-----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, DdQ+N5a7uHB8BGEE4Pqu+vLpveiHGgJkpnrcqU+KdYErJRCdwn/6LvmGuAdv6S9B ek4U5Np3APi9mUigg2sD6w== 0000086346-02-000006.txt : 20020415 0000086346-02-000006.hdr.sgml : 20020415 ACCESSION NUMBER: 0000086346-02-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011229 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALANT CORP CENTRAL INDEX KEY: 0000086346 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 133402444 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06666 FILM NUMBER: 02593433 BUSINESS ADDRESS: STREET 1: 1114 AVE OF THE AMERICAS STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2122217500 MAIL ADDRESS: STREET 1: 1058 CLAUSSEN RDSTE 101 CITY: AUGUSTA STATE: GA ZIP: 30907 10-K 1 form10k_2001.txt FORM 10-K FOR 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 29, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-6666 SALANT CORPORATION (Exact name of registrant as specified in its charter) 1114 Avenue of the Americas, New York, New York 10036 Telephone: (212) 221-7500 Incorporated in the State of Delaware Employer Identification No. 13-3402444 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $1 per share, Trading Over-The-Counter - Bulletin Board Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ - Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No __ - As of March 20, 2002, there were outstanding 9,901,140 shares of the Common Stock of the registrant. Based on the closing price of the Common Stock on such date, the aggregate market value of the voting stock held by non-affiliates of the registrant on such date was $9,870,532. For purposes of this computation, shares held by affiliates and by directors and executive officers of the registrant have been excluded. Such exclusion of shares held by directors and executive officers is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. Documents incorporated by reference: The definitive Proxy Statement of Salant Corporation to be filed relating to the 2002 Annual Meeting of Stockholders is incorporated by reference in Part III hereof. TABLE OF CONTENTS Page PART I Item 1. Business 3 Item 2. Properties 5 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Consolidated Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item7A. Quantitative and Qualitative Disclosures about Market Risk 20 Item 8. Financial Statements and Supplementary Data 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 46 PART III Item 10. Directors and Executive Officers of the Registrant 46 Item 11. Executive Compensation 46 Item 12. Security Ownership of Certain Beneficial Owners and Management 46 Item 13. Certain Relationships and Related Transactions 46 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 46 SIGNATURES
PART I ITEM 1. BUSINESS Introduction. Salant Corporation ("Salant" or the "Company"), which was incorporated in Delaware in 1987, is the successor to a business founded in 1893 and incorporated in New York in 1919. The Company designs, produces, imports and markets to retailers throughout the United States brand name and private label menswear apparel products. The Company currently sells its products to department stores, specialty stores, major discounters and national chains throughout the United States. As an adjunct to its apparel operations the Company operates 39 retail outlet stores in various parts of the United States. The Company operates in the following business segments: (i) men's apparel wholesale and (ii) retail outlet operations. These segments are more fully described below. (As used herein, the "Company" includes Salant and its subsidiaries.) Bankruptcy Court Case. On December 29, 1998 (the "Filing Date"), Salant filed a voluntary petition under chapter 11 of the Bankruptcy Code with the Bankruptcy Court (the "1998 Case") in order to implement a restructuring of its 10-1/2 % Senior Secured Notes due December 31, 1998 (the "Senior Notes"). Salant also filed its plan of reorganization (the "Plan") with the Bankruptcy Court on the Filing Date in order to implement its restructuring. On April 16, 1999, the Bankruptcy Court issued an order confirming the Plan (the "Confirmation Order"). The Plan was effective on May 11, 1999 (the "Effective Date"). On November 30, 2001, the Bankruptcy Court approved the closing of the Company's 1998 Case. Pursuant to the Plan (i) all of the outstanding principal amount of Senior Notes, plus all accrued and unpaid interest thereon, was converted into 95% of Salant's new common stock, subject to dilution, and (ii) all of Salant's existing old common stock was converted into 5% of Salant's new common stock, subject to dilution. Salant's general unsecured creditors (including trade creditors) were unimpaired under the Plan and were entitled to be paid in full. Men's Apparel - Wholesale. In fiscal 2001, the Company's ongoing wholesale business was primarily comprised of Perry Ellis products. The Company markets accessories, dress shirts, slacks and sportswear under the PERRY ELLIS and PORTFOLIO BY PERRY ELLIS trademarks. The Company also markets products under the TRICOTS ST. RAPHAEL trademark, which was purchased in January 2001 and a limited amount of private label products. Retail Outlet Operations. The Company's retail outlet stores business consists of a chain of outlet stores (the "Stores division"), through which it sells products manufactured by the Company and other Perry Ellis licensed manufacturers. At the end of fiscal 2001, the Company operated 39 Perry Ellis outlet stores. Significant Customers. Approximately 18% of the Company's sales were made to Dillards Corporation ("Dillards") in 2001, 2000 and 1999. In addition, approximately 15% of the Company's sales, in 2001 were made to Federated Department Stores, Inc. ("Federated"), along with approximately 12% of the Company's sales being made to each of the May Company ("May") and Marmaxx Corporation ("Marmaxx"). In 2000 and 1999, approximately 19% of the Company's sales were made to Federated. Also in 2000 and 1999, approximately 17% and 16%, respectively, of the Company's sales were made to May, and approximately 13% of the Company's sales were made to Marmaxx in both 2000 and 1999. No other customer accounted for more than 10% of sales during 2001, 2000 or 1999. Trademarks. The markets in which the Company operates are highly competitive. The Company competes primarily on the basis of brand recognition, quality, fashion, price, customer service and merchandising expertise. Approximately 89.4% of the Company's net sales for 2001 were attributable to products sold under the licensed Perry Ellis trademarks, primarily PERRY ELLIS and PORTFOLIO BY PERRY ELLIS (the "Perry Ellis Trademarks"); these products are sold primarily through leading department and specialty stores. The balance is attributable to products sold under retailers' private labels and other owned or licensed trademarks. In January 2002, the Company purchased the assets and trademarks of Axis Clothing Corporation ("Axis"). Axis designs, produces and markets men's designer sportswear for various channels of distribution, including specialty stores. Subsequent to the purchase of Axis, the Company signed a license agreement with Freed & Freed International to market, manufacture and distribute outerwear under the Axis label. Trademarks Licensed to the Company. The Perry Ellis Trademarks are licensed to the Company under Licenses with Perry Ellis International, Inc. ("PEI"). The license agreements contain renewal options, which, subject to compliance with certain conditions contained therein, permit the Company to extend the terms of such license agreements. Assuming the exercise by the Company of all available renewal options, the license agreements covering men's apparel and accessories will expire on December 31, 2015. On January 28, 1999, PEI and Supreme International Corporation ("Supreme") announced that they had entered into a definitive agreement under which Supreme would acquire for cash all of the stock of PEI. On April 7, 1999, Supreme completed the acquisition of PEI and became Salant's licensor under the Perry Ellis Licenses. In 2001, the Company entered into a license agreement with Ocean Pacific Apparel Corporation ("OP") to design, produce and distribute men's sportswear, including big and tall lines, throughout the United States. In connection with the OP license agreement, the Company signed a one-year agreement providing for JC Penney to be the exclusive retailer of the OP products it produces. In 2000, the Company entered into a license agreement with Hartz & Company, Inc. ("Hartz") to design, produce and distribute sportswear and furnishings for Hartz's exclusive Tallia brand. This agreement was terminated, by its terms, at the end of the first quarter 2002. Design and Production. Products sold by the Company's various divisions are produced to the designs and specifications (including fabric selections) of designers employed by those divisions. In limited cases, the Company's designers also receive input from the Company's licensors on general themes and color palettes. During 2001, approximately 1.9% of the units produced by the Company were manufactured in the United States, with the balance manufactured in foreign countries. The units produced by the Company were attributable to unaffiliated contract manufacturers. In 2001, approximately 23.5% of the Company's foreign production was manufactured in Guatemala, approximately 14.8% was manufactured in the Dominican Republic and approximately 11.3% was manufactured in Hong Kong with the balance produced in various other foreign countries. The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations (although the predominant currency used is the U.S. dollar), quotas and, in certain parts of the world, political instability. Although the Company's operations have not been materially adversely affected by any of such factors to date, any substantial disruption of its relationships with its foreign suppliers could adversely affect its operations. Some of the Company's imported merchandise is subject to United States Customs duties. In addition, bilateral agreements between the major exporting countries and the United States impose quotas, which limit the amounts of certain categories of merchandise that may be imported into the United States. Any material increase in duty levels, material decrease in quota levels or material decrease in available quota allocations could adversely affect the Company's operations. Raw Materials. The raw materials used in the Company's production operations consist principally of finished fabrics made from natural, synthetic and blended fibers. These fabrics and other materials, such as leathers used in the manufacture of various accessories, are purchased from a variety of sources both within and outside the United States. The Company believes that adequate sources of supply at acceptable price levels are available for all such materials. Substantially all of the Company's foreign purchases are denominated in U.S. currency. During fiscal 2001, two suppliers each accounted for more than 10% of Salant's raw material purchases. Competition. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line manufacturers (such as the Company) and a larger number of specialty manufacturers. The Company faces substantial competition in its markets from companies in both categories. Many of the Company's competitors have greater financial resources than the Company. The Company seeks to maintain its competitive position in the markets for its branded products on the basis of the strong brand recognition associated with those products and, with respect to all of its products, on the basis of styling, quality, fashion, price and customer service. Environmental Regulations. Current environmental regulations have not had, and in the opinion of the Company, assuming the continuation of present conditions, are not expected to have a material effect on the business, capital expenditures, earnings or competitive position of the Company. Seasonality of Business and Backlog of Orders. This information is included under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Employees. As of the end of 2001, the Company employed 617 persons, of whom 193 were engaged in distribution operations and the remainder were employed in executive, marketing and sales, product design, general and administrative, engineering and purchasing activities and in the operation of the Company's retail outlet stores. The Company believes that its relations with its employees are satisfactory. Employees at the Company's Winnsboro, South Carolina distribution facility, are covered by a collective bargaining agreement. ITEM 2. PROPERTIES The Company's principal executive offices are located at 1114 Avenue of the Americas, New York, New York 10036. During 1999 and 2000, the Company sold or closed all manufacturing and distribution facilities, except for the owned distribution facility in South Carolina which has 360,000 square feet of space devoted to distribution. The Company also has a short-term lease for an additional 26,000 square feet of distribution space. The Company leases approximately 107,000 square feet of combined office, design and showroom space. As of the end of 2001, the Company's Stores division operated 39 retail outlet stores, comprising approximately 100,000 square feet of selling space, all of which are leased. Except as noted above, substantially all of the owned and leased property of the Company is used in connection with its men's apparel business or general corporate administrative functions. In connection with the acquisition of Axis, the Company assumed or signed leases that would add approximately 30,000 square feet of distribution, office, design and showroom space. The Company believes that its facilities and equipment are adequately maintained, in good operating condition, and are adequate for the Company's present needs. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in several legal actions. In the opinion of the Company's management, based upon the advice of the respective attorneys handling such cases, such actions are not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flow. The Company is a defendant in a declaratory judgment action, captioned Hartford Fire Insurance Company v. Salant Corporation, Index No. 60233/98, in the Supreme Court of the State of New York, County of New York (the "Hartford Action"). The Company's insurers seek a declaratory judgment that the claims asserted against the Company in a lawsuit captioned Maria Delores Rodriguez-Olvera, et al. v. Salant Corp., et al., Case No. 97-07-14605-CV, in the 365th Judicial District Court of Maverick County, Texas (the "Rodriguez-Olvera Action") are not covered under the policies that the insurers had issued. The Company's insurers nevertheless provided a defense to the Company in the Rodriguez-Olvera Action and paid $30 million to settle the case without prejudice to their positions in the Hartford Action. Currently, there are discussions being held with a view to reaching an agreement for the settlement of the Hartford Action; if the settlement proposal is achieved as contemplated, management believes there would be no material impact on the Company's financial position or the results of operations. Pending such a settlement of this action, Salant's insurers have not withdrawn their reservation of rights, and the possibility remains that one or more of such insurers will seek recourse against Salant. Management believes that the liability for the Company should not exceed $0.25 million, its deductible on the insurance policy with Hartford Fire Insurance Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 2001, no matter was submitted to a vote of security holders of Salant by means of the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Salant's common stock is currently trading on the Over-the-Counter Bulletin Board under the trading symbol SLNT.OB. The high and low sale prices per share of common stock for each quarter of 2001 and 2000 are set forth below. The Company did not declare or pay any dividends during such years. The Company's financing agreement requires the satisfaction of certain net worth tests and other financial benchmarks prior to having the right to pay any cash dividends. As of December 29, 2001, the Company was prohibited from paying cash dividends by reason of, among other things, these provisions. High and Low Sale Prices Per Share of Salant's Common Stock Quarter High Low 2001 Fourth $2.050 $1.640 Third 2.590 1.600 Second 4.000 2.650 First 3.250 2.625 2000 Fourth $3.000 $1.875 Third 3.250 2.500 Second 3.060 1.620 First 3.120 1.870 On March 20, 2002 there were 970 holders of record of shares of common stock, and the closing market price was $2.55. All of the outstanding voting securities of the Company's subsidiaries are owned beneficially and of record by the Company (except for shares of certain foreign subsidiaries of the Company owned of record by others to satisfy local laws). ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (Amounts in thousands except share, per share and ratio data) The following selected consolidated financial data as of December 30, 2000 and December 29, 2001 and for each of the fiscal years in the three year period ended December 29, 2001 have been derived from the Consolidated Financial Statements of the Company, which have been audited by Deloitte & Touche LLP, whose report thereon appears under Item 8, "Financial Statements and Supplementary Data". The selected consolidated balance sheet data for fiscal years 1997 through 1999 and statement of operations data for fiscal years 1997 and 1998 have been derived from the Company's audited consolidated financial statements, which are not included herein. Such consolidated financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Consolidated Financial Statements, including the related notes thereto, included elsewhere herein.
