) days after receipt of such notice and cured the alleged "good reason" as soon as possible thereafter. For purposes of the foregoing, "good reason" shall mean (i) the assignment to the Employee of duties inconsistent with, or the diminution of, the Employee's positions, titles, offices, duties, responsibilities or status with the Corporation, or a change without good cause in the Employee's reporting responsibilities, or any removal of the Employee from or any failure to elect the Employee to any positions, titles or offices specified in this Agreement and held by the Employee, (ii) a reduction in the Employee's Salary, (iii) a material reduction in the Employee's benefits (other than a reduction pursuant to the last sentence of Section 4 hereof), or (iv) a "Change of Control" (as such term is defined in Section 19). (f) Severance. Notwithstanding anything to the contrary set forth in Section 6(a), in the event that the Employee's employment hereunder is terminated by the Corporation (other than pursuant to subsections (c) or (d) of this Section 6) or by the Employee for good reason or the Employment Period continues to December 31, 1997 and the Corporation does not offer to extend the Employee's employment on at least as favorable terms for an additional one year term, the Corporation shall pay to the Employee as severance (the "Severence") (i) a lump sum of $312,500 within ten (10) days of the Termination Date and (ii) if the Separation Period (as hereinafter defined) is greater than six months, an additional amount equal to $12,019.23 multiplied by the number of full weeks remaining in the Separation Period after the first six months have elapsed, payable in equal bi-weekly installments commencing at the end of the first six months of the Separation Period. For purposes of this Agreement, the term Separation Period shall mean the period commencing on the Termination Date and ending on the later of (i) December 31, 1997 or (ii) six months after the Termination Date. Notwithstanding anything to the contrary set forth in this Agreement, all Severance paid to the Employee as a result of a Change of Control will be paid in a lump sum within ten (10) days of the Termination Date. The provisions of this subsection (f) shall be in lieu of any other rights or claims which the Employee may have under this Agreement or otherwise with respect to damages except pursuant to subsection (a) of this Section 6. (g) Assignment of Life Insurance on Termination. Except in the case of termination of employment pursuant to subsection (d) of this Section 6, at the end of the Separation Period, the Corporation shall assign to the Employee the life insurance policies of the Connecticut Mutual Life Insurance Company numbered 4639537, 4639538 and 4706956 (collectively, the "Insurance Policies") owned by the Corporation on the life of the Employee. The Corporation hereby covenants that it shall during the Employment Period (i) pay any and all premiums on the Insurance Policies, (ii) keep the Insurance Policies in effect at all times and (iii) not borrow against the value of the Insurance Policies. Section 7. 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) and the Separation Period, whether as owner, principal, agent, partner, director, 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 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. In addition, for one year after the later of the end of the Employment Period (determined without giving effect to any termination of employment) or the end of the Separation Period, the Employee covenants and agrees that he will not, directly or indirectly, hire any person who is employed by the Corporation on the Termination Date who's annual salary on such date is equal to or greater than $100,000 or solicit, induce, entice or hire any such person to leave the employment of the Corporation. Section 8. 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 8(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 9. Indemnification. On the same terms and conditions applicable to other directors and 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 (as hereinafter defined), 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 6(d) of this Agreement, the Corporation shall have no obligation to indemnify the Employee under this Section 9 against any liability, loss or expense arising from conduct that (a) constitutes grounds for the Corporation to terminate the Employment Period pursuant to clause (ii) of Section 6(d) of this Agreement or (b) constitutes grounds for the Corporation to terminate the Employment Period pursuant to clause (i) of Section 6(d) of this Agreement and such conduct is injurious to the Corporation. The term "Affiliate" shall mean any person, firm, corporation, partnership or other legal entity that, directly or indirectly, controls, is controlled by or is under common control with, the Corporation. The term "control" shall mean the power to direct the affairs of any person, firm, corporation, partnership or other legal entity by reason of ownership of voting stock, by contract or otherwise. Section 10. Automobile. During the Employment Period, the Corporation will provide the Employee with the vehicle currently used by the Employee, a 1993 Mercedes Benz Model 500SL. The cost and maintenance of such automobile (including insurance, gasoline, repairs, etc.) shall be paid by the Corporation, subject to compliance by the Employee with such policies regarding automobiles and the use thereof as may be adopted from time to time by the Corporation. Unless this Agreement shall have been terminated pursuant to Section 6(d) hereof, the Employee shall have the option, to the extent the Corporation may legally give such option, within twenty (20) days after the end of the Employment Period, to purchase such automobile at its then depreciated book value or, if such automobile is leased, at the purchase price under the lease. Section 11. 