-----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, TIVYTzV0H0dthSThhCat0ZCRO1Z8q/2EUQmervKZVeBJd/+I5hmB8tbR5muWFVhS q+f7E0klZbS3UOtUaGt6lg== 0000086346-97-000013.txt : 19980102 0000086346-97-000013.hdr.sgml : 19980102 ACCESSION NUMBER: 0000086346-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970812 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-Q SEC ACT: SEC FILE NUMBER: 001-06666 FILM NUMBER: 97656901 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 1997. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-6666 SALANT CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-3402444 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1114 Avenue of the Americas, New York, New York 10036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 221-7500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark whether the registrant has filed all documents and reports required to be filed by section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No __ As of August 6, 1997, there were outstanding 14,848,353 shares of the Common Stock of the registrant. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Cash Flows Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K SIGNATURE SALANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share data)
Three Months Ended Six Months Ended June 28, June 29, June 28, June 29, 1997 1996 1997 1996 Net sales $ 81,391 $ 91,889 $ 169,601 $ 185,434 Cost of goods sold 64,824 74,725 133,246 146,629 -------- -------- --------- --------- Gross profit 16,567 17,164 36,355 38,805 Selling, general and administrative expenses (20,806) (21,736) (41,360) (42,985) Royalty income 1,428 1,399 2,535 2,527 Goodwill amortization (470) (608) (940) (1,220) Reversal of/(provision for) restructuring costs (Note 5) 410 (11,417) 1,164 (11,578) Other income 71 48 188 66 -------- -------- --------- --------- Loss from continuing operations before interest, income taxes and extraordinary gain (2,800) (15,150) (2,058) (14,385) Interest expense, net 3,941 3,831 7,378 7,556 -------- -------- --------- --------- Loss from continuing operations before income taxes and extraordinary gain (6,741) (18,981) (9,436) (21,941) Income taxes/(benefit) 62 (58) 104 (36) -------- -------- --------- --------- Loss from continuing operations before extraordinary gain (6,803) (18,923) (9,540) (21,905) Discontinued operations (Note 3): Income/(loss) from operations before extraordinary gain (7,361) 61 (8,136) 130 Estimated loss on disposal (580) -- (580) -- Extraordinary gain (Note 4) 600 -- 600 -- -------- -------- --------- --------- Net loss $(14,144) $(18,862) $ (17,656) $ (21,775) ======== ======== ========= ========= Income/(loss) per share: Loss per share from continuing operations $ (0.45) $ (1.25) $ (0.63) $ (1.46) Income/(loss) per share from discontinued operations (0.53) -- (0.58) 0.01 Extraordinary gain 0.04 -- 0.04 -- -------- -------- -------- --------- Net loss per share $ (0.94) $ (1.25) $ (1.17) $ (1.45) ======== ======== ======== ========= Weighted average common stock and common stock equivalents outstanding 15,118 15,085 15,108 15,063 ======== ======== ======== =========
See Notes to Condensed Consolidated Financial Statements. SALANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
June 28, December 28, June 29, 1997 1996 1996 (Unaudited) (*) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,336 $ 1,498 $ 1,321 Accounts receivable, net 40,391 40,133 37,413 Inventories (Note 2) 123,272 98,497 117,367 Prepaid expenses and other current assets 3,930 3,869 4,497 Net assets of discontinued operations (Note 3) -- 6,988 9,041 ---------- ---------- ---------- Total current assets 168,929 150,985 169,639 Property, plant and equipment, net 28,711 25,173 25,353 Other assets 58,995 59,093 59,973 ---------- ---------- ---------- Total assets $ 256,635 $ 235,251 $ 254,965 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable $ 53,432 $ 7,677 $ 31,473 Accounts payable 28,453 27,562 30,829 Accrued liabilities 16,961 17,986 18,202 Current portion of long term debt -- 3,372 -- Reserve for business restructuring (Note 5) 1,344 2,969 4,617 ---------- ---------- ---------- Total current liabilities 100,190 59,566 85,121 Long term debt 104,879 106,231 109,545 Deferred liabilities 8,453 8,863 11,130 Shareholders' equity Common stock 15,394 15,328 15,328 Additional paid-in capital 107,232 107,130 107,121 Deficit (74,803) (57,147) (69,599) Excess of additional pension liability over unrecognized prior service cost (3,182) (3,182) (2,185) Accumulated foreign currency translation adjustment 86 76 118 Less - treasury stock, at cost (1,614) (1,614) (1,614) ---------- ---------- ---------- Total shareholders' equity 43,113 60,591 49,169 ---------- ---------- ---------- Total liabilities and shareholders' equity $ 256,635 $ 235,251 $ 254,965 ========== ========== ==========
(*) Derived from the audited financial statements. See Notes to Condensed Consolidated Financial Statements. SALANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
Six Months Ended June 28, June 29, 1997 1996 ---------- ---------- Cash Flows from Operating Activities: Loss from continuing operations $ (9,540) $ (21,905) Adjustments to reconcile loss from continuing operations to net cash used in operating activities: Depreciation 2,225 2,079 Amortization of intangibles 2,134 2,180 Write-down of fixed assets -- 231 Write-off of other assets -- 6,251 Loss on disposal of fixed assets -- 17 Change in operating assets and liabilities: Accounts receivable (258) (2,536) Inventories (24,775) (2,002) Prepaid expenses and other current assets (61) 410 Other assets -- (1,502) Accounts payable 891 5,796 Accrued liabilities and reserve for business restructuring (2,913) 746 Deferred liabilities (1,162) (238) ---------- ---------- Net cash used in operating activities (33,459) (10,473) ---------- ---------- Cash Flows from Investing Activities: Capital expenditures (5,807) (3,222) Store fixture expenditures (2,037) (959) Acquisition -- (694) Proceeds from sale of assets -- 45 ---------- ---------- Net cash used in investing activities (7,844) (4,830) ---------- ---------- Cash Flows from Financing Activities: Net short-term borrowings 45,755 17,051 Retirement of long-term debt (3,372) -- Exercise of stock options 168 104 Other, net 10 (12) ---------- ---------- Net cash provided by financing activities 42,561 17,143 ---------- ---------- Net cash provided by continuing operations 1,258 1,840 Cash used in discontinued operations (1,420) (1,914) ---------- ---------- Net decrease in cash and cash equivalents (162) (74) Cash and cash equivalents - beginning of year 1,498 1,395 ---------- ---------- Cash and cash equivalents - end of quarter $ 1,336 $ 1,321 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 7,125 $ 7,975 ========== ========== Income taxes $ 101 $ 69 ========== ==========