Dec. 29, Dec. 30, Jan. 01, Jan. 02, Jan. 03, 2001 2000 2000 1999 1998 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) For The Year Ended: Continuing Operations: Net sales $207,773 $208,303 $248,730 $300,586 $ 347,667 Restructuring costs (a) 100 629 (4,039) (24,825) (2,066) (Loss)/income from continuing operations before discontinued operations and extraordinary gain (2,149) 12,711 (2,148) (56,775) (8,394) Discontinued Operations: Income/(loss) from operations, net of income taxes 273 569 (1,955) (10,163) (10,464) Loss on disposal, net of income taxes - - - (5,724) (1,330) Extraordinary gain (b) - - 24,703 - 2,100 Net (loss)/income(a) (1,876) 13,280 20,600 (72,662) (18,088) Basic and diluted (loss)/earnings per share (d) (Loss)/earnings per share from continuing operations before discontinued operations and extraordinary gain (a) $(0.22) $1.28 $(0.21) $(5.68) $(0.84) Earnings/(loss) per share from discontinued operations .03 .06 (0.20) (1.59) (1.18) Earnings per share from extraordinary gain - - 2.47 - 0.21 Basic and diluted (loss)/earnings per share (a) (0.19) 1.34 2.06 (7.27) (1.81) Cash dividends per share - - - - - At Year End: Current assets $91,897 $102,859 $93,331 $149,697 $147,631 Total assets 119,587 130,548 121,803 176,129 228,583 Current liabilities (c) 18,272 27,533 32,069 201,766 180,898 Deferred liabilities 6,232 5,642 4,133 5,273 5,382 Working capital/(deficiency) 74,625 75,326 61,262 (52,069) (33,267) Current ratio 5.0:1 3.7:1 2.9:1 0.7:1 0.8:1 Shareholders' equity / (deficiency) $95,083 $97,373 $85,601 $(30,910) $42,303 Book value per share $9.60 $9.83 $8.65 $(2.04) $2.79 Number of shares outstanding 9,901 9,901 9,901 15,171 15,171 Pro forma Book value per share - - - $(3.09) $4.23 Pro forma number of shares outstanding - - - 10,000 10,000
(a)Includes, for the year ended December 29, 2001 a reversal of $100 ($0.01 per share; tax benefit not available) related primarily to better than anticipated recovery on certain assets. For the year ended December 30, 2000 a reversal of $629 ($0.06 per share; tax benefit not available) related primarily to better than anticipated recovery on the sale of assets and settlement of previously recorded liabilities. For the year ended January 1, 2000, a provision for $4,039 ($0.40 per pro forma share; tax benefit not available) for restructuring costs related primarily to severance for employees terminated in connection with the Company's restructuring and exit from its non-Perry Ellis businesses. For the year ended January 2, 1999, a provision of $24,825 ($2.48 per pro forma share; tax benefit not available) for restructuring costs primarily related to the Company's intention to focus solely on its Perry Ellis men's apparel business and, as a result, exit its non-Perry Ellis menswear divisions. For the year ended January 3, 1998, a provision of $2,066 ($0.21 per pro forma share; tax benefit not available) for restructuring costs principally related to (i) $3,530 in connection with the decision in the fourth quarter to close all retail outlet stores other than Perry Ellis outlet stores and (ii) the reversal of previously recorded restructuring provisions of $1,464, primarily resulting from the settlement of liabilities for less than the carrying amount, resulting in the reversal of the excess portion of the provision. See Note 3. - Restructuring Costs to the Consolidated Financial Statements for additional discussion regarding years 1998-2001. (b) Includes, for the year ended January 1, 2000, a gain of $24,703 ($2.47 per pro forma share) related to the conversion of all the Senior Notes and the related unpaid interest into equity. For the year ended January 3, 1998, a gain of $2,100 ($0.21 per pro forma share) related to the reversal of excess liabilities previously provided for the anticipated settlement of claims arising from the Company's 1990 Chapter 11 proceeding. (c) At January 1, 2000 the Senior Notes had been converted into equity. At January 2, 1999 and January 3, 1998, long term debt of $104,879 was classified as liabilities subject to compromise and as a current liability, respectively. See Note 1. - Financial Reorganization to the Consolidated Financial Statements. (d) Pro forma basic income/(loss) per share is based on the weighted average number of common shares as if the New Common Stock had been issued at the beginning of the earliest period presented for fiscal 1999, 1998 and 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview The Company markets accessories, dress shirts, slacks and sportswear primarily to department stores principally under the PERRY ELLIS and PORTFOLIO BY PERRY ELLIS trademarks. In fiscal 2001 and 2000, the Company's ongoing business was primarily comprised of Perry Ellis products. In connection with the 1998 Case, Salant filed the Plan with the Bankruptcy Court in order to implement its restructuring. The restructuring consisted of two key components: (i) the conversion of all principal and accrued interest on the Senior Notes into 95% of new common stock of Salant; and (ii) the sale or disposal of substantially all of the Company's businesses other than the businesses conducted under the Perry Ellis Trademarks. In December 1998, the Company decided to discontinue the operations of the Children's Group, which produced and marketed children's blanket sleepers, pajamas, sleepwear and underwear primarily using a number of well-known licensed characters and trademarks. The consolidated financial statements and the notes thereto reflect the Children's Group as a discontinued operation. See "Critical Accounting Policies and Estimates" and "Factors that May Affect Future Results and Financial Condition", included as part of this "Management's Discussion and Analysis of Financial Condition and Results of Operations" for factors that may effect the results of operations or liquidity. Results of Operations Fiscal 2001 Compared with Fiscal 2000 Net Sales In fiscal 2001, net sales of $207.8 million were $0.5 million, or 0.3%, less than net sales of $208.3 million in fiscal 2000. In the Company's wholesale segment, net sales for fiscal 2001 were $181.6 million, a decrease of 0.7%, compared to net sales of $182.9 million in fiscal 2000. Newly acquired and licensed wholesale businesses offset the sales declines and accounted for $17.1 million of net sales in fiscal 2001. The Company's retail segment had net sales of $26.1 million in fiscal 2001, an increase of 2.8%, compared to net sales of $25.4 million for fiscal 2000. The decrease in the wholesale segment reflects the overall softness in the retail apparel sector of the economy, particularly at the department store level of distribution. This market softness caused an increase in the level of returns and order cancellations from retail accounts, additional markdowns to retail accounts to clear out unsold inventory, and lower recoveries on the disposal of closeout inventory. The increase in net sales for the retail segment was the result of the additional net sales contribution from new retail outlet stores opened during 2001. Gross Profit In fiscal 2001, gross profit of $45.4 million was $10.2 million less than gross profit of $55.6 million in fiscal 2000. Gross profit margin decreased from 26.7% in fiscal 2000 to 21.9% in fiscal 2001. The Company's wholesale segment's gross profit percentage for fiscal 2001 was 18.7% of net sales, compared to 24.0% in fiscal 2000. In the Company's retail segment, gross profit percentage was 43.8% of net sales in fiscal 2001 compared to 46.2% in fiscal 2000. The margin decrease in both of the Company's segments was caused by the various factors discussed in Net Sales above. Selling, General and Administrative Expenses Selling, general and administrative expenses (S,G&A) for fiscal 2001 were $47.8 million, or 23.0% of net sales, compared to $45.2 million, or 21.7% of net sales, in fiscal 2000, an increase of $2.6 million, or 5.8 %. SG&A expenses for newly acquired and licensed businesses increased from $0.8 million for fiscal 2000 to $5.5 million in fiscal 2001. This increase was partially offset by $1.0 million reversal of accruals established for claims relating to the Chapter 11 case and by lower employee costs and other reductions of overhead. Royalty Income Royalty income decreased by $0.5 million, or 74.1%, to $0.2 million in fiscal 2001 from $0.7 million in fiscal 2000. The decrease in royalties was due to the termination of a sublicense. Provision for Restructuring In the fourth quarter of fiscal 2001, the Company recorded a net reversal of $0.1 million due to favorable recovery of assets and settlement of previously recorded liabilities, partially offset by increased severance costs related to medical benefits. During 2001, the Company used approximately $0.4 million of its restructuring reserves related to consulting and employee costs of $0.3 million and for lease payments, operating expenses and other restructuring costs of $0.1 million. At the end of fiscal 2001, $0.6 million remained in the reserve of which $0.5 million relates to severance and other employee costs, $0.1 million for lease buyouts and other restructuring items. During fiscal 2000, the Company realized $0.6 million in favorable recoveries on the disposal and sale of buildings and other assets and settlements of previously recorded liabilities, partially offset by an increase in the estimated severance related to the closure of the Company's Mexican manufacturing operations. During 2000, the Company incurred approximately $0.9 million of restructuring costs that were provided for in 1999 and 1998. These costs included severance and employee costs of $0.5 million, lease payments of $0.1 million and the remaining balance for other restructuring costs, offset by $0.3 million of gains from the sale of property, plant and equipment. Interest Income / Expense, Net In fiscal 2001, net interest income was $0.3 million compared to net interest income of $1.2 million in fiscal 2000. The decrease was due to lower interest rates and the use of cash for operations. Loss/Income from Continuing Operations before Discontinued Operations and Extraordinary Gain In fiscal 2001, the Company's loss from continuing operations before discontinued operations and extraordinary gain was $2.1 million, or $0.22 per share, compared to income of $12.7 million, or $1.28 per share, in fiscal 2000. Earnings before Interest, Taxes, Depreciation, Amortization, Reorganization Costs, Restructuring Charges, Discontinued Operations and Extraordinary Gain Earnings before interest, taxes, depreciation, amortization, reorganization costs, restructuring charges, discontinued operations and extraordinary gain was $2.4 million (1.1% of net sales) in fiscal 2001, compared to $15.5 million (7.4% of net sales) in fiscal 2000, a decrease of $13.1 million, or 84.5%. The Company believes this information is helpful in understanding cash flow from continuing operations, which is available for potential acquisitions and capital expenditures. This measure is not included in generally accepted accounting principles and is not a substitute for operating income, net income or cash flows from operating activities. Income / Loss from Discontinued Operations For the fourth quarter of fiscal 2001, the Company recorded income of $0.3 million related to better than anticipated settlement of liabilities related to it's Children's business. At the end of fiscal 2001, $0.5 million remained in the reserve of which approximately $0.4 million was for severance and the remaining balance related to the settlement of liabilities and other closing costs. In fiscal 2000, the Company recorded income of $0.6 million related to the discontinuance of its Children's group. The income related primarily to better than anticipated recovery on the sale of assets (primarily the real estate holdings) related to the Children's business. Net Loss/Income Net loss for fiscal 2001 was $1.9 million, or $0.19 per share, compared to income of $13.3 million, or $1.34 per share for fiscal year 2000. Fiscal 2000 Compared with Fiscal 1999 Net Sales In fiscal 2000, net sales of $208.3 million were $40.1 million, or 16.1%, less than net sales of $248.4 million in fiscal 1999. The decrease resulted from the Company's exit from its non-Perry Ellis businesses during 1999, namely its Manhattan, John Henry, Gant and private label dress shirt and accessories businesses and its private label bottoms business. Net sales for these businesses in fiscal 1999 were $44.5 million, compared to none in fiscal 2000. Net sales for the Company's ongoing Perry Ellis and private label businesses for fiscal 2000 were $208.3 million, an increase of $4.4 million, or 2.1%, over fiscal 1999 net sales of $203.9 million. Of the increase, net sales of the Company's Perry Ellis retail outlet stores (36 stores at the close of fiscal 2000 compared to 28 stores at the close of fiscal 1999) increased $8.1 million, or 47.0%. Net sales of Perry Ellis men's apparel at wholesale in fiscal 2000 were unchanged at $178 million compared to fiscal 1999. Weakness at retail in the men's accessories business in 2000 and closing the Company's Canadian operations in fiscal year 1999 offset increases in other product lines. Excluding the men's accessories business, the Company's net sales of men's apparel at wholesale increased 5.4% in 2000. Gross Profit In fiscal 2000, gross profit of $55.6 million was $0.4 million less than gross profit of $56.0 million in fiscal 1999. Gross profit margin increased from 22.5% in fiscal 1999 to 26.7% in fiscal 2000. Gross profit for the non-Perry Ellis businesses exited by the Company in fiscal 1999 (as noted above) was $(1.5) million, or (3.5)%, which caused the decline in the Company's overall margin for 1999. Gross profit for the Company's ongoing Perry Ellis and private label businesses decreased to $55.5 million, or 26.7% of net sales, in fiscal 2000 compared to $57.1 million, or 28.1%, in fiscal 1999. The decline in margin was primarily due to the weakness in the men's accessories business, noted above. The Company has also experienced a decline in the margins for closeout sales of prior season Perry Ellis products. Selling, General and Administrative Expenses Selling, general and administrative expenses (S,G&A) for fiscal 2000 were $45.2 million, or 21.7% of net sales, compared to $54.9 million, or 22.1% of net sales, in fiscal 1999, a decrease of $9.7 million, or 17.7%. As part of the Company's restructuring noted above, headcount in S,G&A was reduced resulting in a reduction in salaries and related benefits. In addition, the Company realized savings due to the reduced overhead associated with its reorganization. Royalty Income Royalty income decreased by $1.2 million, or 61.4%, to $0.7 million in fiscal 2000 from $1.9 million in fiscal 1999. The decrease in royalties was due to the sale of the John Henry and Manhattan trademarks at the end of the first quarter of fiscal 1999. Provision for Restructuring During fiscal 2000, the Company realized $0.6 million in favorable recoveries on the disposal and sale of buildings and other assets and settlements of previously recorded liabilities, partially offset by an increase in the estimated severance related to the closure of the Company's Mexican manufacturing operations. During 2000, the Company incurred approximately $0.9 million of restructuring costs that were provided for in 1999 and 1998. These costs included severance and employee costs of $0.5 million, lease payments of $0.1 million and the remaining balance for other restructuring costs, offset by $0.3 million of gains from the sale of property, plant and equipment. During the first quarter of 1999, the Company recorded a provision for restructuring of $4.0 million, primarily for severance pay for employees terminated in 1999, as part of the Company's restructuring and exit from its non-Perry Ellis businesses. During 1999, the Company incurred approximately $5.7 million (mostly cash related items) of restructuring costs that were either provided for in 1999 or included in the restructuring reserve balance at January 2, 1999. These costs included severance and employee costs of $4.1 million, lease payments of $0.8 million, royalty payments of $0.5 million and the remaining balance for other restructuring costs, offset by $0.4 million of gains from the sale of fixed assets. Interest Income / Expense, Net In fiscal 2000, net interest income was $1.2 million compared to net interest expense of $0.4 million in fiscal 1999. The change resulted primarily from the sale of the Company's Manhattan and John Henry trademarks for $27 million, as well as the Company's operating cash flow for fiscal 2000 of $8.4 million, both of which have significantly reduced the Company's needs under its existing credit facility. Income/Loss from Continuing Operations before Discontinued Operations and Extraordinary Gain In fiscal 2000, the Company's income from continuing operations before discontinued operations and extraordinary gain was $12.7 million, or $1.28 per share, compared to a loss of $2.1 million, or $0.21 per pro forma share, in fiscal 1999. Earnings before Interest, Taxes, Depreciation, Amortization, Reorganization Costs,Restructuring Charges, Discontinued Operations, and Extraordinary Gain Earnings before interest, taxes, depreciation, amortization, reorganization costs, restructuring charges, discontinued operations and extraordinary gain was $15.5 million (7.4% of net sales) in fiscal 2000, compared to $8.6 million (3.5% of net sales) in fiscal 1999, an increase of $6.9 million, or 80.2%. The Company believes this information is helpful in understanding cash flow from continuing operations, which is available for potential acquisitions and capital expenditures. This measure is not included in generally accepted accounting principles and is not a substitute for operating income, net income or cash flows from operating activities. Income / Loss from Discontinued Operations In fiscal 2000, the Company recorded income of $0.6 million related to the discontinuance of its Children's Group. The income related primarily to better than anticipated recovery on the sale of assets (primarily the real estate holdings) related to its Children's business. In fiscal 1999, the Company recorded a charge of $2.0 million related to the discontinuance of its Children's Group. The charge of $2.0 million related to additional losses incurred during the phase-out period and additional expenses incurred in disposing of the assets related to the Children's business. Extraordinary Gain In fiscal 1999, the Company recorded an extraordinary gain of $24.7 million, or $2.47 per pro forma share, on the conversion of its Senior Notes and related unpaid interest into new common stock, as part of its restructuring. The holders of the Senior Notes exchanged $104.9 million of Senior Notes and $14.8 million of accrued and unpaid interest for 9.5 million shares of new common stock, representing 95% of the issued and outstanding shares of the Company. Net Income Net income for fiscal 2000 was $13.3 million, or $1.34 per share, compared to income of $20.6 million, or $2.06 per pro forma share for fiscal year 1999. Liquidity and Capital Resources On May 11, 1999, the Company entered into a syndicated revolving credit facility, (the "Credit Agreement"), as amended and restated on November 30, 2001, with The CIT Group/Commercial Services, Inc. ("CIT") pursuant to and in accordance with the terms of a commitment letter dated December 7, 1998. The Credit Agreement provides for a general working capital facility, in the form of direct borrowings and letters of credit, up to $85 million subject to an asset-based borrowing formula. The Credit Agreement consists of an $85 million revolving credit facility, with at least a $45 million letter of credit subfacility. As collateral for borrowings under the Credit Agreement, the Company granted to CIT and a syndicate of lenders arranged by CIT (the "Lenders") a first priority lien on and security interest in substantially all of the assets of the Company. The Credit Agreement has an initial term of three years. On March 19, 2002, the Company received a commitment letter from CIT to extend the credit agreement for an additional three years with similar or more favorable terms. The Credit Agreement also provides, among other things, that (i) the Company will be charged an interest rate on direct borrowings of .25% in excess of the Prime Rate or at the Company's request, 2.25% in excess of LIBOR (as defined in the Credit Agreement), and (ii) the Lenders may, in their sole discretion, make loans to the Company in excess of the borrowing formula but within the $85 million limit of the revolving credit facility. The Company is required under the agreement to maintain certain financial covenants relating to consolidated tangible net worth, capital expenditures, minimum pre-tax income and minimum interest coverage ratios. The Company was in compliance with all applicable covenants at December 29, 2001. At the end of fiscal 2001, there were no direct borrowings outstanding under the Credit Agreement. Letters of credit outstanding were $19.6 million and the Company had unused availability, based on outstanding letters of credit and existing collateral, of $38.6 million. In addition to the unused availability, the Company had approximately $19.8 million of cash available to fund its operations. At the end of fiscal 2000, there were no direct borrowings outstanding and letters of credit outstanding under the Credit Agreement were $30.0 million, at which time the Company had unused availability of $21.7 million. In addition to the unused availability, the Company had approximately $34.7 million of cash available to fund its operations. During fiscal 2001, the maximum aggregate amount of direct borrowings and letters of credit outstanding at any one time was $27.8 million, at which time the Company had unused availability of $17.0 million. During fiscal 2000, the maximum aggregate amount of direct borrowings and letters of credit outstanding at any one time was $36.3 million, at which time the Company had unused availability of $16.9 million.