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 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 12. Legal Expenses. The Corporation shall pay all legal fees and related expenses incurred by the Employee as a result of (i) the Employee's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment) if the Corporation has been found to be in breach of its obligations hereunder, or (ii) the Employee's seeking to obtain or enforce any right or benefit provided by this Agreement, if the Employee prevails against the Corporation in any proceeding in which rights hereunder are contested. Section 13. 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 13 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 14. 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. Nicholas P. DiPaolo 1114 Avenue of the Americas New York, New York 10036 With a copy to: Roger M. Deitz, Esq. 437 Madison Avenue New York, New York 10022-7302 Each party may, by notice to other party, change the above address. Section 15. Entire Agreement; Amendments. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements 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 16. 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 17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original. Section 18. 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, the Corporation 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. The Employee hereby acknowledges that irreparable damage will occur in the event that Sections 7 and 8 of this Agreement are not performed in accordance with their specific terms or are otherwise breached by the Employee. It is accordingly agreed that the Corporation shall be entitled to an injunction or injunctions to prevent breaches of such provisions in any Court of the United States or any states having jurisdiction, this being in addition to any other remedy to which the Corporation may be entitled to at law or in equity. It is the intention of the parties to the fullest extent possible to resolve disputes without recourse to the judicial system. Except in the event the Corporation is attempting to seek injunctive or other equitable relief for a breach by the Employee of Sections 7 and 8 of this Agreement, the parties agree that as a condition precedent to the filing of any claim the parties and their attorneys must confer at least twice, in person, in an effort to resolve any dispute. Should such efforts not be successful, the parties shall submit their dispute to non-binding mediation at the offices of J.A.M.S./Endispute, Inc., in the City of New York. Should mediation not be successful, suit may be brought in any Court in accordance with this Section 18. The fees and expenses, including actual attorneys' fees, of the prevailing party shall be paid by the non-prevailing party. Section 19. 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. "Change of Control" shall mean an event or series of events by which (i) any Person is or becomes the "beneficial owner" (as defined in rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of a majority of the aggregate Voting Stock of the Corporation; or (ii) the Corporation consolidates with or merges into another Person or conveys, transfers or leases all or substantially all of its assets to any Person, or any Person consolidates with or merges into the Corporation, in either event pursuant to a transaction in which the outstanding Voting Stock of the Corporation is changed into or exchanged for cash, securities or other property, other than any such transaction where the holders of the Voting Stock of the Corporation immediately prior to such transaction own, directly or indirectly, immediately after such transaction, Voting Stock of such surviving corporation entitling them to not less than 50% of the aggregate voting power of all Voting Stock of such surviving corporation. "Control" shall mean the power to direct the affairs of any natural person, firm, corporation, partnership or other legal entity by reason of ownership of Voting Stock, by contract or otherwise. "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. "Voting Stock" shall mean securities of any class or classes (or equivalent interests) of any entity, if the holders of the securities of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of the directors (or natural persons or entities performing similar functions) of such entity, even though the right to so vote has been suspended by the happening of such a contingency. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. SALANT CORPORATION By: Todd Kahn, Esq. Vice President, Secretary and General Counsel Nicholas P. DiPaolo EXHIBIT 1 INCENTIVE COMPENSATION SCHEDULE ? If the Corporation's "Pre-tax Income", as shown on its audited financial statements for any Fiscal Year during the Employment Period ("Actual Annual Pre-tax Income"), is equal to or greater than 100% of the amount of Pre-tax Income provided for in Salant's annual business plan for that Fiscal Year ("Planned Annual Pre-tax Income"), the Employee shall receive a cash bonus equal to 100% of his Salary at the end of the applicable Fiscal Year ("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 Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income, the Employee shall receive an additional cash bonus equal to 20% of his Annual Salary. ? The following principles shall apply in calculating the "Pre-tax Income" which term shall mean the aggregate income of the Corporation before provision for all Federal, State and local income taxes thereon. 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, subject, however, to the provisions of the following subparagraphs. (i) There shall be excluded from income: all extraordinary items of income such as gains and losses on the sale of fixed assets or intangible assets; all insurance recoveries other than for 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. (ii)Deductions from income shall include all interest expenses, fixed charges and reasonable provisions for depreciation, amortization and obsolescence, inventory write-offs and the salary and bonus payable to all of the employees of the Corporation and the Employee hereunder. EX-5 6 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of February 11, 1997 (this "Agreement"), between MICHAEL A. LUBIN (the "Employee") and SALANT CORPORATION, a Delaware corporation (the "Corporation"). WHEREAS, the Employee and the Corporation desire to enter into an agreement of employment; NOW, THEREFORE, in consideration of the premises and of the mutual covenants hereinafter set forth, the parties hereto agree as follows: 1. Employment. During the Employment Period (as hereinafter defined), the Corporation shall employ the Employee and the Employee shall serve as President and Chief Operating Officer of the Corporation. The Employee shall perform such services and duties of a senior executive character for the Corporation and any division, subsidiary or affiliate thereof as shall be assigned to him from time to time by the Chief Executive Officer of the Corporation during the Employment Period. 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, its subsidiaries and affiliates in the advancement of the best interests of the Corporation, its subsidiaries and affiliates. 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, (c) serve as a director and executive officer of Lexington Precision Corporation ("Lexington") and its affiliates provided that such activities do not exceed twenty (20) business days annually (it being understood that there may be intervals during any year during which the Employee's involvement with such entities may be greater than during other periods of such year) and (d) manage personal investments and serve as a partner of Lubin, Delano & Co., an investment bank ("Lubin Delano"), so long as such activities do not interfere, in any material respect, with the performance of Employee's responsibilities as an employee of the Corporation in accordance with this Agreement. 2. Term of Agreement. (a) For purposes of this Agreement, the term "Employment Period" shall mean the period commencing February 11, 1997 and ending June 30, 1998. In the event of the Employee's death prior to June 30, 1998, the Employment Period shall terminate on the last day of the calendar month within which such death shall have occurred. In the event that the Employee shall become totally disabled (either mentally or physically) for a period of three (3) consecutive months or more prior to June 30, 1998, the Employment Period shall terminate at the end of such three (3) consecutive month period. (b) Notwithstanding anything contained herein to the contrary, the Corporation shall have the right to terminate the Employment Period immediately, upon three (3) days prior written notice to the Employee, if the Employee (i) engages in conduct which is determined by a court of competent jurisdiction to be guilty of a felony or act of moral turpitude, (ii) commits any act of willful misconduct, malfeasance or gross negligence that is injurious to the Corporation in any material respect, (iii) commits a material violation of the Corporation's Code of Conduct, or (iv) breaches this Agreement in any material respect (collectively, "For Cause Termination"). (c) The Employee shall have the right to terminate the Employment Period for "good reason" (as hereinafter defined), provided that the Employee shall have given the Corporation written notice of the Employee's decision to terminate his employment (specifying the alleged "good reason" in reasonable detail) and the Corporation shall not have cured the same within three (3) business days after receipt of such notice, such cure to be retroactive in the case of any reduction in the "Adjusted Salary" (as hereinafter defined). For purposes of the foregoing, "good reason" shall mean (i) the assignment to the Employee of duties inconsistent with, or the diminution of, the Employee's positions, titles, offices, duties, responsibilities or status with the Corporation, or a change without good cause in the Employee's reporting responsibilities, or any removal of the Employee from or any failure to elect the Employee to any positions, titles or offices specified in this Agreement and held by the Employee or (ii) a reduction in the