See Notes to Condensed Consolidated Financial Statements. SALANT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Amounts in Thousands of Dollars, Except Share Data) (Unaudited) Note 1. Basis of Presentation and Consolidation The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Salant Corporation ("Salant") and subsidiaries (collectively, the "Company"). 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 results of operations for the three and six months ended June 28, 1997 and June 29, 1996 are not necessarily indicative of a full year's operations. In the opinion of management, the accompanying financial statements include all adjustments of a normal recurring nature which are necessary to present fairly such financial statements. Significant intercompany balances and transactions are eliminated in consolidation. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report to shareholders for the year ended December 28, 1996. Income/(loss) per share is based on the weighted average number of common shares (including, as of June 28, 1997 and June 29, 1996, 323,544 and 344,730 shares, respectively, anticipated to be issued pursuant to the Company's plan of reorganization) and common stock equivalents outstanding, if applicable. Loss per share does not include common stock equivalents, inasmuch as their effect would have been anti-dilutive. Note 2. Inventories
June 28, December 28, June 29, 1997 1996 1996 Finished goods $76,150 $57,827 $79,618 Work-in-Process 22,666 14,800 14,968 Raw materials and supplies 24,456 25,870 22,781 ------ -------- ---------- $123,272 $98,497 $117,367 ======== ======= ========
Note 3. Discontinued Operations In June 1997, the Company discontinued the operations of the Made in the Shade division, which produced and marketed women's junior sportswear. The loss from operations of the division for the three and six months ended June 28, 1997 was $7,361 and $8,136, respectively which included a second quarter charge of $4,459 for the write-off of goodwill. Net sales of the division were $977 and $2,199 for the three and six months ended June 28, 1997, respectively. Net sales of the division were $5,121 and $10,769 for the three and six months ended June 29, 1996, respectively. Additionally, in 1997 the Company recorded a second quarter charge of $580 to accrue for expected operating losses during the phase-out period through September 1997. No income tax benefits have been allocated to the division's 1997 losses. The net assets of the discontinued operations have been reclassified on the balance sheets as net assets of discontinued operations, and consist principally of accounts receivable, inventory, goodwill and accounts payable. Net liabilities of discontinued operations have been included in accrued liabilities. Note 4. Extraordinary Gain In the second quarter of 1997, the Company recorded an extraordinary gain of $600 related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the prior chapter 11 proceeding. Note 5. Division Restructuring Costs In the second quarter of 1997, the Company reversed a previously recorded restructuring provision by $410, as these amounts were no longer needed. This provision was for estimated liabilities related to the previously disclosed closure of a manufacturing facility. In the first quarter of 1997, the Company reversed a previously recorded restructuring provision of $754. The provision was for net liabilities related to the JJ. Farmer sportswear product line. These net liabilities were settled for less than the carrying amount, resulting in the reversal of the excess portion of the provision. In the second quarter of 1996, the Company recorded a provision for restructuring of $11,417, consisting of (i) $5,691 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) $1,842 primarily related to employee costs in connection with the closing of a manufacturing and distribution facility in Thomson, Georgia, (iv) $547 primarily relate to employee costs in connection with the closing of a manufacturing facility in Americus, Georgia and (v) $479 related primarily to other severance costs. Note 6. Financing and Factoring Agreements On August 8, 1997, the Company and The CIT Group/Commercial Services, Inc. executed the Eleventh Amendment to a revolving credit, factoring and security agreement. The Eleventh Amendment modified the covenant related to stockholders' equity, waived a default resulting from the Company's non-compliance with this covenant as of June 28, 1997, increased the interest rate charged on direct borrowings by 25 basis points and increased the borrowings allowed against eligible inventory from 50% to 60% for the additional period of September 1, 1997 through October 25, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations Second Quarter of 1997 Compared with Second Quarter of 1996 Net Sales The following table sets forth the net sales of each of the Company's three principal business segments for the three months ended June 28, 1997 and June 29, 1996 and the percentage contribution of each of those segments to total net sales:
Percentage Three Months EndedIncrease/ June 28, 1997 June 29, 1996 (Decrease) (dollars in millions) Men's Apparel $70.3 86% $80.5 87% (12.6%) Children's Sleepwear and Underwear 5.5 7% 4.4 5% 24.0% Retail Outlet Stores 5.6 7% 7.0 8% (19.8%) --- -- --- ---- Total $81.4 100% $91.9 100% (11.4%) ===== ===== ===== ====
Sales of Men's apparel decreased by $10.2 million, or 12.6%, in the second quarter of 1997, as compared to the second quarter of 1996. This decrease resulted from (a) a $5.4 million decrease in sales of men's jeans, primarily related to a planned reduction in unprofitable programs for department stores, (b) a $5.1 million reduction in sales of men's slacks, of which $3.7 million was a planned reduction based upon the Company's decision to eliminate unprofitable programs, and $1.4 million of the decrease related to manufacturing delays for the Perry Ellis slack line, (c) a planned $2.0 million reduction in sales of certain dress shirt lines, which was based upon the Company's decision to eliminate unprofitable businesses and (d) a $1.7 million decrease in sales of men's accessories, primarily due to the slow-down of the novelty neckwear business in the first half of 1997. These sales decreases were partially offset by a $3.1 million increase in sales of Perry Ellis dress shirts due to the addition of new distribution and the continued strong acceptance of these products by consumers. Sales of children's sleepwear and underwear increased by $1.1 million, or 24.0%, in the second quarter of 1997, as compared to the second quarter of 1996. This increase was primarily a result of the continuing expansion of the Joe Boxer children's product lines. Sales of the retail outlet stores decreased by $1.4 million, or 19.8%, in the second quarter of 1997, as compared to the second quarter of 1996. This decrease was primarily due to a decrease in the number of retail outlet stores, from 71 in June 1996 to 62 in June 1997. 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 the three months ended June 28, 1997 and June 29, 1996:
Three Months Ended June 28, 1997 June 29, 1996 (dollars in millions) Men's Apparel $13.5 19.2% $14.3 17.7% Children's Sleepwear and Underwear 0.6 10.3% 0.6 14.2% Retail Outlet Stores 2.5 44.6% 2.3 32.9% --- --- Total $16.6 20.4% $17.2 18.7% ===== =====