December 29, December 30, 2001 2000 ------------------ ---------------- Maximum Availability under Credit Agreement $58.2 $51.7 Borrowings under Credit Agreement - - Outstanding Letters of Credit 19.6 30.0 ------ ------ Current Availability under Credit Agreement $38.6 $21.7 Cash on Hand 19.8 34.7 ------ ------ Available to fund operations $58.4 $56.4 ===== =====
The Company's cash used in operating activities for fiscal 2001 was $7.8 million, which primarily reflects (i) loss from continuing operations of $2.1 million, (ii) an increase in accounts receivable of $12.0 million, (iii) an increase in prepaid and other current assets of $2.4 million and (iv) a net decrease in various liability accounts of $9.1 million. These items were offset by a decrease in inventory of $12.5 million and non-cash charges, such as depreciation and amortization, of $ 5.3 million. Cash used by investing activities for fiscal 2001 was $7.1 million, which primarily reflects $2.3 million of capital expenditures, $0.7 million for the installation of store fixtures in department stores and $4.0 million for the purchase of the assets of a business. During fiscal 2002, the Company plans to make capital expenditures of approximately $5.1 million and to spend an additional $1.0 million for the installation of store fixtures in department stores. In addition, during the first quarter of 2002, the Company, through its wholly owned subsidiary, Salant Holding Corporation ("SHC"), acquired from Axis, certain of Axis' assets pursuant to an Asset Purchase Agreement dated as of October 15, 2001 by and between SHC, Axis and Richard Solomon an individual. The aggregate purchase price for the Axis assets was approximately $12.4 million, plus estimated direct acquisition costs of $0.6 million. Of the total purchase price $10.6 million was paid at closing and $1.8 million was placed in escrow and is payable in equal payments over the next 2 years. As a result of this acquisition, Salant has diversified its operations for men's designer sportswear by expanding its channels of distribution, including specialty stores. Critical Accounting Policies and Estimates The Company's significant accounting policies are more fully described in Note 2 to the Company's consolidated financial statements. Certain of the Company's accounting policies require the application of significant judgement by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgements are subject to an inherent degree of uncertainty. These judgements are based on historical experience, the Company's observation of trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The Company's significant accounting policies include: Revenue Recognition - Sales are recognized upon shipment of products to customers since title passes upon shipment and, in the case of sales by the Company's retail outlet stores, when goods are sold to consumers. Allowances for estimated uncollectible accounts, discounts, returns and allowances are provided when sales are recorded based upon historical experience and current trends. While such allowances have been within the Company's expectations and the provisions established, it cannot guarantee to continue to experience the same allowance rate as in the past. Inventories - Inventory is valued at the lower of cost or market, cost being determined on the first-in, first-out method. Reserves for slow moving and aged merchandise is provided based on historical experience and current product demand. The Company evaluates the adequacy of the reserves quarterly. While markdowns have been within the Company's expectations and the provisions established, it cannot guarantee to continue to experience the same level of markdowns as in the past. Valuation of Long-Lived Assets - The Company periodically reviews the carrying value of the Company's long-lived assets for continued appropriateness. The review is based upon the Company's projections of anticipated future cash flows. While the Company believes that the estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect the Company's evaluations. Deferred Taxes -- The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recognized based on differences between financial statement and tax basis of assets and liabilities using presently enacted tax rates. A valuation allowance is recorded to reduce a deferred tax asset to that portion which is expected to more likely than not be realized. New Accounting Standards In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not believe that the adoption of SFAS No. 141 will have a significant impact on its financial statements as the Company has not historically accounted for business combinations using the pooling of interest method. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles, such as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company expects that the adoption of SFAS No. 142 will reduce annual amortization expense by approximately $0.1 million. Additionally the Company does not expect to incur goodwill and other intangible asset impairment charges associated with the adoption of this statement. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for the first quarter in the fiscal year ending January 3, 2004. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". However, this Statement retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for the first quarter in the fiscal year ending December 28, 2002. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. Seasonality Although the Company typically introduces and withdraws various individual products throughout the year, its principal products are organized into the customary Spring, Transition, Fall and Holiday retail seasonal lines. The Company's products are designed as much as one year in advance and manufactured approximately one season in advance of the related retail selling season. Backlog The Company does not consider the amount of its backlog of orders to be significant to an understanding of its business primarily due to increased utilization of EDI technology, which provides for the electronic transmission of orders from customers' computers to the Company's computers. As a result, orders are placed closer to the required delivery date than had been the case prior to EDI technology. At March 25, 2002, the Company's backlog of orders was approximately $48.4 million, which was 9.4% more than the backlog of orders of approximately $44.6 million that existed at March 20, 2001. 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. Strategic Initiatives. In the first quarter of 2002, the Company purchased the assets and trademarks of Axis which designs, produces, and markets men's sportswear. Management of the Company is continuing to consider various strategic opportunities, including but not limited to, new menswear licenses and/or acquisitions. Management is also exploring ways to increase productivity and efficiency, and to reduce the cost structures of its respective businesses. Through this process management expects to increase its distribution channels and achieve effective economies of scale. No assurance may be given that any transactions resulting from this process will be announced or completed. 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 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, Summer, Fall and Holiday 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. 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. The Company's operations in Asia are subject to certain political and economic risks including, but not limited to, political instability, changing tax and trade regulations and currency devaluations and controls. Although the Company has experienced no material foreign currency transaction losses, its operations in the region are subject to an increased level of economic instability. The impact of these events on the Company's business, and in particular its sources of supply, could have a materially adverse effect on the Company's performance. Dependence on Contract Manufacturing. As of December 29, 2001, the Company produced all of its products 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in the trading of market risk sensitive instruments in the normal course of business. Financing arrangements for the Company are subject to variable interest rates including rates primarily based on the Reference Rate (as defined in the Credit Agreement), with a LIBOR option. An analysis of the Credit Agreement can be found in Note 9 to the Consolidated Financial Statements, Financing Agreements, included in this report of Form 10-K. On December 29, 2001 and December 30, 2000 there were no direct borrowings outstanding under the Credit Agreement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Report To the Board of Directors and Stockholders of Salant Corporation: We have audited the accompanying consolidated balance sheets of Salant Corporation and subsidiaries (the "Company") as of December 29, 2001 and December 30, 2000, and the related consolidated statements of operations, comprehensive (loss)/income, shareholders' equity/(deficiency) and cash flows for each of the three years in the period ended December 29, 2001. Our audits also included the financial statement schedule listed in the index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Salant Corporation and subsidiaries at December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. As discussed in Note 1 to the financial statements, the Bankruptcy Court entered an order confirming the Plan of Reorganization which became effective on May 11, 1999. The Bankruptcy Court entered an order on November 30, 2001 closing the case. /s/ Deloitte & Touche LLP March 19, 2002 New York, New York Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data)
Year Ended ------------------------------------------------------------ December 29, December 30, January 1, 2001 2000 2000 --------------- ---------------- ------------ Net sales $ 207,773 $ 208,303 $ 248,370 Cost of goods sold 162,348 152,708 192,391 --------- ----------- ---------- Gross profit 45,425 55,595 55,979 Selling, general and administrative expenses (47,804) (45,188) (54,909) Royalty income 194 750 1,945 Goodwill amortization (Note 2) (627) (519) (519) Other (expense)/income, net (91) 213 579 Restructuring reversal/(costs) (Note 3) 100 629 (4,039) Reorganization reversal/(costs) (Note 1) 302 -- (500) --------- ---------- --------- (Loss)/income from continuing operations before interest, income taxes, discontinued operations and extraordinary gain (2,501) 11,480 (1,464) Interest (income)/expense, net (Note 9) (306) (1,244) 439 --------- ---------- --------- (Loss)/income from continuing operations before income taxes, discontinued operations and extraordinary gain (2,195) 12,724 (1,903) Income tax (benefit)/expense (Note 12) (46) 13 245 --------- ---------- --------- (Loss)/income from continuing operations before discontinued operations and extraordinary gain (2,149) 12,711 (2,148) Income/(loss) from discontinued operations (Note 17) 273 569 (1,955) Extraordinary gain (Note 4) -- -- 24,703 -------- ---------- ---------- Net (loss)/income $ (1,876) $ 13,280 $ 20,600 ========== ========== ========== Basic and diluted (loss)/income per share (Note 2): (Loss)/income per share from continuing operations before discontinued operations and extraordinary gain $ (0.22) $ 1.28 $ (0.21)* Income/(loss) per share from discontinued operations 0.03 .06 (0.20)* Extraordinary gain -- -- 2.47* --------- --------- ---------- Basic and diluted (loss)/income per share $ (0.19) $ 1.34 $ 2.06* ========= ======== ========== Weighted average common stock outstanding 9,901 9,901 9,998* ========== ========= ==========
*The year ended January 1, 2000 per share information is pro-forma -- See Note 2. See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME (Amounts in thousands)
December 29, December 30, January 1, 2001 2000 2000 ------------------ ------------------ ------------- Net (loss)/income $(1,876) $13,280 $20,600 Other comprehensive (loss)/income, net of tax: Foreign currency translation adjustments 5 25 54 Minimum pension liability adjustments (419) (1,533) 1,055 --------- --------- --------- Comprehensive (loss)/income $(2,290) $11,772 $21,709 ======= ======= =======
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except per share data)
December 29, December 30, 2001 2000 ----------------- ------------------- ASSETS Current assets: Cash and cash equivalents $ 19,820 $ 34,683 Accounts receivable - net of allowance for doubtful accounts of $2,942 in 2001 and $2,625 in 2000 28,544 16,588 Inventories (Notes 5 and 9) 34,735 45,283 Prepaid expenses and other current assets 8,798 6,305 --------------- --------------- Total current assets 91,897 102,859 Property, plant and equipment, net (Notes 6 and 9) 12,179 13,185 License agreements - net of accumulated amortization of $5,039 in 2001 and $4,635 in 2000 6,122 6,526 Other assets (Notes 7, 12 and 13) 9,389 7,978 ------------ ------------ Total assets $ 119,587 $ 130,548 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,576 $ 14,798 Reserve for business restructuring (Note 3) 584 1,070 Liabilities subject to compromise (Note 1) -- 1,611 Accrued salaries, wages and other liabilities (Note 8) 6,619 9,310 Net liabilities of discontinued operations (Note 17) 493 744 -------------- --------------- Total current liabilities 18,272 27,533 Deferred liabilities (Note 15) 6,232 5,642 Commitments and contingencies (Notes 9, 13, 14, 16, 20 and 21) Shareholders' equity (Notes 1 and 14): Preferred stock, par value $2 per share: Authorized 5,000 shares; none issued -- -- Common stock, par value $1 per share: Authorized 45,000 shares; Issued and outstanding - 10,000 in 2001 and 2000 10,000 10,000 Additional paid-in capital 206,040 206,040 Deficit (115,893) (114,017) Accumulated other comprehensive loss (Note 18) (4,866) (4,452) Less - treasury stock, at cost - 99 shares in 2001 and 2000 (198) (198) -------------- --------------- Total shareholders' equity 95,083 97,373 ------------ ------------- Total liabilities and shareholders' equity $ 119,587 $ 130,548 ========== ===========
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY / (DEFICIENCY) (Amounts in thousands)
Accum- ulated Other Total Compre- Share- Common Stock Add'l hensive Treasury Stock holders' -------------------- ------------------- Number Paid-In Income/ Number Equity/ of Shares Amount Capital Deficit (Loss) of Shares Amount (Deficiency) ------------------------------------------------------------------------------------- Balance at January 2, 1999 15,405 $15,405 $107,249 $(147,897)$(4,053) 234 $(1,614) $(30,910) Net Income 20,600 20,600 Other Comprehensive Income 1,109 1,109 Reorganization: Cancel Old Common Stock (15,405) (15,405) 13,791 (234) 1,614 -- Issue New Common Stock 10,000 10,000 85,000 95,000 Purchase of Treasury Stock 99 (198) (198) -------------------------------------------------------------------------------- Balance at January 1, 2000 10,000 $10,000 $206,040 $(127,297)$(2,944) 99 $(198) $85,601 Net Income 13,280 13,280 Other Comprehensive Loss (1,508) (1,508) ---------------------------------------------------------------- ----------------- Balance at December 30, 2000 10,000 $10,000 $206,040 $(114,017)$(4,452) 99 $(198) $97,373 Net Loss (1,876) (1,876) Other Comprehensive Loss (414) (414) ---------------------------------------------------------------------------------- Balance at December 29, 2001 10,000 $10,000 $206,040 $(115,893)$(4,866) 99 $(198) $95,083 ====== ======= ======== ========= ======= =========== ======= =======
See Notes to Consolidated Financial Statements Salant Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
Year Ended --------------------------------------------------------- December 29, December 30, January 1, 2001 2000 2000 ------------- ------------- ---------- Cash Flows from Operating Activities (Loss)/Income from continuing operations before discontinued operations and extraordinary gain $ (2,149) $ 12,711 $ (2,148) Adjustments to reconcile (loss)/income from continuing operations before discontinued operations and extraordinary gain to net cash (used in)/provided by operating activities: Depreciation 4,632 4,101 5,027 Amortization of intangibles 627 519 519 Changes in operating assets and liabilities: Accounts receivable (11,956) (632) 22,403 Inventories 12,495 (3,614) 27,921 Prepaid expenses and other current assets (2,370) (815) (224) Assets held for sale -- 100 - Other assets (27) (14) (521) Accounts payable (4,222) 2,701 9,266 Accrued salaries, wages and other liabilities (2,941) (2,441) (1,209) Liabilities subject to compromise (1,611) (2,993) (19,621) Reserve for business restructuring (486) (1,238) (1,243) Deferred liabilities 171 (24) (85) ----------- ----------- --------- Net cash (used in)/provided by continuing operating activities(7,837) 8,361 40,085 Cash provided by discontinued operations 22 4 6,214 ----------- ------------ ---------- Net cash (used in)/provided by operations (7,815) 8,365 46,299 ----------- ----------- --------- Cash Flows from Investing Activities Capital expenditures, net of disposals (2,292) (1,959) (4,579) Store fixture expenditures (722) (1,864) (2,486) Proceeds from sale of assets - - 28,300 Purchase of a business (4,039) - - ------------- ------------ ---------- Net cash (used in)/provided by investing activities (7,053) (3,823) 21,235 ------------- ----------- --------- Cash Flows from Financing Activities Net short-term debt repayments - - (38,496) Purchase of treasury stock - - (198) Other, net 5 25 54 ------------ ------------- --------- Net cash provided by/(used in) financing activities 5 25 (38,640) ------------ ------------- --------- Net (decrease)/increase in cash and cash equivalents (14,863) 4,567 28,894 Cash and cash equivalents - beginning of year 34,683 30,116 1,222 ----------- ---------- ---------- Cash and cash equivalents - end of year $ 19,820 $ 34,683 $ 30,116 ========== ========= ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 23 $ 93 $ 1,054 ============ ============ ========= Income taxes $ 64 $ 179 $ 90 ============ =========== =========== Supplemental investing and financing non-cash transactions: Common Stock issued for Senior Notes - -- $104,879 Common Stock issued for pre-petition interest - -- $ 14,703 Common Stock issued for post-petition interest - -- $ 121 Change in minimum pension liability $ (419) $ (1,533) $ 1,055 Guaranteed future purchase price payments $ 250 - -