Adjusted Salary. (d) Notwithstanding anything contained herein to the contrary, in the event that the Employee's employment hereunder is terminated (i) by the Corporation prior to the expiration of the Employment Period (other than as a result of a For Cause Termination or as a result of death or disability of the Employee) or (ii) by the Employee for good reason, the Corporation shall continue to pay to the Employee the Adjusted Salary for the period commencing on the date of such termination until the later of (x) the last day of the Employment Period or (y) six months (the "Separation Period"). During the portion of the Separation Period prior to June 30, 1998, and no other portion, the Employee shall (i) be entitled to any pro rata bonus as provided for in Section 3(c) herein and (ii) be deemed an employee of the Corporation for all benefit determination and eligibility purposes, including, without limitation, insurance and the right to exercise stock options. (e) If the Corporation and the Employee fail to agree to extend the Employee's employment beyond the Employment Period (other than as a result of a For Cause Termination or as a result of death or disability of the Employee), the Corporation will continue to pay the Employee (the "Severance Payment") on a bi-weekly basis the Adjusted Salary for the period commencing on the Employee's last day of employment until the earlier of (i) the day the Employee commences Full Time Employment (as hereinafter defined) or (ii) six (6) months (the "Severance Period"). During the Severance Period, the Corporation shall provide the Employee with the same life, medical and dental insurance benefits that the Employee would have had if the Employment Period would have been extended for such period of time. The Employee will not be entitled to (i) any pro-rata bonus for the Severance Period or (ii) any other severance pursuant to any severance policy then in effect. In addition, the Corporation's obligation to make the Severance Payment is contingent upon the Employee's execution of a mutual general release as reasonably established by the Corporation from time to time. For purposes of this Agreement "Full Time Employment" shall mean any employment as owner, principal, agent, partner, director, officer or employee for any entity, corporation, partnership or individual, other than Lexington or consulting engagements as a principal of Lubin Delano, where such employment equals or exceeds thirty (30) hours per week. The Employee hereby acknowledges that the Severance Payment is greater than the amount provided by the Corporation's normal severance policy and is being offered to the Employee in reliance upon the Employee's agreement to release the Corporation from any liability and to waive any claims the Employee may have against the Corporation, including, without limitation, any claims relating to the Employee's employment or separation from employment. Notwithstanding anything to the contrary contained herein or in any release executed by the Employee at any time hereafter, nothing shall impair the Employee's (i) right to enforce the obligations of the Corporation as set forth in this Agreement or (ii) right to seek indemnification or contribution from the Corporation in the event the Employee is the subject of any third-party claim or claim by or on behalf of the Corporation arising out of or relating to any act or omission by the Employee during the course of his employment by the Corporation, to the extent such right would have otherwise existed. 3. Compensation. (a) The Corporation agrees to pay to the Employee during the Employment Period as compensation for the services to be rendered by the Employee a current base salary at the rate of $400,000 per annum (the "Base Salary") payable in equal bi-weekly installments during the Employment Period. On January 1, 1998, the Base Salary shall be adjusted upward for inflation by a percentage equal to the percentage increase in the "Consumer Price Index" (as hereinafter defined) for the period from October 1995 through December 31, 1997. For purposes of this Agreement, the term "Consumer Price Index" shall mean the "Consumer Price Index" published by the Bureau of Labor Statistics of the U.S. Department of Labor, New York City, all items. The Base Salary, as adjusted in accordance with this provision, shall be referred to as the Adjusted Salary. If the Consumer Price Index shall become unavailable to the public, the Corporation will substitute for it a comparable index based upon changes in the cost of living or purchasing power of the consumer dollar published by any other governmental agency, or if unavailable, a comparable index published by a major bank or other financial institution or by a university or a generally recognized financial publication. (b) In respect of each year of the Employment Period, in addition to the salary provided in (a) above, a bonus, if any, calculated as follows: (i) If the Corporation attains or exceeds its Pre-tax Income Budget for the any fiscal year, commencing with the 1997 fiscal year (a copy of each fiscal year's budget will be furnished to the Employee in December of the prior year), the Corporation shall pay a bonus to the Employee for such fiscal year in which such Pre-tax Income Budget was attained or exceeded by the Corporation equal to one hundred percent (100% ) of the base salary paid during such fiscal year plus