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 increase is primarily related to the elimination of unprofitable programs in 1997, as previously discussed. The gross profit margin of the retail outlet stores increased primarily as a result of a decrease in the transfer prices (from a negotiated rate to standard cost) charged to the retail outlet stores for products made by other divisions of the Company. Reversal of/(Provision for) Restructuring Costs In the second quarter of 1997, the Company reversed a previously recorded restructuring provision by $0.4 million, as these amounts were no longer needed. This provision was for estimated liabilities related to the previously disclosed closure of a manufacturing facility. In the second quarter of 1996, the Company recorded a provision for restructuring of $11.4 million, consisting of (i) $5.7 million 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) $2.9 million 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) $1.8 million primarily related to employee costs in connection with the closing of a manufacturing and distribution facility in Thomson, Georgia, (iv) $0.5 million primarily related to employee costs in connection with the closing of a manufacturing facility in Americus, Georgia and (v) $0.5 million related primarily to other severance costs. Income/(Loss) from Continuing Operations Before Interest, Income Taxes and Extraordinary Gain The following table sets forth the loss 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 the three months ended June 28, 1997 and June 29, 1996:
Three Months Ended June 28, 1997 June 29, 1996 (dollars in millions) Men's Apparel $0.7 1.1% $(12.4) (15.4%) Children's Sleepwear and Underwear (1.2) (22.8%) (0.6) (13.9%) Retail Outlet Stores (1.0) (17.5%) (0.8) (11.1%) ------ ------ (1.5) (1.8%) (13.8) (15.0%) Corporate expenses (2.4) (2.5) Licensing division income 1.1 1.1 --- --- Loss from continuing operations before interest, income taxes and extraordinary gain $(2.8) (8.3%) $(15.2) (16.5%) ====== ======
(a) Includes the reversal of restructuring charges of $0.4 million in the second quarter of 1997 and a restructuring provision of $11.4 million in the second quarter of 1996. The $12.4 million decrease in the loss from continuing operations before interest, income taxes and extraordinary gain in the second quarter of 1997 was primarily a result of the absence of the $11.4 million restructuring charge in the prior year. Interest Expense, Net Net interest expense was $3.9 million for the second quarter of 1997 compared with $3.8 million for the second quarter of 1996. Discontinued Operations In the second quarter of 1997, the Company recognized a charge of $7.9 million, or $(0.53) per share, related to the discontinuance of the Made in the Shade division. This charge included a write-off of goodwill of $4.5 million and an accrual of $580 thousand for estimated operating losses during the phase-out period. The division was closed primarily due to the lack of synergy with the other businesses of the Company, poor recent performance and low expectations for future profitability. Net sales of the division for the three months ended June 28, 1997 and June 29, 1996 were $0.9 million and $5.1 million, respectively. Extraordinary Gain In the second quarter of 1997, the Company recorded an extraordinary gain of $0.6 million related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the prior chapter 11 proceeding. Net Loss In the second quarter of 1997, the Company reported a net loss of $14.1 million, or $(0.94) per share, as compared with a net loss of $18.9 million, or $(1.25) per share, in the second quarter of 1996. Earnings/(Loss) Before Interest, Taxes, Depreciation, Amortization, Restructuring Charges, Discontinued Operations and Extraordinary Gain Earnings/(loss) before interest, taxes, depreciation, amortization, restructuring charges, discontinued operations and extraordinary gain was ($1.0) million ((1.2%) of net sales) in the second quarter of 1997, compared to ($1.4) million ((1.5%) of net sales) in the second quarter of 1996, an increase of $0.4 million, or 29%. 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. Year to Date 1997 Compared to Year to Date 1996 Net Sales The following table sets forth the net sales of each of the Company's three principal business segments for the six months ended June 28, 1997 and June 29, 1996 and the percentage contribution of each of those segments to total net sales:
Percentage Six Months Ended Increase/ June 28, 1997 June 29, 1996 (Decrease) (dollars in millions) Men's Apparel $149.8 88% $165.3 89% (9.4%) Children's Sleepwear and Underwear 9.9 6% 8.6 5% 14.6% Retail Outlet Stores 9.9 6% 11.5 6% (13.8%) --- -- ---- -- Total $169.6 100% $185.4 100% (8.5%) ====== ==== ====== ====
Sales of Men's apparel decreased by $15.5 million, or 9.4%, in the first half of 1997, as compared to the first half of 1996. This decrease resulted from (a) an $11.2 million reduction in sales of men's slacks, of which $8.8 million was a planned reduction based upon the Company's decision to eliminate unprofitable programs and the balance was primarily due to operational difficulties experienced in the first quarter of 1997 related to the move of manufacturing and distribution out of the Company's facilities in Thomson, Georgia, (b) a $5.8 million reduction in sales of men's sportswear, which included a $7.3 million planned reduction based upon the Company's decision to eliminate its JJ. Farmer and Manhattan sportswear lines, as offset by a $1.5 million increase in sales of Perry Ellis sportswear product, and (c) a planned $5.6 million reduction in sales of certain dress shirt lines, which was based upon the Company's decision to eliminate unprofitable businesses. These sales decreases were partially offset by a $6.8 million increase in sales of Perry Ellis dress shirts due to the addition of new distribution and the continued strong acceptance of these products by consumers. Sales of children's sleepwear and underwear increased by $1.3 million, or 14.6%, in the first half of 1997, as compared to the first half of 1996. This increase was primarily a result of the continuing expansion of the Joe Boxer children's product lines. Sales of the retail outlet stores decreased by $1.6 million, or 13.8%, in the first half of 1997, as compared to the first half of 1996. This decrease was primarily due to a decrease in the number of retail outlet stores, from 71 in June 1996 to 62 in June 1997. 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 the six months ended June 28, 1997 and June 29, 1996:
Six Months Ended June 28, 1997 June 29, 1996 (dollars in millions) Men's Apparel $31.0 20.7% $33.4 20.2% Children's Sleepwear and Underwear 1.4 13.8% 1.5 17.6% Retail Outlet Stores 4.0 40.2% 3.9 34.3% --- --- Total $36.4 21.4% $38.8 20.9% ===== =====