See Notes to Consolidated Financial Statements SALANT CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Amounts in Thousands of Dollars, Except Share and Per Share Data) Note 1. Financial Reorganization On December 29, 1998 (the "Filing Date"), Salant Corporation filed a petition under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") (the "1998 Case") in order to implement a restructuring of its 10-1/2 % Senior Secured Notes due December 31, 1998 (the "Senior Notes"). Salant also filed its plan of reorganization (the "Plan") with the Bankruptcy Court on the Filing Date in order to implement its restructuring. On April 16, 1999, the Bankruptcy Court issued an order (the "Confirmation Order") confirming the Plan. The effective date of the Plan occurred on May 11, 1999 (the "Effective Date"). On November 30, 2001, the Bankruptcy Court approved the closing of the Company's 1998 Case. As of the Filing Date, Salant had $143,807 (consisting of $14,703 in Senior Note interest, $104,879 of Senior Notes and $24,225 of unsecured pre-bankruptcy claims) of liabilities subject to compromise, in addition to $38,496 of loans payable to The CIT Group/Commercial Services, Inc. ("CIT"). In addition Salant accrued estimated fees of $500 in 1999 in connection with the administration of the 1998 Case. Pursuant to the Plan, on the Effective Date, all of Salant's then existing common stock ("Old Common Stock"), $1.00 par value per share, was cancelled. In accordance with the Plan, 10,000,000 shares of new common stock, $1.00 par value per share (the "New Common Stock"), were issued by Salant as follows: (i) 9,500,000 shares or 95% of the issued and outstanding shares of New Common Stock, subject to dilution, were distributed to the holders (the "Noteholders") of Salant's Senior Notes, in full satisfaction of all of the outstanding principal amount, plus all accrued and unpaid interest on the Senior Notes and (ii) 500,000 shares or 5% of the issued and outstanding shares of New Common Stock, subject to dilution, were distributed to the holders of Salant's Old Common Stock, in full satisfaction of any and all interests of such holders in Salant. The Company reserved 1,111,111 shares (10% of the outstanding shares) of New Common Stock for the 1999 Stock Award and Incentive Plan. The authorized capital stock of Salant as of the Effective Date consists of (i) 45,000,000 shares of New Common Stock, $1.00 par value per share and (ii) 5,000,000 shares of Preferred Stock, $2.00 par value per share. No Preferred Stock has been issued. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The Consolidated Financial Statements include the accounts of Salant Corporation ("Salant") and subsidiaries. (As used herein, the "Company" includes Salant and its subsidiaries but excludes its Children's Group.) In December 1998, the Company decided to discontinue the operations of the Children's Group, which produced and marketed children's blanket sleepers, pajamas, sleepwear and underwear primarily using a number of well-known licensed characters and trademarks. As further described in Note 17, the consolidated financial statements and the notes thereto reflect the Children's Group as a discontinued operation. Intercompany balances and transactions are eliminated in consolidation. During the first quarter of 2001, the Company purchased certain assets of a business. The purchase price, including inventory, was approximately $4.3 million, with additional contingent payments due upon achieving future defined benchmarks. The acquisition was accounted for using the purchase method. The pro forma effect of the asset purchase on the results of operations is not presented, as it is not material. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities (such as accounts receivable, inventories, restructuring reserves and valuation allowances for income taxes), disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. The 2001, 2000 and 1999 fiscal years were comprised of 52 weeks. Reclassifications Certain reclassifications were made to the 1999 and 2000 consolidated financial statements to conform to the 2001 presentation. Cash and Cash Equivalents The Company treats cash on hand, deposits in banks and certificates of deposit with original maturities of less than 3 months as cash and cash equivalents for the purposes of the statements of cash flows. Inventories Inventories are stated at the lower of cost (principally determined on a first-in, first-out basis) or market for wholesale apparel operations. Reserves for slow moving and aged merchandise are provided based on historical experience and current product demand. The Company evaluates the adequacy of the reserves quarterly. Effective December 31, 2000, due to a change in systems, the Company changed its method of valuing its retail inventories from the retail method to the lower of cost or market for outlet store operations. There was no impact resulting from this change in the accompanying consolidated financial statements. Property, Plant and Equipment Property, plant and equipment are stated at cost and are depreciated or amortized over their estimated useful lives, or for leasehold improvements, the lease term, if shorter. Depreciation and amortization are computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. The annual depreciation rates used are as follows: Buildings and improvements 2.5% - 10.0% Machinery, equipment and autos 6.7% - 33.3% Furniture and fixtures 10.0% - 33.3% Leasehold improvements Shorter of the life of the asset or the lease term Other Assets Intangible assets are being amortized on a straight-line basis over their useful lives of 25 years. Costs in excess of fair value of net assets acquired are assessed for recoverability on a periodic basis. In evaluating the value and future benefits of these intangible assets, their carrying value would be reduced by the excess, if any, of the intangibles over management's best estimate of undiscounted future operating income of the acquired businesses before amortization of the related intangible assets over the remaining amortization period. The Company expects that the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets", will reduce annual amortization expense by approximately $110. Additionally the Company does not expect to incur goodwill and other intangible asset impairment charges associated with the adoption of this statement. Valuation of Long-Lived Assets The Company periodically reviews the carrying value of the Company's long-lived assets for continued appropriateness. The review is based upon the Company's projections of anticipated future cash flows. While the Company believes that the estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect the Company's valuations. Income Taxes Deferred income taxes are provided to reflect the tax effect of temporary differences between financial statement income and taxable income in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes". Fair Value of Financial Instruments For financial instruments, including cash and cash equivalents, accounts receivable and payable, and accrued expenses, the carrying amounts approximated fair value because of their short maturity. Liabilities subject to compromise were valued based upon the amount the Company planned to pay in accordance with the Plan. In addition, deferred liabilities have carrying amounts approximating fair value. (Loss)/Income Per Share Basic net (loss)/income per share was calculated by dividing net (loss)/income by the weighted average number of shares outstanding during the period, excluding any potential dilution. Diluted net (loss)/income per share was calculated similarly but excludes potential dilution from the exercise of stock options and awards. The difference between the basic and diluted weighted average shares outstanding, if any, is due to the dilutive effect of stock options issued under the Company's stock option plan. Pro forma basic (loss)/income per share is based on the weighted average number of common shares as if the New Common Stock had been issued at the beginning of the earliest period presented. Common stock equivalents are not considered, as the options for the New Common Stock are anti-dilutive for the periods presented. The following shows basic and diluted (loss)/income per share for 1999 using the historical shares outstanding. Common stock equivalents are not considered for the Old Common Stock, as the options were cancelled or anti-dilutive. Such computation does not give retroactive effect to the issuance of the New Common Stock. 1999 Basic and diluted (loss)/income per share: From continuing operations $(0.18) From discontinued operations (0.17) From extraordinary gain 2.09 ------- Basic and diluted income per share $ 1.74 ====== Weighted average common stock outstanding 11,830 ====== Revenue Recognition Revenue is recognized upon shipment of products to customers since title passes upon shipment and, in the case of sales by the Company's retail outlet stores, when goods are sold to consumers. Allowances for estimated uncollectible accounts, discounts, returns and allowances are provided when sales are recorded based upon historical experience and current trends. New Accounting Standards In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not believe that the adoption of SFAS No. 141 will have a significant impact on its financial statements as the Company has not historically accounted for business combinations using the pooling of interest method. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles, such as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company expects that the adoption of SFAS No. 142 will reduce annual amortization expense by approximately $110. Additionally the Company does not expect to incur goodwill and other intangible asset impairment charges associated with the adoption of this statement. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for the first quarter in the fiscal year ending January 3, 2004. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". However, this Statement retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for the first quarter in the fiscal year ending December 28, 2002. The Company does not believe that the adoption of this pronouncement will have a material impact on the consolidated results of operations. Note 3. Restructuring Costs In the fourth quarter of fiscal 2001, the Company recorded a net reversal of $100 due to the favorable recovery of assets and settlement of previously recorded liabilities, partially offset by increased severance costs related to medical benefits. During 2001, the Company used approximately $386 of its restructuring reserve related to consulting and employee costs of $290, lease payments and operating expenses of $52 and the remaining balance for other restructuring costs. At the end of fiscal 2001, $584 remained in the reserve of which $475 relates to severance and other employee costs, $48 for lease buyouts and $61 for other restructuring items. Activity in the accrued reserve for business restructuring for fiscal 2001 is as follows: Balance Accrual/ Balance 12/30/00 Uses (Reversal) 12/29/01 Lease payments and other property costs $ 200 $ (52) $ (100) $ 48 Severance 550 (290) 215 475 Other 320 (44) (215) 61 ------ ------- ------ ------ $1,070 $ (386) $ (100) $ 584 ====== ======= ======= ====== In the fourth quarter of fiscal 2000, the Company recorded a net reversal of $629 due to favorable recovery on the sale of its Andalusia, Alabama facility and the recovery of other assets and settlement of previously recorded liabilities, partially offset by increased severance costs related to the closure of the Company's Mexican manufacturing operations. During 2000, the Company used approximately $908 of its restructuring reserve related to severance and employee costs of $498, lease payments of $89 and the remaining balance for other restructuring costs. The Company also recognized gains from the sale of fixed assets of $299. At the end of fiscal 2000, $1,070 remained in the reserve of which $550 relates to severance and other employee costs, $200 for lease buyouts and $320 for other restructuring items. Activity in the accrued reserve for business restructuring for fiscal 2000 is as follows: Balance Gains from Accrual/ Balance 1/1/00 Uses Sales (Reversal) 12/30/00 Lease payments and other property costs $ 600 $ (89) $ 264 $ (575) $ 200 Severance 850 (498) -- 198 550 Other 858 (321) 35 (252) 320 -------- -------- ------ -------- -------- $2,308 $ (908) $ 299 $ (629) $1,070 ====== ======= ===== ======= ====== In fiscal 1999, the Company recorded a provision for restructuring of $4,039 related the Company's 1998 decision to focus primarily on its Perry Ellis men's apparel business. The restructuring charge related primarily to employee costs of $3,898 that could not be accrued in 1998, as the employees were not notified until 1999. In addition, $161 of the charge was related to the write off of store fixtures and the closing of the Company's operations in Canada. During 1999 the Company used approximately $5,671 of its restructuring reserve related to severance and employee costs of $4,080, lease payments of $753 offset by $389 of gains from the sale of fixed assets, royalties of $452 and the remaining balance for other restructuring costs. At the end of fiscal 1999, $2,308 remained in the reserve of which approximately $850 related to severance and other employee related costs, $600 for lease buyouts and other asset related disposal costs and $858 for other restructuring items. Activity in the accrued reserve for business restructuring for fiscal 1999 is as follows: Balance Balance 1/2/99 Provisions Uses Other 1/1/00 Lease payments and other property costs $ 845 $ -- $ (753) $ 508 $ 600 Royalties 592 -- (452) (140) -- Severance 840 3,878 (4,080) 212 850 Other 1,274 161 (386) (191) 858 ------ ------ -------- ------ ------ $3,551 $4,039 $(5,671) $ 389 $2,308 ====== ====== ======= ====== ====== Assets held for sale at January 1, 2000 related to the facility in Andalusia, Alabama. Additional costs of $119 were anticipated due to holding the Andalusia facility and additional employee related expenses of $212 were accrued and were anticipated for 2000. These additional costs were offset by the favorable results of settlements of royalties and other restructuring liabilities of $140 and $191, respectively. The Company subsequently sold this facility during fiscal 2000. Note 4. Extraordinary Gain In the second quarter of 1999, the Company recorded an extraordinary gain of $24,703 related to the conversion of the Senior Notes and the related unpaid interest into equity, as described in Note 1. Pursuant to the Plan, the Noteholders received, in the aggregate, 95% of the issued and outstanding shares of New Common Stock, subject to dilution, in full satisfaction of all of the outstanding principal amount ($104,879), plus all accrued and unpaid interest ($14,824) on the Senior Notes. As a result, pursuant to the Plan, 9,500,000 shares of the New Common Stock were distributed to the holders of the Senior Notes. Note 5. Inventories December 29, December 30, 2001 2000 Finished goods $ 21,378 $ 27,078 Work-in-process 9,310 11,009 Raw materials and supplies 4,047 7,196 --------- --------- $ 34,735 $ 45,283 ========= ========= Markdown reserves were $1,887 at December 29, 2001 and $2,311 at December 30, 2000. Finished goods inventory includes in transit merchandise of $356 and $2,172 at December 29, 2001 and December 30, 2000, respectively. Note 6. Property, Plant and Equipment December 29, December 30, 2001 2000 Land and buildings $ 7,392 $ 6,901 Machinery, equipment, furniture and fixtures 19,540 18,350 Leasehold improvements 5,465 5,484 --------- --------- 32,397 30,735 Less accumulated depreciation and amortization 20,218 17,550 --------- --------- $ 12,179 $ 13,185 ========= ========= Note 7. Other Assets December 29, December 30, 2001 2000 Excess of cost over net assets acquired, net of accumulated amortization of $108 in 2001 $ 2,067 $ -- Trademarks, net of accumulated amortization of $1,572 in 2001 and $1,457 in 2000 3,028 3,143 Department store fixtures and other 4,294 4,835 -------- -------- $ 9,389 $ 7,978 ======== ======== Note 8. Accrued Salaries, Wages and Other Liabilities December 29, December 30, 2001 2000 Accrued salaries and wages $ 1,006 $ 3,483 Accrued pension, retirement and benefits 1,139 1,391 Accrued Workers Compensation 1,181 1,831 Other accrued liabilities 3,293 2,605 -------- -------- $ 6,619 $ 9,310 ======== ======== Note 9. Financing Agreements On May 11, 1999, the Company entered into a syndicated revolving credit facility, (the "Credit Agreement") as amended and restated November 30, 2001, with CIT pursuant to and in accordance with the terms of a commitment letter dated December 7, 1998. The Credit Agreement provides for a general working capital facility, in the form of direct borrowings and letters of credit, up to $85 million subject to an asset-based borrowing formula. The Credit Agreement consists of an $85 million revolving credit facility, with at least a $45 million letter of credit subfacility. As collateral for borrowings under the Credit Agreement, the Company granted to CIT and a syndicate of lenders arranged by CIT (the "Lenders") a first priority lien on and security interest in substantially all of the assets of the Company. The Credit Agreement has an initial term of three years. On March 19, 2002, the Company received a commitment letter from CIT to extend the credit agreement for an additional three years with similar or more favorable terms. The Credit Agreement also provides, among other things, that (i) the Company will be charged an interest rate on direct borrowings of .25% in excess of the Reference Rate or 2.25% in excess of LIBOR (as defined in the Credit Agreement), and (ii) the Lenders may, in their sole discretion, make loans to the Company in excess of the borrowing formula but within the $85 million limit of the revolving credit facility. The Company is required under the agreement to maintain certain financial covenants relating to consolidated tangible net worth, capital expenditures, minimum pre-tax income and minimum interest coverage ratios. The Company was in compliance with all applicable covenants at December 29, 2001. On December 29, 2001, there were no direct borrowings outstanding under the Credit Agreement. Letters of credit outstanding were $19,616 and the Company had unused availability, based on outstanding letters of credit and existing collateral, of $38,560. In addition to the unused availability, the Company had $19,820 of cash available to fund its operations. On January 1, 2000, there were no direct borrowings and letters of credit outstanding under the Credit Agreement were $30,093 and the Company had unused availability of $16,497. In addition to the unused availability, the Company had $30,116 of cash available to fund its operations. The weighted average interest rate on borrowings under the Credit Agreement for the years ended December 29, 2001 and December 30, 2000 was 7.9% and 9.4%, respectively. In addition to the financial covenants discussed above, the Credit Agreement contains a number of other covenants, including restrictions on incurring indebtedness and liens, making investments in or purchasing the stock, or all or a substantial part of the assets of another person, selling property and paying cash dividends. Note 10. Segment Information The Company's principal business is the designing, producing, importing and marketing of men's apparel. The Company currently sells its products throughout the United States to retailers, including department and specialty stores. As an adjunct to its apparel operations the Company operates 39 retail outlet stores in various parts of the United States. The Company operates in the following business segments: (i) men's wholesale and (ii) retail outlet operations. Information concerning the Company's business segments in 2001, 2000 and 1999 is as follows: 2001 2000 1999 Net Sales Wholesale $ 181,637 $ 182,891 $ 231,086 Retail 26,136 25,412 17,284 ---------- --------- ------- $ 207,773 $ 208,303 $ 248,370 ========== ========= ======= Gross Profit Wholesale $ 33,966 $ 43,850 $ 47,982 Retail 11,459 11,745 7,997 --------- --------- ------- $ 45,425 $ 55,595 $ 55,979 ========= ========= ======== (Loss)/Income form Continuing Operations before Interest, Taxes, Discontinued Operations and Extraordinary Gain Wholesale $ (1,748) $ 9,982 $ (2,511) Retail (753) 1,498 1,047 --------- --------- -------- $ (2,501) $ 11,480 $ (1,464) ========= ========= ========= Capital Expenditures Wholesale $ 2,251 $ 5,003 Retail 760 1,144 --------- --------- $ 3,011 $ 6,147 ========= ========= Total Assets Wholesale $ 110,402 $ 121,709 Retail 9,185 8,839 -------- ---------- $ 119,587 $ 130,548 ========= ========== Note 11. Significant Customers Approximately 18% of the Company's sales were made to Dillards Corporation ("Dillards") in 2001, 2000 and 1999. In addition, in 2001, approximately 15% of the Company's sales were made to Federated Department Stores, Inc. ("Federated"), along with approximately 12% of the Company's sales being made to each of the May Company ("May") and Marmaxx Corporation ("Marmaxx"). In 2000 and 1999 approximately 19% of the Company's sales were made to Federated. Also in 2000 and 1999, approximately 17% and 16%, respectively, of the Company's sales were made to May, and approximately 13% of the Company's sales were made to Marmaxx in each of 2000 and 1999. No other customer accounted for more than 10% of sales during 2001, 2000 or 1999. Note 12. Income Taxes The provision for income taxes consists of the following:
December 29, December 30, January 1, 2001 2000 2000 Current: Federal $ -- $ -- $ (20) Foreign (46) 13 265 ----- ------ ------- $ (46) $ 13 $ 245 ===== ===== ======
The following is a reconciliation of the income tax/(benefit) at the statutory Federal and State income tax rates to the actual income tax provision:
2001 2000 1999 --------- ---------- ------ Income tax/(benefit), at 34% $ (638) $ 4,520 $ (647) State tax/(benefit) (94) 665 (96) Loss producing no current tax benefit -- 743 Reversal of valuation allowance 920 (6,060) -- Tax refunds from prior years -- -- (20) Other (189) 875 -- Foreign taxes (46) 13 265 -------- ---------- ---------- Income tax provision $ (46) $ 13 $ 245 ======= ========= =========
The following are the tax effects of significant items comprising the Company's net deferred tax asset:
December 29, December 30, 2001 2000 Deferred tax assets: Reserves not currently deductible $ 8,260 $ 10,365 Operating loss carryforwards 50,605 45,872 Tax credit carryforwards 18 138 Expenses capitalized into inventory 1,115 2,299 Differences between book and tax basis of property 837 1,241 ------------ ---------- $ 60,835 $ 59,915 ========= ======== Deferred tax asset $ 60,835 $ 59,915 Valuation allowance (60,835) (59,915) --------- --------- Net deferred tax asset $ -- $ -- ============= ============
At December 29, 2001, the Company had net operating loss carryforwards ("NOLs") for income tax purposes of approximately $129,757, expiring from 2002 to the year 2021, which can be used to offset future taxable income. To the extent any of these NOLs relate to the acquisition of Manhattan Industries in April 1988, their utilization will reduce the remaining balance of approximately $9,200 of intangible assets recorded in connection with the acquisition. The following table reflects the expiration of the NOLs in 5-year increments: Expiration of NOLs Year Amount --------------- --------- 2002-2006 $ 70,375 2007-2011 18,705 2012-2016 13,197 2017-2021 27,480 $129,757 The Manhattan Industries acquisition and the Company's 1990 bankruptcy and subsequent consummation caused an "ownership change" for federal income tax purposes. As a result, the use of any NOLs existing at the date of the ownership change to offset future taxable income is limited by section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"). The $129,757 of NOLs reflected above is the maximum the Company may use to offset future taxable income. Of the $129,757 of NOLs, $84,207 is subject to annual usage limitations under Section 382 of approximately $7,200. In addition, at December 29, 2001, the Company had available tax credit carryforwards of approximately $18, which expire between 2002 and 2012. Utilization of these credits may be limited in the same manner as the NOLs, as described above. Note 13. Employee Benefit Plans Pension and Retirement Plans The Company has several defined benefit plans for virtually all full-time salaried employees and certain non-union hourly employees. The Company's funding policy for its plans is to fund the minimum annual contribution required by applicable regulations. The reconciliation of the funded status of the plans at December 29, 2001 and December 30, 2000 is as follows: 2001 2000 ---------- ----------- Change in Projected Benefit Obligation (PBO) During Measurement Period PBO, November 30 of previous year $ 47,750 $ 45,555 Service Cost 217 569 Interest Cost 3,106 3,311 Actuarial (Gain)/Loss (2,678) 1,124 Benefits Paid (2,791) (2,809) -------- -------- PBO, November 30 $ 45,604 $ 47,750 ======== ======== Change in Plan Assets During the Measurement Period Plan Assets at Fair Value, November 30 of previous year $ 47,944 $ 48,205 Actual Return on Plan Assets (2,286) 795 Employer Contribution 857 1,753 Benefits Paid (2,791) (2,809) -------- -------- Plan Assets at Fair Value, November 30 $ 43,724 $ 47,944 ======== ======== The reconciliation of the Prepaid/(Accrued) plans at December 29, 2001 and December 30, 2000 is as follows: 2001 2000 ---- ---- Reconciliation of Prepaid/(Accrued) Funded Status of the Plan $(1,880) $ 195 Unrecognized Net (Gain)/Loss 4,878 4,400 Unrecognized Prior Service Cost (357) (397) Unrecognized Net Transition (Asset)/Obligation 3,161 151 ------- ------- Net Amount Recognized $ 5,802 $ 4,349 ======= ======= Prepaid Benefit Cost $ 3,785 $ 3,123 Accrued Benefit Liability (2,736) (3,108) Accumulated Other Comprehensive Income 4,753 4,334 ------- ------- Net Amount Recognized $ 5,802 $ 4,349 ======= ======= Components of Net Periodic Benefit Cost for Fiscal Year 2001 2000 1999 ---- ---- ---- Service Cost $ 217 $ 569 $ 760 Interest Cost 3,106 3,311 3,290 Expected Return of Plan Assets (3,987) (4,026) (3,707) Amortization of Unrecognized: Net Loss 86 110 244 Prior Service Cost (45) (59) (79) Net Transition (Asset)/Obligation 27 27 36 Curtailment (Gain)/Loss -- -- (299) -------- -------- --------- Net Periodic Pension (Income)/Cost $ (596) $ (68) $ 245 ======== ========= ======== Other Comprehensive (Loss)/Income $ (419) $ (1,533) $ 1,055 Accrued Benefit Obligation, November 30 $ 44,456 $ 46,715 $ 43,814 Assumptions used in accounting for defined benefit pension plans are as follows: 2001 2000 1999 Qualified Qualified Qualified Plans Plans Plans Discount rate 7.5% 7.5% 7.5% Rate of increase in compensation levels 5.0% 5.0% 5.0% Expected long-term rate of return on assets 8.5% 8.5% 8.5% Assets of the Company's qualified plans are invested in directed trusts. Assets in the directed trusts are invested in common and preferred stocks, corporate bonds, money market funds and U.S. government obligations. The Company also contributes to certain union retirement and insurance funds established to provide retirement benefits and group life, health and accident insurance for eligible employees. The total cost of these contributions was $2,112, $2,330 and $3,985 in 2001, 2000 and 1999, respectively. The actuarial present value of accumulated plan benefits and net assets available for benefits for employees in the union administered plans are not determinable from information available to the Company. Long Term Savings and Investment Plan The Company sponsors the Salant Long Term Savings and Investment Plan, under which eligible salaried employees may contribute up to 15% (which will be increased to 50% in 2002) of their annual compensation, subject to certain limitations, to a fixed income fund, the Company's common stock (through 1999) and/or selected mutual funds. The Company contributes a minimum matching amount of 20% of the first 6% of a participant's annual compensation and may contribute an additional discretionary amount in cash or in the Company's common stock. In 2001, 2000 and 1999 Salant's aggregate contributions to the Long Term Savings and Investment Plan amounted to $115, $111 and $140, respectively. Note 14. Stock Options and Shareholder Rights Pursuant to the Plan, on the Effective Date, all existing stock options for the Old Common Stock were cancelled and the Company established, in accordance with the description set forth in the Plan, the Salant Corporation 1999 Stock Award and Incentive Plan (the "Incentive Plan"). The Plan provides that Salant will reserve 10% of the outstanding New Common Stock, on a fully diluted basis, as of the Effective Date, in order to create new employee stock and stock option plans for the benefit of the members of management and the other employees of Salant. In addition, the Plan provides that, on the Effective Date, a management stock option plan will be authorized pursuant to which options to acquire a certain percentage of such 10% reserve will be granted to (i) the directors of Salant and (ii) those members of management of Salant selected by executive management and approved by the non-management members of the board of directors of Salant. The Plan also provides that the decision to grant any additional stock options from the balance of the 10% reserve referred to above, and the administration of the stock plans, will be at the discretion of the non-management members of the board of directors of Salant. The following table summarizes stock option transactions during 1999, 2000 and 2001:
Weighted Average Exercise Shares Price Range Price Options outstanding at January 2, 1999 1,266,367 $1.7188-9.82 $3.85 Options cancelled due to reorganization - 1999 (1,266,367) $1.7188-9.82 $3.85 Options granted during 1999 1,814,554 $4.125-5.875 $4.99 Options exercised during 1999 0 Options surrendered or canceled during 1999 (895,609) $5.875 $5.88 ----------- Options outstanding at January 1, 2000 914,945 $4.125-5.875 $4.13 Options granted during 2000 33,000 $2.50-2.87 $2.64 Options exercised during 2000 0 Options surrendered or cancelled during 2000 (134,001) $4.125-5.875 $4.16 ----------- Options outstanding at December 30, 2000 813,944 $2.50-4.125 $4.07 Options granted during 2001 217,500 $1.64 $1.64 Options exercised during 2001 0 Options surrendered or canceled during 2001 (76,667) $1.64-4.125 $3.53 ---------- Options outstanding at December 29, 2001 954,777 ========== Options exercisable at December 29, 2001 814,291 $1.64-4.125 $3.88 ========== Options exercisable at December 30, 2000 630,961 $2.50-4.125 $4.10 ==========
The 895,609 of options shown in the above table as "surrendered or canceled" during 1999 reflect 890,777 of options that were issued at $5.875 and repriced to $4.125, all within fiscal 1999. The following tables summarize information about outstanding stock options as of December 29, 2001 and December 30, 2000:
Options Outstanding Options Exercisable Weighted Average Number Remaining Weighted Number Weighted Outstanding at Contractual Life Average Exercisable at Average Range of Exercise Price 12/29/01 Exercise 12/29/01 Exercise Price Price $1.64 202,500 9.92 $1.64 67,513 $1.64 $2.50-$2.87 28,000 8.37 $2.67 22,501 $2.65 $4.125 724,277 7.78 $4.13 724,277 $4.13 $1.64-$4.125 954,777 8.25 $3.56 814,291 $3.88 Weighted Average Number Remaining Weighted Number Weighted Outstanding at Contractual Life Average Exercisable at Average Range of Exercise Price 12/30/00 Exercise 12/30/00 Exercise Price Price $2.50 -$2.87 33,000 9.37 $2.64 12,002 $2.66 $4.125 780,944 8.77 $4.13 618,959 $4.13 $2.50-$4.125 813,944 8.80 $4.07 630,961 $4.10