an additional bonus equal to twenty percent (20%) of such then current base salary for each full five percent (5% ) (after rounding to the nearest 1/100th of a percent) by which the actual Pre-tax Income of the Corporation exceeds its Pre-tax Income Budget. For example, if the Pre-tax Income Budget for the Corporation for 1997 is $20,000,000 and the Corporation's actual Pre-tax Income is $21,000,000 the Employee shall be entitled to a bonus of one hundred and twenty percent (120%) of his 1997 current base salary of $400,000 or a bonus of $480,000, (ii) Notwithstanding anything contained herein to the contrary, if the actual Pre-tax Income of the Corporation is less than one hundred percent (100%) of its Pre-tax Income Budget in any fiscal year, the Employee shall not be entitled to any bonus for such fiscal year. The Employee shall not be entitled to any minimum or guaranteed bonus in respect of any fiscal year. (c) The amount of such bonus, if any, shall be calculated on or before ninety (90) days following the last day of each fiscal year of the Corporation commencing with the 1997 fiscal year. A written statement of the calculation and the amount of the bonus, if any, shall be delivered to the Employee within such ninety (90) day period. In the event of the termination of the Employment Period prior to the close of a complete fiscal year of the Corporation, the calculation for purposes of determining a bonus shall be computed on the basis of the results of the full fiscal year within which the termination of the Employment Period occurs; provided, however, that the amount of the actual bonus, if any, payable to the Employee with respect to such year shall be prorated based on the proportion that (x) the number of days from January 1 of such year to the date of the termination of the Employment Period bears to (y) 365. Notwithstanding anything to the contrary contained in this Agreement, if the Employee voluntarily leaves the employ of the Corporation prior to the completion of the Employment Period (other than in connection with a breach of this Agreement by the Corporation) or the Employment Period is terminated by the Corporation pursuant to Section 2(b) hereof, the Employee shall not be entitled to any bonus or pro rata bonus for the year in which such termination takes place or any subsequent year. (d) The following principles shall apply in calculating the "Pre-tax Income of the Corporation" which term shall mean the aggregate consolidated income of the Corporation before provision for all Federal, State and local income taxes thereon. 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, subject, however, to the provisions of the following subparagraphs: (i) There shall be excluded from income: all extraordinary items of income such as gains and losses on the sale of fixed assets or intangible assets; all insurance recoveries other than for 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. (ii) Deductions from income shall include all interest expenses, fixed charges and reasonable provisions for depreciation, amortization and obsolescence, inventory write-offs and the salary and bonus payable to all of the employees of the Corporation and the Employee hereunder. 4. Employee Benefit Plans. Nothing herein contained shall affect the right of the Employee to participate and receive benefits under and in accordance with the provisions of any present or future pension or profit sharing plan, pension plan, insurance plan, medical plan, stock option plan, plan of deferred compensation or other similar plan or policy of the Corporation for the benefit of its employees. 5. 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, convertible bonds or other convertible securities of, or be interested in any way in any business competing with the businesses of the Corporation or its subsidiaries without the written consent of the Board of Directors of the Corporation, 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 or NASDAQ and the investment in any class of securities does not exceed 2% of the outstanding shares of such class or 2% of the aggregate outstanding principal amount of such class, as the case may be. In addition, for one year after the end of the Employment Period (determined without giving effect to any termination of employment), the Employee covenants and agrees that he will not, directly or indirectly, (i) hire any person who is employed by the Corporation on the Employee's last day of employment whose annual compensation on such date is equal to or greater than $100,000 or (ii) solicit, induce, entice or hire any such person to leave the employment of the Corporation. 6. 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, its subsidiaries and affiliates, any information (except that which is generally known or available to the public) relating to the business, customers and suppliers, or other affairs of the Corporation, its subsidiaries or affiliates ("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 6(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. 