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 increase is primarily related to the elimination of unprofitable programs in 1997, as previously discussed. The gross profit margin of the retail outlet stores increased primarily as a result of a decrease in the transfer prices charged to the retail outlet stores for products made by other divisions of the Company. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses for the first half of 1997 were $41.4 million (24.4% of net sales) compared with $43.0 million (23.2% of net sales) for the first half of 1996. S,G&A expenses in the first half of 1996 included $1.1 million of charges related to the restructuring of the men's apparel businesses. Reversal of/(Provision for) Restructuring Costs In the first half of 1997, the Company reversed previously recorded restructuring provisions of $1.2 million. These provisions were for net liabilities which were settled for less than their carrying amounts. The cash portion of the remaining reserve for restructuring is expected to be expended in the following manner: $0.5 million in the last half of 1997, $0.5 million in 1998 and $0.3 million in 1999. In the first half of 1996, the Company recorded a provision for restructuring of $11.6 million, consisting of (i) $5.7 million 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) $2.9 million 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) $1.8 million primarily related to employee costs in connection with the closing of a manufacturing and distribution facility in Thomson, Georgia, (iv) $0.5 million primarily related to employee costs in connection with the closing of a manufacturing facility in Americus, Georgia and (v) $0.7 million related primarily to other severance costs. Income/(Loss) from Continuing Operations Before Interest, Income Taxes and Extraordinary Gain The following table sets forth the loss 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 the six months ended June 28, 1997 and June 29, 1996:
Six Months Ended June 28, 1997 June 29, 1996 (dollars in millions) Men's Apparel (a) $5.4 3.6% $ (8.1) (4.9%) Children's Sleepwear and Underwear (2.2) (22.7%) (1.0) (12.3%) Retail Outlet Stores (2.6) (26.6%) (2.6) (22.4%) ----- ------- 0.6 0.4% (11.7) (6.3%) Corporate expenses (4.6) (4.6) Licensing division income 1.9 1.9 --- -------- Loss from continuing operations before interest, income taxes and extraordinary gain $(2.1) (1.2%) $(14.4) (7.8%) ===== ======
(a) Includes the reversal of restructuring charges of $1.2 million in 1997 and a restructuring provision of $11.6 million in 1996. The $12.3 million decrease in the loss from continuing operations before interest, income taxes and extraordinary gain in the first half of 1997 was primarily a result of the absence of the $11.6 million restructuring charge in the prior year. Interest Expense, Net Net interest expense was $7.4 million for the first half of 1997 compared with $7.6 million for the first half of 1996. Discontinued Operations In the first half of 1997, the Company recognized a charge of $8.7 million, or $(0.58) per share, related to the discontinuance of the Made in the Shade division. This charge included a write-off of goodwill of $4.5 million and an accrual of $580 thousand for estimated operating losses during the phase-out period. Net sales of the division for the six months ended June 28, 1997 and June 29, 1996 were $2.2 million and $10.8 million, respectively. Extraordinary Gain In the second quarter or 1997, the Company recorded an extraordinary gain of $0.6 million related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the prior chapter 11 proceeding. Net Loss In the first half of 1997, the Company reported a net loss of $17.7 million, or $(1.17) per share, as compared with a net loss of $21.8 million, or $(1.45) per share, in the first half of 1996. 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 were $1.1 million (0.7% of net sales) in the first half of 1997, compared to $1.5 million (0.8% of net sales) in the first half of 1996, a decrease of $0.4 million, or 26.7%. 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. 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 through September 30, 1998, 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 August 8, 1997 the Company and CIT executed the Eleventh Amendment to the Credit Agreement. The Eleventh Amendment modified the covenant related to stockholders' equity, waived a default resulting from the Company's non-compliance with this covenant as of June 28, 1997, increased the interest rate charged on direct borrowings by 25 basis points and increased the borrowings allowed against eligible inventory from 50% to 60% for the additional period of September 1, 1997 through October 25, 1997. Pursuant to the Credit Agreement, the interest rate charged on direct borrowings is 0.75% in excess of the base rate of The Chase Manhattan Bank, N.A. (the "Prime Rate", which was 8.5% at June 28, 1997) or 3.00% above the London Late Eurodollar rate (the "Eurodollar Rate", which was 5.78125% at June 28, 1997). Pursuant to the Credit Agreement, the Company sells to CIT, without recourse, certain eligible accounts receivable. The credit risk for such accounts is thereby transferred to CIT. The amounts due from CIT have been offset against the Company's direct borrowings from CIT in the accompanying balance sheets. The amounts which have been offset were $9.7 million at June 28, 1997 and $8.9 million at June 29, 1996. On June 28, 1997, direct borrowings (including borrowings under the Eurodollar option) and letters of credit outstanding under the Credit Agreement were $53.4 million and $25.3 million, respectively, and the Company had unused availability of $13.8 million. On June 29, 1996, direct borrowings and letters of credit outstanding under the Credit Agreement were $31.5 million and $34.4 million, respectively, and the Company had unused availability of $21.1 million. During the first half of 1997, the maximum aggregate amount of direct borrowings and letters of credit outstanding under the Credit Agreement was $92.8 million at which time the Company had unused availability of $10.3 million. During the first half of 1996, the maximum aggregate amount of direct borrowings and letters of credit outstanding under the Credit Agreement was $85.6 million at which time the Company had unused availability of $18.3 million. The instruments governing the Company's outstanding debt contain certain 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 following table indicates the Company's compliance with the two financial covenants contained in the Credit Agreement:
June 28, 1997 Credit Agreement Covenants Covenant Level (a) Actual Level Stockholders' Equity no less than $42.5 million $43.1 million Maximum Loss (b) no more than $(10.0) million $(5.2) million
(a) The covenant levels reflect all modifications in the Credit Agreement made pursuant to the Eleventh Amendment. (b) 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 used in operating activities for the first half of 1997 was $33.5 million, which reflects a $24.8 million increase in inventories, a significant portion of which was planned to occur in the first half of 1997. Cash used for investing activities in the first half of 1997 was $7.8 million, which represented capital expenditures of $5.8 million and the installation of store fixtures in department stores of $2.0 million. During the second half of 1997, the Company plans to make additional capital expenditures of approximately $5.9 million and to spend an additional $0.9 million for the installation of store fixtures in department stores. Cash provided by financing activities in the first half of 1997 was $42.6 million, which represented short-term borrowings under the Credit Agreement of $45.8 million, partially offset by cash used to retire $3.4 million of Senior Secured Notes. 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 June 28, 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. In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", ("SFAS 130") and No. 131 "Disclosure about Segments of an Enterprise and Related Information", ("SFAS 131"). SFAS 130 established standards for reporting comprehensive income and its components in a full set of general-purpose financial statements. This Statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Both of these statements are effective for fiscal periods beginning after December 15, 1997. The Company has not yet determined the impact, if any, of adopting these standards. 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 $158.3 million as of June 28, 1997. 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. In 1996, the Company produced 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of the Company's shareholders was held on May 13, 1997 (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 2000 Annual Meeting of the Company's shareholders, with the votes for such election as follows:
Director For Withheld Mr. Nicholas P. DiPaolo 13,871,259 231,032 Mr. Jerald S. Politzer 14,057,344 44,947 Mr. Harold Leppo 13,869,837 232,454 Mr. Edward M. Yorke 13,873,759 228,532
(c) At the Annual Meeting, the shareholders approved the Amended and Restated 1996 Stock Plan, which provides for 800,000 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 13,366,861, the shares voting against were 704,372 and the shares abstaining were 31,058. (d) At the Annual Meeting, the shareholders ratified the reappointment of Deloitte & Touche LLP as the Company's independent auditors for the 1997 fiscal year. The shares voting for the ratification were 14,083,053, the shares voting against the ratification were 14,367 and the shares abstaining were 4,871. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K During the second quarter of 1997, the Company did not file any reports on Form 8-K. Exhibits Number Description
10.44 Employment Agreement, dated as of May 1, 1997, between Todd Kahn and Salant Corporation. 10.45 Employment Agreement, dated as of August 18, 1997, between Philip A. Franzel and Salant Corporation. 10.46 Eleventh Amendment to Credit Agreement, dated as of August 8, 1997, to the Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.47 Letter Agreement, dated as of July 18, 1997, between Michael A. Lubin, Lubin Delano & Company and Salant Corporation 27 Financial Data Schedule.
SIGNATURE Pursuant to the requirements 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: August 12, 1997 /s/ Thomas W. Busch ----------------- Thomas W. Busch Controller (Principal Accounting Officer) EX-27 2
5 1000 6-MOS JAN-03-1998 JUN-28-1997 1,336 0 40,391 0 123,272 168,929 28,711 0 256,635 100,190 104,879 0 0 15,394 27,719 256,635 169,601 172,324 133,246 175,546 0 (1,164) 7,378 (9,436) 104 (9,540) 8,716 600 0 (17,656) (1.17) (1.17)
EX-1 3 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this Agreement), dated May 1, 1997 (the "Commencement Date"), between SALANT CORPORATION, a Delaware corporation, (the Corporation) and Todd Kahn (the "Employee"). WHEREAS, the Employee and the Corporation are parties to an Employment Agreement, dated June 1, 1993, as amended by a Letter Agreement dated April 12, 1995; and WHEREAS, the Employee and the Corporation desire to enter into a new 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, Executive Vice-President, General Counsel and Secretary 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 Chief Executive Officer of the Corporation, 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 May 1, 1997 and end on December 31, 1999 (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 immediately prior to the Renewal Term) 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. May 1, 1997 to December 31, 1999) 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 $275,000 per annum payable in equal bi-weekly installments during the Employment Period (the Salary). Commencing in March of 1998, the Salary shall be reviewed for increase. In no event shall the Salary be less than $275,000 per year. (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. 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. Section 5. Expenses and 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) 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); (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); (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 thirty (30) days after receipt of such notice, or, if cure cannot be fully accomplished within thirty (30) days, the Corporation shall not have commenced cure within thirty (30) 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. At all times during the Employment Period, the Corporation shall pay for and maintain professional liability insurance for the benefit of the Employee to the extent provided on the Commencement Date. Section 10. Stock Options. The Corporation shall grant to the Employee non-qualified Stock Options (the Stock Options) representing the right to purchase 65,000 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 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: Jerald S. Politzer If to the Employee, then to the following: Todd Kahn c/o Salant Corporation 1114 Avenue of the Americas New York, New York 10036 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:_____________________________________ Jerald S. Politzer Chairman of the Board and Chief Executive Officer ---------------------------------------- Todd Kahn 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 50% 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 40% 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 5% of his Annual Salary, for each full 5% 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. EX-2 4 1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), August 18 , 1997 (the "Commencement Date"), between SALANT CORPORATION, a Delaware corporation, (the "Corporation") and Philip A. Franzel (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, Executive Vice President and Chief Financial 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 Chief Executive Officer of the Corporation, 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 shallcommence on the Commencement Date and end on December 31, 1999 (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 immediately prior to the Renewal Term) 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. the Commencement Date to December 31, 1999) 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 $300,000 per annum payable in equal bi-weekly installments during the Employment Period (the "Salary"). Commencing in August of 1998, the Salary shall be reviewed for increase. In no event shall the Salary be less than $300,000 per year. (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. The Employee shall not receive a minimum or guaranteed bonus for any year, except that for the 1997 Fiscal Year the Employee shall receive a minimum bonus equal to $150,000 (the "Minimum Bonus"). 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. 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 or Minimum 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. Section 5. Expenses and 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) 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); (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); (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 thirty (30) days after receipt of such notice, or, if cure cannot be fully accomplished within thirty (30) days, the Corporation shall not have commenced cure within thirty (30) 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 a 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 on the Commencement Date 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. At all times during the Employment Period, the Corporation shall pay for and maintain professional liability insurance for the benefit of the Employee to the extent provided on the Commencement Date. Section 10. Stock Options. The Corporation shall grant on the Commencement Date to the Employee non-qualified Stock Options (the "Stock Options") representing the right to purchase 75,000 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. 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 Executive Vice President General Council If to the Employee, then to the following: Philip A. Franzel c/o Salant Corporation 1114 Avenue of the Americas New York, New York 10036 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:_______________________________ Jerald S. Politzer Chairman of the Board and Chief Executive Officer ---------------------------------- Philip A. Franzel 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 50% 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 40% 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 5% of his Annual Salary, for each full 5% 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. EX-3 5 - 1 - July 18, 1997 Michael A. Lubin 767 Third Avenue New York, N.Y. 10017 Dear Mike: This letter (this "Letter Agreement") will confirm the understanding between you and Lubin Delano & Company ("Lubin Delano"), on the one hand and Salant Corporation, a Delaware corporation (together with all of its subsidiaries and affiliates, "Salant") on the other hand, concerning your separation of employment with Salant. Salant and you have mutually agreed as follows: 1. Cancellation of Employment, Employment Agreement and Stock Options. Subject to the Effective Date (as defined below), your employment with Salant will end on July 31, 1997 (the "Separation Date"). As of the Separation Date (i) the Employment Agreement dated February 11, 1997 (the "Employment Agreement"), (ii) the Salant Corporation 1993 Stock Plan Nonstatutory Employee Stock Option Agreement dated October 10, 1995 and, to the extent not therefore exercised, all options thereunder, and (iii) the Letter Agreement dated December 1, 1995 between Salant and Lubin Delano (the "Lubin Delano Agreement") shall each be considered null and void. At 6:00 P.M. eastern standard time, on December 31, 1997, the Salant Corporation 1993 Stock Plan Nonstatutory Employee Stock Option Agreement dated February 11, 1997 and all options thereunder (the "1997 Options"), to the extent not therefore exercised, shall be considered null and void. 2. Effective Date. The term "Effective Date" means the date that Salant receives this Letter Agreement executed by you and you have not revoked this Letter Agreement pursuant to Paragraph 16 herein. In the event that (i) you fail to sign and return this Letter Agreement on or prior to August 15, 1997 or (ii) you revoke the Letter Agreement pursuant to Paragraph 16 herein, the Effective Date and this Letter Agreement shall be null and void. 3. Monetary Obligations. Subject to the Effective Date and your continued performance and compliance with the terms of this Letter Agreement (i) Salant shall continue to pay you your salary in effect on the date hereof and pay Lubin Delano its consulting fee pursuant to the Lubin Delano Agreement, in each case until July 31, 1997 and (ii) on the Effective Date Salant shall pay to Lubin Delano a one-time lump sum payment of $368,149. Salant shall reimburse Lubin Delano within ten (10) business days following submission thereof for actual business expenses incurred by you or it on or prior to July 31, 1997 in connection with the performance by you or Lubin Delano of services for Salant in an amount not to exceed $_______. Until April 30, 1998 you agree to make yourself available to Salant by phone for consultation from time to time. 4. Non-Disclosure and Covenant Not to Compete. (a) Both you and Lubin Delano agree not to communicate with any person or entity, including without limitation, any of Salant's creditors, customers, suppliers, licensors, licensees or employees or any member of the press, about any proprietary or confidential aspect of the business, prospects, operations or financial condition of Salant, unless such communication is (i) authorized in writing by the Board of Directors of Salant or any successor to Salant, or (ii) legally required in the written opinion of counsel; provided that in the event you or Lubin Delano are so required to disclose such confidential information, you or Lubin Delano as the case may be, will give Salant at least ten (10) days' notice (or shorter, but prompt, notice to the extent you are required to respond to legal process in fewer than ten (10) days) prior to any disclosure of confidential information, setting forth the reasons for the disclosure of the confidential information, and you will not oppose any appropriate protective order sought by Salant. Notwithstanding anything contained herein to the contrary, you and Lubin Delano understand that Salant may be legally required to disclose the existence and terms of this Letter Agreement. (b) You covenant and agree that if at any time while the 1997 Options remain outstanding, you or Lubin Delano engage or take part in, 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, 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 Salant or its subsidiaries, as in existence on the date hereof, without the written consent of the Board of Directors of Salant (other than a passive investment in a business which is competitive with or similar to any of the businesses of Salant 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) the 1997 Options shall immediately be considered null and void. In addition, until April 30, 1998, you covenant and agree that you will not, directly or indirectly, (i) hire any person who is employed by Salant as of July 1, 1997 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 Salant. 5. Future Employment. You agree that you will neither seek nor accept employment with Salant or any other company affiliated with Salant at any time in the future. You understand and agree that by entering into this Agreement, you waive the right to reinstatement of employment with Salant. 6. Proprietary Documents. All written materials, records and documents made by you or coming into your possession during your employment by Salant concerning the business or affairs of Salant are the sole property of Salant and, prior to the Separation Date, you shall deliver the same to Salant. 7. Company Property. You agree that prior to the Separation Date you will return any and all of Salant's credit cards, cars, keys, office equipment, computers and any and all other property of Salant. 8. Cooperation. You hereby agree that, at the request of Salant, from time to time, on a reasonable basis, you will be available to Salant, its counsel and accountants to discuss any aspects of Salant's businesses, prospects, operations or financial condition with which you are familiar. Salant agrees to reimburse you for all out-of-pocket expenses reasonably incurred by you in connection with any activities you undertake at Salant's request. 