7. Indemnification. To the fullest extent permitted under the Delaware General Corporation Law and, in any event, on terms and conditions no less favorable than those applicable to directors or other officers of the Corporation, the Corporation shall indemnify the Employee against all liability and loss with respect to any threatened, pending or completed action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative 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, without limitation, reasonable attorneys' fees and the costs of enforcing this Section 7), 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, proceeding or investigation 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 or termination of this Agreement, provided that in the event that the Employee is terminated pursuant to Section 2(b) of this Agreement, the Corporation shall have no obligation to indemnify the Employee under this Section 7 against any liability, loss or expense arising from conduct that constitutes grounds for the Corporation to terminate the Employment Period pursuant to Section 2(b) of this Agreement. 8. Business Expenses; Auto Allowance. The Employee will submit, on a timely basis, to the Corporation periodic reports of travel and other expenses in connection with his employment hereunder, in such form and at such times as may reasonably be required by the Corporation. Such travel and other expenses will be subject to approval by the Corporation and the Employee will be reimbursed for such expenses as are reasonably incurred by the Employee in accordance with this Section 8. During the Employment Period, the Corporation will provide the Employee with an automobile allowance in the amount of $680 per month, payable with the first pay period of each month. 9. Continuity of the Corporation. In the event that the Corporation shall at any time be merged or consolidated with any other corporation or corporations or shall sell or otherwise transfer a substantial portion of its assets to another corporation or entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the Corporation or entity surviving or resulting from such merger or consolidation or to which such assets shall be sold or transferred. Except as provided in the preceding sentence, this Agreement shall not be assignable by the Employee. 10. Stock Options. Upon the commencement of the Employment Period, the Corporation shall grant to the Employee nonqualified stock options representing the right to purchase 162,500 shares of the Corporation's common stock, par value $1.00 per share (the "Common Stock"), pursuant to the Corporation's 1987 Stock Plan, 1988 Stock Plan and/or 1993 Stock Plan. The purchase price for such options will be the market price on the grant date. Stock options representing the right to purchase 99,997 shares of Common Stock will vest on the grant date for such options. Thereafter, stock options representing the right to purchase 8,929 shares of Common Stock will vest monthly for each of seven (7) months. 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. The Corporation represents and warrants that the stock options granted to the Employee shall qualify for the exemptions afforded by the Securities and Exchange Commission Rule 16b-3 as in effect as of the date of this Agreement. 11. Notice. Any notice or other communication provided for or permitted herein shall be deemed to be fully given if in writing and mailed by registered or certified mail, return receipt requested, to such party at the addresses 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. Michael A. Lubin C/0 Lubin, Delano & Company 767 Third Avenue 29th Floor New York, New York 10017 Each party may change its or his respective address by written notice as described above. 12. Complete Agreement; Modification and Termination. This Agreement constitutes the full and complete understanding and agreement of the parties, supersedes all prior understandings and agreements as to the employment of the Employee and cannot be amended, changed, modified or terminated without the consent in writing of the Corporation and the Employee. 13. 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. 14. Counterparts. This Agreement shall be executed in several counterparts, each of which shall be deemed to be an original. 15. 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 binding arbitration before the American Arbitration Association in New York, New York in accordance with its rules then in effect. The costs and expenses of arbitration (including, without limitation, reasonable attorneys' fees and expenses) of the prevailing party, shall be paid by the party against whom the issue is determined. 16. Definitions. For purposes of this Agreement, the term "affiliate" shall mean any person, firm or corporation controlling, controlled by or under common control with, the Corporation. The term "control" shall mean the power to direct the affairs of any person, firm or corporation by reason of ownership of voting stock, by contract or otherwise. 17. Headings. The headings in this Agreement are solely for convenience of reference and shall not affect its interpretation. 18. Governing Law. The Agreement shall be governed by and construed according to the laws of the State of New York. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. --------------------------- MICHAEL A. LUBIN SALANT CORPORATION By__________________________ Nicholas P. DiPaolo Chairman, Chief Executive Officer and President EX-27 7
5 1000 12-MOS DEC-28-1996 DEC-28-1996 1,501 0 52,090 11,876 101,619 147,203 54,652 29,467 236,038 60,353 0 0 0 15,328 45,263 236,038 438,119 446,915 340,203 428,442 0 11,730 15,963 (9,220) 103 (9,323) 0 0 0 (9,323) (0.62) (0.62)
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