9. Further Actions. From and after the date of this Letter Agreement, you and Lubin Delano, on the one hand, and Salant, on the other hand, shall, at the other party's request , execute and deliver all documents and instruments and take such other action as the other party may reasonably request in order to effect the transactions contemplated by this Letter Agreement. Each of Salant and Lubin Delano represents and warrants that this Letter Agreement has been duly and validly authorized, executed and delivered by it, and constitutes a valid and binding obligation of each of Salant and Lubin Delano enforceable in accordance with its terms. 10. Releases. (a) Effective as of the date hereof, but excluding any liabilities or obligations of Salant arising under this Letter Agreement, you hereby, on behalf of yourself, your heirs, administrators, executors, forever release and discharge Salant and all other affiliates, divisions, subsidiaries and each of their predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, and all persons acting by, through, under or in concert with any of them (collectively referred to in this Paragraph 10 as "Salant") from any and all charges, claims, demands, judgments, actions, causes of action, damages, expenses, costs, attorneys' fees, and liabilities of any kind whatsoever, whether known or unknown, vested or contingent, in law, equity or otherwise (collectively referred to as "Causes of Action"), which you ever had, now have, or may hereafter have against Salant for or on account of any matter, cause or thing whatsoever which has occurred at any time up to the date of this Letter Agreement, including without limitation of the generality of the foregoing, any and all rights or claims which are related to your employment and separation from employment by Salant, and any and all rights or claims which you have or may have under any law, rule or regulation, including without limitation, Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991, as amended; the Age Discrimination in Employment Act of 1967, as amended; the Employee Retirement Income Security Act, as amended; 42 U.S.C. '1981, as amended; the Older Workers Benefit Protection Act; the Americans with Disabilities Act; the Family and Medical Leave Act of 1993; or other state or municipal statutes or ordinances which regulate employment; and the laws of contracts, torts, including but not limited to intentional infliction of emotional distress, and other subjects. The release set forth herein is in consideration of the receipt of the sum stated herein which you acknowledge is in addition to anything of value to which you are otherwise entitled. Nothing in this Letter Agreement shall be deemed an admission of liability by Salant relating in any way to your employment by Salant, the terms of your separation, or the obligations of Salant with respect to any of the foregoing. Notwithstanding the foregoing, nothing in this Letter Agreement shall be deemed to affect in any way (i) your or Lubin Delano's right to seek indemnification or contribution from Salant in the event you or Lubin Delano are hereafter the subject of any third-party claim or derivative claim on behalf of Salant arising out of or relating to any act or omission by you or Lubin Delano during the course of your employment by Salant or Lubin Delano's engagement by Salant, to the extent such right would have otherwise existed or (ii) any rights or assets which you may have with respect to pension, 401(K) plan or other qualified plan under the Employment Retirement Income Security Act of 1974 or under the Comprehensive Budget Reconciliation Act of 1985. (b) Effective as of the date hereof, but excluding any of your liabilities or obligations arising under this Letter Agreement, Salant, on behalf of itself, its affiliates, and subsidiaries and their respective successors and assigns, forever releases and discharges you, and your respective heirs, administrators, executors, relatives, affiliates, subsidiaries, predecessors, successors, assigns, representatives, attorneys, and all persons acting by, through, under or in concert with any of them (collectively referred to in the paragraph 10(b) as "you") from any and all Causes of Action, which Salant or any one or more of them ever had, now has, or may hereafter have against you for or on account of any matter, cause or thing whatsoever which has occurred at any time up to the date of this Letter Agreement, including without limitation of the generality of the foregoing, any and all rights or claims which are related to your employment and separation from employment from Salant, and any and all rights or claims which Salant or any of the foregoing persons has or may have under any law, rule or regulation, state or municipal statutes or ordinances, and the laws of contracts, torts and other subjects. The release set forth herein is in consideration of the execution and delivery of this Letter Agreement by you which Salant acknowledges is in addition to anything of value to which it is otherwise entitled. Nothing in this Letter Agreement shall be deemed an admission of liability by you or any of the foregoing persons relating in any way to your relationship with Salant, the terms of your separation, or your obligations that you or any of the foregoing persons with respect to any of the foregoing. Notwithstanding anything contained herein to the contrary, you are not released and Salant reserves its rights in law, equity or otherwise, from any and all Causes of Action which are a result of or predicted on conduct described in Section 2(b) of the Employment Agreement. 11. Entire Agreement; Amendments. This Letter Agreement embodies the entire agreement and understanding between you and Salant and supersedes all prior agreements and understandings relating to the subject matter hereof. No amendment, waiver, modification or discharge of any of the terms of this Letter Agreement shall be valid unless in writing and signed by the party against which enforcement is sought. 12. Successors and Assigns. This Letter Agreement shall be binding upon and inure to the benefit of the successors, assigns, representatives, affiliates, parents, subsidiaries, heirs, executors and administrators of the parties hereto and their officers, directors, stockholders, employees, servants and agents. 13. Governing Law; Submission to Jurisdiction. The validity, performance and enforcement of this Letter Agreement shall be governed by the internal laws of the State of New York. For purposes of any action or proceeding involving this Agreement, you, Lubin Delano and Salant hereby expressly submit to the jurisdiction of all federal and state courts of competent jurisdiction sitting within the area comprising the Southern District of New York on the date of this Letter Agreement and consent to service of any process or papers by registered mail or by personal service within or without the State of New York. 14. Headings. The headings of the various sections hereof are for convenience of reference only and will not modify any of the terms or provisions of this Letter Agreement. 15. Method of Notice. All notices or other communications required to be given pursuant to this Letter Agreement shall be in writing and shall be mailed, by registered or certified mail, return receipt requested, and shall be addressed as follows: a) if to Salant: Salant Corporation 1114 Avenue of the Americas New York, New York 10036 Attn: Todd M. Kahn Vice President and General Counsel b) if to Michael A. Lubin or Lubin Delano Michael A. Lubin c/o Lubin, Delano & Company 767 Third Avenue New York, N.Y. 10017 Any party may, from time to time, change its address for future notices and other communications hereunder by giving notice in the manner described herein to the other party hereto. 16. Revocation Period. YOU UNDERSTAND THAT YOU HAVE TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER AND SIGN THIS AGREEMENT AND THAT YOU MAY REVOKE THIS AGREEMENT BY WRITTEN NOTICE SENT IN ACCORDANCE WITH PARAGRAPH 15 HEREIN, ANY TIME BEFORE THE EXPIRATION OF SEVEN (7) DAYS FOLLOWING EXECUTION OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED. 17. Acknowledgement. YOU ACKNOWLEDGE THAT SALANT HAS ADVISED YOU TO CONSULT WITH AN ATTORNEY PRIOR TO THE EXECUTION OF THIS AGREEMENT. YOU FURTHER ACKNOWLEDGE THAT YOU HAVE HAD THE OPPORTUNITY TO ASK QUESTIONS ABOUT EACH AND EVERY PROVISION OF THIS AGREEMENT AND THAT YOU FULLY UNDERSTAND THE EFFECT OF THE PROVISIONS CONTAINED HEREIN UPON YOUR LEGAL RIGHTS. SALANT ACKNOWLEDGES THAT YOU HAVE CONSULTED WITH AND BEEN ADVISED BY NIXON, HARGRAVE, DEVANS & DOYLE LLP CONCERNING THIS LETTER AGREEMENT AND WAIVES ANY CONFLICT OF INTEREST THAT MAY ARISE OUT OF OR RELATE TO SUCH REPRESENTATION OF YOU BY NIXON, HARGRAVE, DEVANS & DOYLE LLP. Very truly yours, SALANT CORPORATION By: Todd Kahn Executive Vice President and General Counsel ACCEPTED AND AGREED TO as of _______________, 1997: MICHAEL A. LUBIN LUBIN, DELANO & COMPANY: By:_________________________ Its STATE OF ____________, COUNTY OF On ______________, 1997, before me personally came Michael A. Lubin to me known, and known to me to be the individual(s) described in, and who executed the foregoing Letter Agreement, and duly acknowledged to me that he executed the same. STATE OF ____________, COUNTY OF On ______________, 1997, before me personally came __________________ to me known and known to me to be the _______________________ of Lubin, Delano & Company, and who executed the foregoing Letter Agreement on behalf of Lubin, Delano & Company, and duly acknowledged to me that he executed the same . EX-4 6 ELEVENTH AMENDMENT TO CREDIT AGREEMENT ELEVENTH AMENDMENT TO CREDIT AGREEMENT, dated as of August __, 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"), the Ninth Amendment to Credit Agreement, dated as of August 16, 1996 (the "Ninth Amendment") and by the Tenth Amendment to Credit Agreement, dated as of February 20, 1997 (the "Tenth 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 that Lender (a) waive a certain existing Event of Default under the Credit Agreement and (b) amend the Credit Agreement to (i) amend certain provisions relating to Revolving Loans in respect of Eligible Inventory provided for in the Credit Agreement and (ii) amend the stockholders' equity financial covenant set forth therein; and WHEREAS, Lender is willing to waive such existing Event of Default and to make such amendments to the Credit Agreement upon the terms and subject to the conditions set forth in this Eleventh Amendment to Credit Agreement (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. Waiver of Event of Default. Borrower has defaulted under Section 7.19 of the Credit Agreement, as a result of its breach of the financial covenant set forth therein (the "Subject Covenant") for the period ended June 28, 1997. As a result of the foregoing, an Event of Default (the "Subject Default") has occurred under Section 8.1(d) of the Credit Agreement and is continuing. In response to Borrower's request on or about the date hereof for a waiver of the Subject Default, Lender hereby waives the Subject Default, provided, however, that nothing contained herein shall be construed to limit, impair or otherwise affect any rights of Lender in respect of any future non-compliance with the Subject Covenant, as amended by this Amendment, or with any other covenant, term or provision of the Credit Agreement or any of the other Financing Agreements. 3. Amendments to Section 1.5A. Clause (a) of the definition of "Applicable Margin" set forth in Section 1.5A of the Credit Agreement is hereby amended in its entirety to read as follows: "(a)(i) in the case of Prime Rate Loans, three-quarters (.75%) percent, and (ii) in the case of Eurodollar Loans, three (3%) percent,..." 4. 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 (x) the period from May 1, 1997 through and including October 25, 1997 and (y) for the months of May, June, July and August of 1998, such advance rate shall be sixty percent (60%) of the value of Eligible Inventory." 5. 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, (x) the period from May 1, 1997 through and including October 25, 1997 and (y) for the months of May, June, July and August of 1998, the Inventory Sublimit shall not exceed $70,000,000. On or before October 25, 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 October 16, 1997 and on September 1, 1998, respectively, based on an advance rate of fifty percent (50%) of the value of Eligible Inventory, and (B) the Inventory Sublimit as in effect on October 16, 1997 and on September 1, 1998, respectively. Borrower's failure to pay the Inventory Overadvance in full on or before October 25, 1997 or on or before September 10, 1998 (as applicable) shall constitute an Event of Default under Section 8.1(a) of this Agreement." 6. 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 at any time during the period from June 29, 1996 through the day before the last day of its 1996 fiscal year, $52,000,000 at any time during the period from January 1, 1997 through May 31, 1997, $47,000,000 at any time during the period from June 1, 1997 through September 27, 1997, $52,000,000 during the period September 28, 1997 through the day before the last day of its 1997 fiscal year and $58,000,000 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 1996 fiscal year." 7. Waiver and Amendment Fee. In consideration of Lender's waiver of the existing Event of Default and the Amendments to the Credit Agreement requested by Borrower and provided for in paragraphs 3, 4, 5 and 6 of this Amendment, Borrower is obligated to pay to Lender, contemporaneously with the execution hereof, an amendment fee in the amount of $100,000. Such amendment fee is earned in full as of the date hereof, shall not be refundable in whole or in part for any reason whatsoever, and may be charged, at Lender's sole option, to any account of Borrower maintained by Lender. 8. 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. 9. 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. 10. 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. 11. Counterparts. This Amendment may be executed in counterpart, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 12. 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 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 Eleventh Amendment to Credit Agreement, dated as of August __, 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 August, 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: J.J. FARMER CLOTHING, INC. By: Title: -----END PRIVACY-ENHANCED MESSAGE-----