In summary, as of December 29, 2001, there were 1,111,111 shares of New Common Stock reserved for the exercise of stock options and 156,334 shares of New Common Stock available for future grants of stock options or awards. All stock options are granted at fair market value of the New Common Stock at the grant date. The weighted average fair market value of the stock options granted during 2001, 2000 and 1999 was $1.64, $2.64 and $4.99, respectively. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes multiple option pricing model with the following weighted average assumptions used for grants in 2001, 2000 and 1999, respectively: risk-free interest rate of 4.00%, 6.00% and 6.00%; expected dividend yield of 0% for all years; expected life of 5.75, 5.25 and 5.75 years; and expected volatility of 167%, 98% and 316%. The outstanding stock options at December 29, 2001 have a weighted average contractual life of 8.25 years. The Company accounts for the stock option plans in accordance with Accounting Principles Board Opinion No. 25, under which no compensation cost is recognized for stock option awards. Had compensation cost been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's pro forma net (loss)/income for 2001, 2000 and 1999 would have been $(2,175), $12,338 and $16,687, respectively. The Company's pro-forma net (loss)/income per-share for fiscal 2001 and 2000 would have been $(0.22) and $1.25, respectively. The Company's pro forma net income per share based upon the New Common Stock for 1999 would have been $1.67. Note 15. Deferred Liabilities December 29, December 30, 2001 2000 Deferred pension obligations $ 4,753 $ 4,334 Deferred rent 1,479 1,294 Other deferred liabilities -- 14 ------- ------- $ 6,232 $ 5,642 ======= ======= Note 16. Commitments and Contingencies (a) Lease Commitments The Company conducts a portion of its operations in premises occupied under leases expiring at various dates through 2013. Certain of the leases contain renewal options. Rental payments under certain leases may be adjusted for increases in taxes and operating expenses above specified amounts. In addition, certain of the leases for retail outlet stores contain provisions for additional rent based upon sales. In 2001, 2000 and 1999, rental expense was $5,653, $3,891 and $5,144, respectively. As of December 29, 2001, future minimum rental payments under noncancelable operating leases (exclusive of renewal options, percentage rentals, and adjustments for property taxes and operating expenses) were as follows: Fiscal Year 2002 $ 5,743 2003 5,569 2004 5,349 2005 4,616 2006 3,866 Thereafter 14,133 --------- Total (Not reduced by minimum $ 39,276 sublease rentals of $16,777) (b) Employment Agreements The Company has employment agreements with certain executives, which provide for the payment of compensation aggregating approximately $1,675 in 2002 and $250 in 2003. In addition, such employment agreements provide for incentive compensation based on various performance criteria. Note 17. Discontinued Operations In December 1998, the Company discontinued the operations of its Children's Group, which produced and marketed children's blanket sleepers primarily using a number of well-known licensed characters created by, among others, DISNEY and WARNER BROTHERS. The Children's Group also marketed pajamas under the DR. DENTON and OSHKOSH B'GOSH trademarks, and sleepwear and underwear under the JOE BOXER trademark. For the fourth quarter of fiscal 2001, the Company recorded income of $273 related to better than anticipated recovery on the settlement of liabilities related to the Children's business. At the end of fiscal 2001, $461 remained in the reserve of which approximately $350 was for severance and the remaining balance related to the settlement of liabilities and other closing costs. As of December 29, 2001, the Children's Group had assets of $9, accrued liabilities of $41 and a reserve of $461, resulting in net liabilities of discontinued operations of $493. For the fourth quarter of fiscal 2000, the Company recorded income of $569 related to better than anticipated recovery on the sale of assets (primarily real estate holdings) related to the Children's business. At the end of fiscal 2000, $550 remained in the reserve of which approximately $350 was for severance and the remaining balance related to the disposal of assets and other costs. As of December 30, 2000, the Children's Group had assets of $30, accrued liabilities of $224 and a reserve of $550, resulting in net liabilities of discontinued operations of $744. For fiscal 1999, the Company recognized a charge of $1,955 for additional expenses incurred during the phase-out period and additional expenses needed to dispose of the assets related to the Children's business. At the end of Fiscal 1999, $941 remained in the reserve of which approximately $300 was for severance and the remaining balance related to the disposal of assets. During 1999, the division had net sales of $5,493 and a net loss of $1,955. Pursuant to a purchase and sale agreement dated January 14, 1999, the Company sold all of its right, title and interest in, certain assets (Dr. Denton trademark, selected inventory and machinery and equipment) of the Children's Group. Accounts receivable, prepaids, accounts payable and accrued liabilities were collected or paid through the normal course of business. Property, plant and equipment were written down to its estimated net realizable value and the Company has disposed of these assets. Note 18. Accumulated Other Comprehensive Income/(Loss)
Accum- Foreign Minimum ulated Currency Pension other Translation Liability Compre- Adjust- Adjust- hensive ments ments Income/ (Loss) 2001 Beginning of the year balance $ (118) $(4,334) $(4,452) 12 month change 5 (419) (414) ------- ------- ------- End of the year balance $ (113) $(4,753) $(4,866) ====== ======= ======= 2000 Beginning of the year balance $ (143) $ (2,801) $ (2,944) 12 month change 25 (1,533) (1,508) ------ -------- -------- End of the year balance $ (118) $ (4,334) $ (4,452) ====== ======== ======== 1999 Beginning of the year balance $ (197) $ (3,856) $ (4,053) 12 month change 54 1,055 1,109 ------ -------- -------- End of the year balance $ (143) $ (2,801) $ (2,944) ====== ======== ========
Note 19. Quarterly Financial Information (Unaudited) Fiscal year ended December 29, 2001 Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $207,773 $59,199 $55,098 $44,028 $49,448 Gross profit 45,425 10,410 12,858 11,644 10,513 Net (loss)/income (1,876) (1,193) 1,409 307 (2,399) Diluted (loss)/earnings per share $(0.19) $(0.12) $0.14 $0.03 $(0.24) Fiscal year ended December 30, 2000 Total 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. Net sales $208,303 $49,473 $56,344 $45,830 $56,656 Gross profit 55,595 14,065 13,777 14,112 13,641 Net income 13,280 5,193 3,744 2,602 1,741 Diluted earnings per share $1.34 $0.52 $0.38 $0.26 $0.18 Reference is made to Notes 3 and 17 concerning fourth quarter adjustments during the years ended December 29, 2001 and December 30, 2000. Note 20. Legal Proceedings The Company is a defendant in several legal actions. In the opinion of the Company's management, based upon the advice of the respective attorneys handling such cases, such actions are not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flow. The Company is a defendant in a declaratory judgment action, captioned Hartford Fire Insurance Company v. Salant Corporation, Index No. 60233/98, in the Supreme Court of the State of New York, County of New York (the "Hartford Action"). The Company's insurers seek a declaratory judgment that the claims asserted against the Company in a lawsuit captioned Maria Delores Rodriguez-Olvera, et al. v. Salant Corp., et al., Case No. 97-07-14605-CV, in the 365th Judicial District Court of Maverick County, Texas (the "Rodriguez-Olvera Action") are not covered under the policies that the insurers had issued. The Company's insurers nevertheless provided a defense to the Company in the Rodriguez-Olvera Action and paid $30 million to settle the case without prejudice to their positions in the Hartford Action. Currently, there are discussions being held with a view to reaching an agreement for the settlement of the Hartford Action; if the settlement proposal is achieved as contemplated, management believes there would be no material impact on the Company's financial position or the results of operations. Pending such a settlement of this action, Salant's insurers have not withdrawn their reservation of rights, and the possibility remains that one or more of such insurers will seek recourse against Salant. Management believes the liability for the Company should not exceed $250, its deductible on its insurance policy with Hartford Fire Insurance Company. Note 21. Subsequent Events On January 4, 2002, Salant Corporation, through its wholly owned subsidiary, Salant Holding Corporation ("SHC"), acquired from Axis Clothing Corporation ("Axis"), certain of Axis' assets pursuant to an Asset Purchase Agreement dated as of October 15, 2001 by and between SHC, Axis and Richard Solomon ("Solomon") an individual. The assets acquired from Axis consisted of, among other things, trademarks, inventory, contract rights, fixed assets and certain office equipment primarily located in California (collectively, the "Axis Assets"). As a result of the acquisition, Salant diversified its operations for men's designer sportswear by expanding its channels of distribution, including specialty stores. The results of Axis's operations will be included in the statement of operations as of the acquisition date. The Company did not assume any accounts payable, accrued liabilities or debt, however the Company did assume several leases and contracts. In conjunction with the Asset Purchase Agreement, a three-year employment contract was signed between Solomon and SHC, along with SHC signing an agreement to lease office space (at current market rates) from Solomon. The Company is in the process of obtaining third-party valuations of certain intangible assets; thus, the allocation of the purchase price is subject to refinement. The following table summarizes the estimated fair values of the assets acquired at the date of acquisition: Current assets $ 948 Property, plant, and equipment 100 Intangible assets 400 Goodwill and other identified intangibles 11,631 -------- Total assets acquired $13,079 ======= The aggregate purchase price for the Axis Assets was approximately $12,448, plus estimated direct acquisition costs of $631. Of the total purchase price $10,648 was paid at closing and $1,800 has been placed in escrow and is payable in equal payments over the next 2 years. The purchase price was based upon arms-length negotiations considering (i) the value of the Axis brand, (ii) the quality of the assets and (iii) the estimated cash flow from the Axis Assets. The principal source of funds for the Axis Assets was working capital funds. The following unaudited consolidated pro forma results of operations of the Company for the years ended December 29, 2001 and December 30, 2000 give effect to the acquisition as if it occurred on January 2, 2000: December 29, December 30, 2001 2000 (Unaudited) (Unaudited) Net Sales $ 242,615 $ 237,737 Income from continuing operations $ 1,716 $ 15,187 Basic & diluted earnings per share from continuing operations $ 0.17 $ 1.53 The unaudited pro forma information above has been prepared for comparative purposes only and includes certain adjustments to the Company's historical statements of income, such as the recording of goodwill and increased interest expense or reduction of interest income due to the cost of the acquisition. The results do not purport to be indicative of the results of operations that would have resulted had the acquisition occurred at the beginning of the period, or of future results of operations of the consolidated entities. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference herein from the Company's Proxy Statement to be filed by the Company relating to the 2002 annual meeting of shareholders. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference herein from the Company's Proxy Statement to be filed by the Company relating to the 2002 annual meeting of shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference herein from the Company's Proxy Statement to be filed by the Company relating to the 2002 annual meeting of shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference herein from the Company's Proxy Statement to be filed by the Company relating to the 2002 annual meeting of shareholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following financial statements are included in Item 8 of this Annual Report: Independent Auditors' Report Consolidated Statements of Operations Consolidated Statements of Comprehensive (Loss)/Income Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedule The following Financial Statement Schedule for the years ended December 29, 2001, December 30, 2000 and January 1, 2000 is filed as part of this Annual Report: Schedule II - Valuation and Qualifying Accounts and Reserves All other financial statement schedules have been omitted because they are inapplicable or not required, or the information is included elsewhere in the financial statements or notes thereto. SALANT CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E (2) Charged (1) to Balance at Charged to Other Balance Beginning Costs and Accounts Deductions at End Description of Period Expenses -- Describe -- Describe of Period --------- --------- ----------- ----------- --------- YEAR ENDED DECEMBER 29, 2001: Accounts receivable allowance for doubtful accounts $2,625 $ 763 $ -- $ 446(A) $2,942 Reserve for business restructuring $1,070 $(100) $ -- $ 386(B) $ 584 YEAR ENDED DECEMBER 30, 2000: Accounts receivable allowance for doubtful accounts $2,419 $ 526 $ -- $ 320(A) $2,625 Reserve for business restructuring $2,308 $(629) $ -- $ 609(B) $1,070 YEAR ENDED JANUARY 1, 2000: Accounts receivable allowance for doubtful accounts $2,661 $ 260 $ -- $ 502 (A) $2,419 Reserve for business restructuring $3,551 $4,039 $ -- $5,282 (B) $2,308
NOTES: (A) Uncollectible accounts written off, less recoveries. (B) Costs incurred in plant closings and business restructuring. (a)(3) Exhibits
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Exhibit 1 to Statement of Salant Form 8-A dated Corporation, and Denton July 28, 1993. Mills, Inc., dated May 12,1993. 2.2 Third Amended Joint Included as Chapter 11 Plan of Exhibit D-1 Reorganization of to Exhibit 1 Salant Corporation to Form 8-A and Denton Mills, Inc. dated July 28, 1993. 2.3 Chapter 11 Plan of Reorganization Exhibit 2.3 to Form 8-K dated for Salant Corporation, dated December 29, 1998. December 29, 1998. 2.4 Disclosure Statement for Chapter 11 Exhibit 2.4 to Form 8-K dated Plan of Reorganization, dated December 29, 1998. December 29, 1998. 2.5 First Amended Chapter 11 Plan of Exhibit 2.5 to Form 8-K dated Reorganization for Salant April 30, 1999. Corporation, dated February 3, 1999. 2.6 First Amended Disclosure Exhibit 2.7 to Annual Report on Statement for Chapter 11 Plan Form 10-K for Fiscal Year 1999. of Reorganization for Salant Corporation, dated February 3, 1999. 2.7 Order Pursuant to Section 1129 Exhibit 99.3 to Salant of the Bankruptcy Code Confirming Corporation's Current Report on the First Amended Plan of Form 8-K dated April 30, 1999. Reorganization of Salant Corporation, dated April 16, 1999. 3.1 Form of Amended and Included as Exhibit Restated Certificate of D-1 to Exhibit 2 Incorporation of Salant to Form 8-A dated Corporation. July 28, 1993. 3.2 Form of Bylaws, as amended, of Exhibit 3.2 to Form 10-K Salant Corporation, effective dated March 24, 1995 September 21, 1994. 3.3 Amended and Restated Exhibit 1.1 to Certificate of Form 8-A dated Incorporation of May 12, 1999 Salant Corporation, effective May 11, 1999. 3.4 Amended and Restated Exhibit 1.2 to By-laws of Salant Form 8-A dated Corporation, effective May 12, 1999 May 11, 1999. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report December 8, 1987 between Salant on Form 8-K dated December 8, 1987. Corporation and The Chase Manhattan Bank, N.A., as Rights Agent. The Rights Agreement includes as Exhibit B the form of Right Certificate. 4.2 Form of First Amendment Exhibit 3 to to the Rights Agreement Amendment No. 1 to between Salant Corporation Form 8-A dated and Mellon Securities. July 29, 1993. 4.3 Indenture, dated as of Exhibit 10.34 to September 20, 1993, between Salant Quarterly Report Corporation and Bankers on Form 10-Q for Trust Company, as trustee, the quarter ended for the 10-1/2% Senior October 2, 1993. Secured Notes due December 31, 1998. 10.1 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated September 29, 1993, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial October 2, 1993. Services, Inc. 10.2 Salant Corporation 1987 Stock Plan.* Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.3 Salant Corporation 1988 Stock Plan.* Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.4 First Amendment, effective Exhibit 19.1 to Quarterly Report as of July 25, 1989, to the Salant on Form 10-Q for the quarter Corporation 1988 Stock Plan. * ended September 30, 1989. 10.5 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. * Form 10-K for fiscal year 1988. 10.6 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. * Form 10-K for fiscal year 1988. 10.7 License Agreement, dated Exhibit 19.1 to Annual Report January 1, 1991, by and between on Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.8 License Agreement, dated Exhibit 19.2 to Annual Report January 1, 1991, by and between on Form 10-K for Perry Ellis International Inc. fiscal year 1992. and Salant Corporation regarding men's dress shirts. 10.9 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Stock Plan Directors' Option Report on Form Agreement. * 10-K for Fiscal Year 1993. 10.10 Letter Agreement, dated as of Exhibit 10.45 to August 24, 1994, amending the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated quarter ended October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.11 Third Amendment to Credit Agreement, Exhibit 10.48 to Current Report on dated February 28, 1995, to the Form 8-K, dated March 2, 1995. Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, as amended, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.12 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.13 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.14 Salant Corporation Long Term Savings Exhibit 10.25 to Annual Report on and Investment Plan as amended Form 10-K for Fiscal Year 1994. and restated. * 10.15 Fourth Amendment to Credit Exhibit 10.27 to Agreement, dated as of March 1, Quarterly Report 1995, to the Revolving Credit, on Form 10-Q for Factoring and Security Agreement, the quarter dated as of September 20, 1993, ended April 1, as amended, between Salant 1995. Corporation and The CIT Group/ Commercial Services, Inc. 10.16 Fifth Amendment to Credit Exhibit 10.29 Agreement, dated as of to Quarterly June 28, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.17 Sixth Amendment to Credit Exhibit 10.30 Agreement, dated as of to Quarterly August 15, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.18 Letter from The CIT Group/ Exhibit 10.31 Commercial Services, Inc., to Quarterly dated as of July 11, 1995, Report on regarding the waiver of a Form l0-Q for default. the quarter ended July 1, 1995. 10.19 Letter Agreement between Exhibit 10.31 Salant Corporation and The to Quarterly CIT Group/Commercial Services, Report on Inc. dated as of July 11, 1995, Form l0-Q for regarding the Seasonal Overadvance the quarter Subfacility. ended July 1, 1995. 10.20 Seventh Amendment to Credit Exhibit 10.34 to Agreement, dated as of Annual Report on March 27, 1996, to the Form 10-K for Revolving Credit, Factoring fiscal year 1995. and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.21 First Amendment to the Salant Exhibit 10.35 to Corporation Retirement Plan, dated Quarterly Report on as of January 31, 1996. * Form 10-Q for the quarter ended March 30, 1996. 10.22 First Amendment to the Salant Exhibit 10.36 to Corporation Long Term Savings and Quarterly Report on Investment Plan, effective as of Form 10-Q for the January 1, 1994. * quarter ended March 30, 1996. 10.23 Eighth Amendment to Credit Agreement, Exhibit 10.37 to dated as of June 1, 1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.24 Ninth Amendment to Credit Agreement, Exhibit 10.38 to dated as of August 16,1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.25 Salant Corporation 1996 Stock Plan.* Exhibit 10.40 to Annual Report on Form 10-K for Fiscal Year 1996. 10.26 Tenth Amendment to Credit Agreement, Exhibit 10.41 to Annual Report on dated as of February 20, 1997, to Form 10-K for Fiscal Year 1996. 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. 10.27 Employment Agreement, dated as Exhibit 10.43 to Annual Report on of March 24, 1997, between Form 10-K for Fiscal Year 1996. Jerald S. Politzer and Salant Corporation. * 10.28 Employment Agreement, dated as of Exhibit 10.44 to Quarterly Report on May 1, 1997, between Todd Kahn and Form 10-Q for the quarter ended Salant Corporation. * June 28, 1997. 10.29 Employment Agreement, dated as of Exhibit 10.45 to Quarterly Report on August 18, 1997 between Philip A. Form 10-Q for the quarter ended Franzel and Salant Corporation. * June 28, 1997. 10.30 Eleventh Amendment to Credit Exhibit 10.46 to Quarterly Report on Agreement, dated as of Form 10-Q for the quarter ended August 8, 1997, to the Revolving June 28, 1997. Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.31 Letter Agreement, dated Exhibit 10.48 to Current Report on March 2, 1998, by and among Salant Form 8-K dated March 4, 1998. Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.32 Twelfth Amendment and Forbearance Exhibit 10.49 to Current Report on Agreement to Credit Agreement, dated Form 8-K dated March 4, 1998. as of March 2, 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.33 Thirteenth Amendment and Forbearance Exhibit 10.53 to Current Report on Agreement, dated as of June 1, 1998, Form 8-K dated June 1, 1998. By and between Salant Corporation And The CIT Group/Commercial Services, Inc. 10.34 Commitment Letter, dated June 1, Exhibit 10.54 to Current Report on 1998, by and between Salant Form 8-K dated June 1, 1998. Corporation and The CIT Group/Commercial Services, Inc. 10.35 Letter Agreement, dated June 1, Exhibit 10.55 to Current Report on 1998, by and among Salant Form 8-K dated June 1, 1998. Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.36 Letter Agreement, dated July 8, Exhibit 10.44 to Quarterly Report on 1998, amending the Letter Agreement, Form 10-Q for the quarter ended dated March 2, 1998, as amended, July 4, 1998. By and among Salant Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.37 Letter Agreement, dated July 20, Exhibit 10.45 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated August 18, 1997, October 3, 1998. between Philip A. Franzel and Salant Corporation. * 10.38 Letter Agreement, dated July 20, Exhibit 10.46 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated May 1, 1997, October 3, 1998. between Todd Kahn and Salant Corporation. * 10.39 Letter Agreement, dated July 20, Exhibit 10.47 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated March 20, 1997, October 3, 1998. between Jerald s. Politzer and Salant Corporation. * 10.40 Letter Agreement, dated Exhibit 10.48 to Current Report on November 30, 1998, by and between Form 8-K dated November 30, 1998. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.41 Letter Agreement, dated Exhibit 10.49 to Current Report on December 4, 1998, by and between Form 8-K dated November 30, 1998. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.42 Ratification and Amendment Exhibit 10.50 to Current Report on Agreement, dated as of December 29, Form 8-K dated December 29, 1998. 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.43 Agreement between Salant Exhibit 99.4 to Current Report on Corporation and Pension Benefit Form 8-K dated April 30, 1999. Guaranty Corporation, dated March 24, 1999. 10.44 Amended and Restated Revolving Exhibit 10.43 to Form 10-Q, dated Credit and Security Agreement, May 17, 1999. dated May 11, 1999. 10.45 Employment Agreement, dated Exhibit 10.45 to Annual Report on February 1, 1999, between Form 10-K for fiscal year 1999. Awadhesh Sinha and Salant Corporation. * 10.46 Employment Agreement, dated as Exhibit 10.46 to Annual Report on of May 17, 1999, between Michael Form 10-K for fiscal year 1999. Setola and Salant Corporation. * 10.47 Letter Agreement, dated July 1, 1999, Exhibit 10.47 to Annual Report on amending the Employment Agreement, Form 10-K for fiscal year 1999. dated February 1, 1999, between Awadhesh Sinha and Salant Corporation. * 10.48 Salant Corporation 1999 Stock Award Exhibit A to Salant Corporation Incentive Plan. Definitive Proxy Statement on Schedule 14(a) dated April 14, 2000. 10.49 Letter Agreement, dated Exhibit 10.29 to Quarterly Report on March 28, 2001, amending the Form 10-Q for the quarter ended Employment Agreement, dated March 31, 2001. February 1, 1999, as amended July 1, 1999, between Awadhesh K. Sinha and Salant Corporation. * 10.50 Asset Purchase Agreement dated as Exhibit 10.1 to Current Report on of October 15, 2001 by and between on Form 8-K dated January 4, 2002. Salant Holding Corporation, Axis Clothing Corporation and Richard Solomon. 10.51 Second Amended and Restated Revolving Credit and Security Agreement, dated November 30, 2001. 10.52 Employment Agreement, dated August 24, 1999, between Howard Posner and Salant Corporation. * 10.53 Employment Agreement, dated March 13, 2000, between William O. Manzer and Salant Corporation. * 10.54 Employment Agreement, dated August 24, 1999, between Jerry Kwiatkowski and Salant Corporation. * 21 List of Subsidiaries of the Company
* constitutes a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K for the quarter ended December 29, 2001. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SALANT CORPORATION Date: March 29, 2002 By: /s/ Awadhesh K. Sinha -------------------------------- Awadhesh K. Sinha Chief Financial Officer and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on March 29, 2002. Signature Title /s/ Michael J. Setola Chairman of the Board ------------------------------------- and Chief Executive Officer Michael J. Setola (Principal Executive Officer); Director /s/ Awadhesh K. Sinha Chief Financial Officer ------------------------------------- and Chief Operating Officer Awadhesh K. Sinha (Principal Financial and Accounting Officer) /s/ Talton R. Embry Director ----------------------------------- Talton R. Embry /s/ G. Raymond Empson Director ----------------------------------- G. Raymond Empson /s/ Ben Evans Director ----------------------------------- Ben Evans /s/ Rose P. Lynch Director ----------------------------------- Rose P. Lynch SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS to FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001 SALANT CORPORATION EXHIBIT INDEX
Incorporation Number Description By Reference To 2.1 Third Amended Disclosure Exhibit 1 to Statement of Salant Form 8-A dated Corporation, and Denton July 28, 1993. Mills, Inc., dated May 12,1993. 2.2 Third Amended Joint Included as Chapter 11 Plan of Exhibit D-1 Reorganization of to Exhibit 1 Salant Corporation to Form 8-A and Denton Mills, Inc. dated July 28, 1993. 2.3 Chapter 11 Plan of Reorganization Exhibit 2.3 to Form 8-K dated for Salant Corporation, dated December 29, 1998. December 29, 1998. 2.4 Disclosure Statement for Chapter 11 Exhibit 2.4 to Form 8-K dated Plan of Reorganization, dated December 29, 1998. December 29, 1998. 2.5 First Amended Chapter 11 Plan of Exhibit 2.5 to Form 8-K dated Reorganization for Salant April 30, 1999. Corporation, dated February 3, 1999. 2.6 First Amended Disclosure Exhibit 2.7 to Annual Report on Statement for Chapter 11 Plan Form 10-K for fiscal year 1999. of Reorganization for Salant Corporation, dated February 3, 1999. 2.7 Order Pursuant to Section 1129 Exhibit 99.3 to Salant of the Bankruptcy Code Confirming Corporation's Current Report on the First Amended Plan of Form 8-K dated April 30, 1999. Reorganization of Salant Corporation, dated April 16, 1999. 3.1 Form of Amended and Included as Exhibit Restated Certificate of D-1 to Exhibit 2 Incorporation of Salant to Form 8-A dated Corporation. July 28, 1993. 3.2 Form of Bylaws, as amended, of Exhibit 3.2 to Form 10-K Salant Corporation, effective dated March 24, 1995 September 21, 1994. 3.3 Amended and Restated Exhibit 1.1 to Certificate of Form 8-A dated Incorporation of May 12, 1999 Salant Corporation, effective May 11, 1999. 3.4 Amended and Restated Exhibit 1.2 to By-laws of Salant Form 8-A dated Corporation, effective May 12, 1999 May 11, 1999. 4.1 Rights Agreement dated as of Exhibit 1 to Current Report December 8, 1987 between Salant on Form 8-K dated December 8, 1987. Corporation and The Chase Manhattan Bank, N.A., as Rights Agent. The Rights Agreement includes as Exhibit B the form of Right Certificate. 4.2 Form of First Amendment Exhibit 3 to to the Rights Agreement Amendment No. 1 to between Salant Corporation Form 8-A dated and Mellon Securities. July 29, 1993. 4.3 Indenture, dated as of Exhibit 10.34 to September 20, 1993, between Salant Quarterly Report Corporation and Bankers on Form 10-Q for Trust Company, as trustee, the quarter ended for the 10-1/2% Senior October 2, 1993. Secured Notes due December 31, 1998. 10.1 Revolving Credit, Exhibit 10.33 to Factoring and Security Quarterly Report Agreement dated September 29, 1993, on Form 10-Q for between Salant Corporation the quarter ended and The CIT Group/Commercial October 2, 1993. Services, Inc. 10.2 Salant Corporation 1987 Stock Plan.* Exhibit 19.2 to Annual Report on Form 10-K for fiscal year 1987. 10.3 Salant Corporation 1988 Stock Plan.* Exhibit 19.3 to Annual Report on Form 10-K for fiscal year 1988. 10.4 First Amendment, effective Exhibit 19.1 to Quarterly Report as of July 25, 1989, to the Salant on Form 10-Q for the quarter Corporation 1988 Stock Plan. * ended September 30, 1989. 10.5 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report on Stock Plan Employee Agreement. * Form 10-K for fiscal year 1988. 10.6 Form of Salant Corporation Exhibit 19.8 to 1988 Stock Plan Director Annual Report on Agreement. * Form 10-K for fiscal year 1988. 10.7 License Agreement, dated Exhibit 19.1 to Annual Report January 1, 1991, by and between on Form 10-K for fiscal year 1992. Perry Ellis International Inc. and Salant Corporation regarding men's sportswear. 10.8 License Agreement, dated Exhibit 19.2 to Annual Report January 1, 1991, by and between on Form 10-K for Perry Ellis International Inc. fiscal year 1992. and Salant Corporation regarding men's dress shirts. 10.9 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual Stock Plan Directors' Option Report on Form Agreement. * 10-K for Fiscal Year 1993. 10.10 Letter Agreement, dated as of Exhibit 10.45 to August 24, 1994, amending the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated quarter ended October 1, 1994. September 20, 1993, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.11 Third Amendment to Credit Agreement, Exhibit 10.48 to Current Report on dated February 28, 1995, to the Form 8-K, dated March 2, 1995. Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, as amended, between The CIT Group/Commercial Services, Inc. and Salant Corporation. 10.12 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.13 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report on as amended and restated. * Form 10-K for Fiscal Year 1994. 10.14 Salant Corporation Long Term Savings Exhibit 10.25 to Annual Report on and Investment Plan as amended Form 10-K for Fiscal Year 1994. and restated. * 10.15 Fourth Amendment to Credit Exhibit 10.27 to Agreement, dated as of March 1, Quarterly Report 1995, to the Revolving Credit, on Form 10-Q for Factoring and Security Agreement, the quarter dated as of September 20, 1993, ended April 1, as amended, between Salant 1995. Corporation and The CIT Group/ Commercial Services, Inc. 10.16 Fifth Amendment to Credit Exhibit 10.29 Agreement, dated as of to Quarterly June 28, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.17 Sixth Amendment to Credit Exhibit 10.30 Agreement, dated as of to Quarterly August 15, 1995, to the Report on Revolving Credit, Factoring Form l0-Q for and Security Agreement, the quarter dated as of September 20, ended July 1, 1993, as amended, between 1995. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.18 Letter from The CIT Group/ Exhibit 10.31 Commercial Services, Inc., to Quarterly dated as of July 11, 1995, Report on regarding the waiver of a Form l0-Q for default. the quarter ended July 1, 1995. 10.19 Letter Agreement between Exhibit 10.31 Salant Corporation and The to Quarterly CIT Group/Commercial Services, Report on Inc. dated as of July 11, 1995, Form l0-Q for regarding the Seasonal Overadvance the quarter Subfacility. ended July 1, 1995. 10.20 Seventh Amendment to Credit Exhibit 10.34 to Agreement, dated as of Annual Report on March 27, 1996, to the Form 10-K for Revolving Credit, Factoring fiscal year 1995. and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.21 First Amendment to the Salant Exhibit 10.35 to Corporation Retirement Plan, dated Quarterly Report on as of January 31, 1996. * Form 10-Q for the quarter ended March 30, 1996. 10.22 First Amendment to the Salant Exhibit 10.36 to Corporation Long Term Savings and Quarterly Report on Investment Plan, effective as of Form 10-Q for the January 1, 1994. * quarter ended March 30, 1996. 10.23 Eighth Amendment to Credit Agreement, Exhibit 10.37 to dated as of June 1, 1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.24 Ninth Amendment to Credit Agreement, Exhibit 10.38 to dated as of August 16,1996, to the Quarterly Report on Revolving Credit, Factoring and Form 10-Q for the Security Agreement, dated as of quarter ended September 20, 1993, as amended, June 29, 1996. between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.25 Salant Corporation 1996 Stock Plan.* Exhibit 10.40 to Annual Report on Form 10-K for Fiscal Year 1996. 10.26 Tenth Amendment to Credit Agreement, Exhibit 10.41 to Annual Report on dated as of February 20, 1997, to Form 10-K for Fiscal Year 1996. 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. 10.27 Employment Agreement, dated as Exhibit 10.43 to Annual Report on of March 24, 1997, between Form 10-K for Fiscal Year 1996. Jerald S. Politzer and Salant Corporation. * 10.28 Employment Agreement, dated as of Exhibit 10.44 to Quarterly Report on May 1, 1997, between Todd Kahn and Form 10-Q for the quarter ended Salant Corporation. * June 28, 1997. 10.29 Employment Agreement, dated as of Exhibit 10.45 to Quarterly Report on August 18, 1997 between Philip A. Form 10-Q for the quarter ended Franzel and Salant Corporation. * June 28, 1997. 10.30 Eleventh Amendment to Credit Exhibit 10.46 to Quarterly Report on Agreement, dated as of Form 10-Q for the quarter ended August 8, 1997, to the Revolving June 28, 1997. Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.31 Letter Agreement, dated Exhibit 10.48 to Current Report on March 2, 1998, by and among Salant Form 8-K dated March 4, 1998. Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.32 Twelfth Amendment and Forbearance Exhibit 10.49 to Current Report on Agreement to Credit Agreement, dated Form 8-K dated March 4, 1998. as of March 2, 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.33 Thirteenth Amendment and Forbearance Exhibit 10.53 to Current Report on Agreement, dated as of June 1, 1998, Form 8-K dated June 1, 1998. By and between Salant Corporation And The CIT Group/Commercial Services, Inc. 10.34 Commitment Letter, dated June 1, Exhibit 10.54 to Current Report on 1998, by and between Salant Form 8-K dated June 1, 1998. Corporation and The CIT Group/Commercial Services, Inc. 10.35 Letter Agreement, dated June 1, Exhibit 10.55 to Current Report on 1998, by and among Salant Form 8-K dated June 1, 1998. Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.36 Letter Agreement, dated July 8, Exhibit 10.44 to Quarterly Report on 1998, amending the Letter Agreement, Form 10-Q for the quarter ended dated March 2, 1998, as amended, July 4, 1998. By and among Salant Corporation, Magten Asset Management Corp., as agent on behalf of certain of its accounts, and Apollo Apparel Partners, L.P. 10.37 Letter Agreement, dated July 20, Exhibit 10.45 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated August 18, 1997, October 3, 1998. between Philip A. Franzel and Salant Corporation. * 10.38 Letter Agreement, dated July 20, Exhibit 10.46 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated May 1, 1997, October 3, 1998. between Todd Kahn and Salant Corporation. * 10.39 Letter Agreement, dated July 20, Exhibit 10.47 to Quarterly Report on 1998, amending the Employment Form 10-Q for the quarter ended Agreement, dated March 20, 1997, October 3, 1998. between Jerald s. Politzer and Salant Corporation. * 10.40 Letter Agreement, dated Exhibit 10.48 to Current Report on November 30, 1998, by and between Form 8-K dated November 30, 1998. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.41 Letter Agreement, dated Exhibit 10.49 to Current Report on December 4, 1998, by and between Form 8-K dated November 30, 1998. Salant Corporation and The CIT Group/Commercial Services, Inc. 10.42 Ratification and Amendment Exhibit 10.50 to Current Report on Agreement, dated as of December 29, Form 8-K dated December 29, 1998. 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 10.43 Agreement between Salant Exhibit 99.4 to Current Report on Corporation and Pension Benefit Form 8-K dated April 30, 1999. Guaranty Corporation, dated March 24, 1999. 10.44 Amended and Restated Revolving Exhibit 10.43 to Form 10-Q, dated Credit and Security Agreement, May 17, 1999. dated May 11, 1999. 10.45 Employment Agreement, dated Exhibit 10.45 to Annual Report on February 1, 1999, between Form 10-K for fiscal year 1999. Awadhesh Sinha and Salant Corporation. * 10.46 Employment Agreement, dated as Exhibit 10.46 to Annual Report on of May 17, 1999, between Michael Form 10-K for fiscal year 1999. Setola and Salant Corporation. * 10.47 Letter Agreement, dated July 1, 1999, Exhibit 10.47 to Annual Report on amending the Employment Agreement, Form 10-K for fiscal year 1999. dated February 1, 1999, between Awadhesh Sinha and Salant Corporation. * 10.48 Salant Corporation 1999 Stock Award Exhibit A to Salant Corporation Incentive Plan. Definitive Proxy Statement on Schedule 14(a)dated April 14, 2000. 10.49 Letter Agreement, dated Exhibit 10.29 to Quarterly Report on March 28, 2001, amending the Form 10-Q for the quarter ended Employment Agreement, dated March 31, 2001. February 1, 1999, as amended July 1, 1999, between Awadhesh K. Sinha and Salant Corporation. * 10.49 Asset Purchase Agreement dated as Exhibit 10.1 to Current Report on of October 15, 2001 by and between on Form 8-K dated January 4, 2002. Salant Holding Corporation, Axis Clothing Corporation and Richard Solomon. 10.50 Second Amended and Restated Revolving Credit and Security Agreement, dated November 30, 2001. 10.52 Employment Agreement, dated August 24,1999, between Howard Posner and Salant Corporation. * 10.53 Employment Agreement, dated March 13, 2000, between William O. Manzer and Salant Corporation. * 10.54 Employment Agreement, dated August 24, 1999, between Jerry Kwiatkowski and Salant Corporation. * 21 List of Subsidiaries of the Company
* constitutes a management contract or compensatory plan or arrangement. EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Birdhill, Limited, a Hong Kong corporation Carrizo Manufacturing Co., S.A. de C.V., a Mexican corporation Clantexport, Inc., a New York corporation Denton Mills, Inc., a Delaware corporation JJ. Farmer Clothing, Inc., a Canadian corporation Frost Bros. Enterprises, Inc., a Texas corporation Manhattan Industries, Inc., a Delaware corporation Manhattan Industries, Inc., a New York corporation Manhattan Industries (Far East) Limited, a Hong Kong corporation Maquiladora Sur S.A. de C.V., a Mexican corporation Salant Canada, Inc., a Canadian corporation Salant Caribbean, S.A., a Guatemalan Corporation Salant Holding Corporation, a Delaware corporation SLT Sourcing, Inc., a New York corporation Vera Licensing, Inc., a Nevada corporation Vera Linen Manufacturing, Inc., a Delaware corporation EX-10 3 citagreement.txt CIT REVOLVING CREDIT AGREEMENT [EXECUTION COPY] SECOND AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT by and among SALANT CORPORATION and SALANT HOLDING CORPORATION as Borrowers THE FINANCIAL INSTITUTIONS NAMED HEREIN as Lenders and THE CIT GROUP/COMMERCIAL SERVICES, INC. as Agent Dated: November 30, 2001 TABLE OF CONTENTS Page RECITALS............................................................................................ 1 SECTION 1. DEFINITIONS........................................................................2 SECTION 2. ACKNOWLEDGMENT AND RESTATEMENT....................................................20 Section 2.1 Existing Obligations.....................................................20 Section 2.2 Acknowledgment of Security Interests.....................................20 Section 2.3 Acknowledgment of Existing Credit Agreement..............................20 Section 2.4 Restatement..............................................................20 SECTION 3. CREDIT FACILITY...................................................................21 Section 3.1 Loans....................................................................21 Section 3.2 Letter of Credit Accommodations..........................................22 Section 3.3 Reserves.................................................................25 Section 3.4 Commitments..............................................................25 Section 3.5 Mandatory Prepayments....................................................25 Section 3.6 Interest.................................................................26 Section 3.7 Unused Line Fee..........................................................28 Section 3.8 Collateral Management Fee................................................28 Section 3.9 Agency Fee...............................................................28 Section 3.10 Changes in Laws and Increased Costs of Revolving Loans...................28 Section 3.11 Authorization to Make Loans and Provide Letter of Credit Accommodations...........................................................29 Section 3.12 Settlement Procedures....................................................29 Section 3.13 Use of Proceeds..........................................................31 SECTION 4. CONDITIONS PRECEDENT TO LOANS AND OTHER FINANCIAL ACCOMMODATIONS..........................................................31 Section 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations...........................................................31 Section 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations...........................................................36 SECTION 5. COLLATERAL........................................................................37 Section 5.1 Security Interests in Borrowers' Assets..................................37 Section 5.2 Security Interests in Guarantors' Assets.................................38 Section 5.3 Perfection of Security Interests.........................................39 SECTION 6. REPRESENTATIONS AND WARRANTIES....................................................40 Section 6.1 Organization and Qualification...........................................40 Section 6.2 Corporate Power and Authority............................................40 Section 6.3 Capitalization...........................................................40 Section 6.4 Compliance with Other Agreements and Applicable Law......................41 Section 6.5 Governmental Approval....................................................42 Section 6.6 Chief Executive Office; Collateral Locations.............................42 Section 6.7 Priority of Liens; Title to Properties...................................42 Section 6.8 Tax Returns..............................................................43 Section 6.9 Litigation...............................................................43 Section 6.10 Intellectual Property....................................................43 Section 6.11 Accounts.................................................................43 Section 6.12 Employee Benefits........................................................44 Section 6.13 Environmental Compliance.................................................45 Section 6.14 Bank Accounts............................................................46 Section 6.15 Investment Company.......................................................46 Section 6.16 Regulation G; Regulation U; Securities Exchange Act of 1934..............46 Section 6.17 No Material Adverse Change...............................................46 Section 6.18 Financial Statements.....................................................47 Section 6.19 Disclosure...............................................................47 Section 6.20 Labor Disputes...........................................................47 Section 6.21 Corporate Name; Prior Transactions.......................................48 Section 6.22 Material Contracts.......................................................48 SECTION 7. ADDITIONAL COVENANTS..............................................................48 Section 7.1 Tradenames...............................................................48 Section 7.2 New Collateral Locations.................................................49 Section 7.3 Subsidiaries.............................................................49 Section 7.4 Indebtedness.............................................................49 Section 7.5 Limitation on Liens......................................................51 Section 7.6 Loans, Investments, Guaranties, Etc......................................52 Section 7.7 Transactions with Affiliates.............................................53 Section 7.8 Restricted Payments......................................................53 Section 7.9 Maintenance of Existence.................................................54 Section 7.10 Sale and Leasebacks......................................................54 Section 7.11 Sale of Assets, Consolidation, Merger, Dissolution, Etc..................54 Section 7.12 Compliance with Laws, Regulations, Etc...................................54 Section 7.13 Payment of Taxes and Claims..............................................55 Section 7.14 Properties in Good Condition; Covenants as to Inventory, Real Property and Equipment..............................................55 Section 7.15 Appraisals...............................................................56 Section 7.16 Insurance................................................................57 Section 7.17 Compliance with ERISA....................................................57 Section 7.18 Additional Bank Accounts.................................................58 Section 7.19 Notice of Default........................................................58 Section 7.20 Financial Statements and Other Information...............................58 Section 7.21 Consolidated Tangible Net Worth..........................................61 Section 7.22 Minimum Pre-Tax Income...................................................61 Section 7.23 Minimum Interest Coverage Ratio..........................................62 Section 7.24 Capital Expenditures.....................................................62 Section 7.25 After Acquired Real Property.............................................62 Section 7.26 Further Assurances.......................................................62 Section 7.27 Borrowers Jointly and Severally Liable...................................63 SECTION 8. EVENTS OF DEFAULT AND REMEDIES....................................................63 Section 8.1 Events of Default........................................................63 Section 8.2 Remedies.................................................................65 SECTION 9. COLLECTION AND ADMINISTRATION.....................................................68 Section 9.1 Collections; Management of Collateral....................................68 Section 9.2 Payments.................................................................69 Section 9.3 Sharing of Payments, Etc.................................................70 Section 9.4 Borrower's Loan Account..................................................71 Section 9.5 [Intentionally Omitted]..................................................73 Section 9.6 Right of Inspection; Access..............................................73 Section 9.7 Accounts Documentation...................................................73 Section 9.8 Specific Powers..........................................................74 Section 9.9 Returns, Credits and Allowances..........................................74 SECTION 10 EFFECTIVE DATE; TERMINATION; COSTS................................................75 Section 10.1 Term.....................................................................75 Section 10.2 Expenses and Additional Fees.............................................76 Section 10.3 Survival of Agreement....................................................77 Section 10.4 No Waiver; Cumulative Remedies...........................................77 Section 10.5 Notices..................................................................78 Section 10.6 Entire Agreement.........................................................78 Section 10.7 Confidentiality..........................................................78 Section 10.8 Partial Invalidity.......................................................79 Section 10.9 Headings.................................................................79 Section 10.10 [Intentionally Omitted]..................................................79 Section 10.11 Counterparts.................................................................79 SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW ......................................................79 Section 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver........................................................79 Section 11.2 Waiver of Notices........................................................81 Section 11.3 Amendments and Waivers...................................................81 Section 11.4 Waiver of Counterclaims..................................................82 Section 11.5 Indemnification..........................................................82 Section 11.6 Assignments; Participations..............................................83 Section 11.7 Successors and Assigns...................................................85 SECTION 12. THE AGENT..............................................................................85 Section 12.1 Appointment..............................................................85 Section 12.2 Nature of Duties.........................................................86 Section 12.3 Delegation of Duties.....................................................87 Section 12.4 Rights, Exculpation, Etc.................................................87 Section 12.5 Reliance.................................................................88 Section 12.6 Notice of Event of Default...............................................88 Section 12.7 Credit Decision..........................................................88 Section 12.8 Indemnification..........................................................89 Section 12.9 CIT in its Individual Capacity...........................................89 Section 12.10 Successor Agent..........................................................89 Section 12.11 Withholding Tax..........................................................90 Section 12.12 Collateral Matters.......................................................91 Section 12.13 Agency for Perfection....................................................92 Section 12.14 [Intentionally Omitted.].................................................93 Section 12.15 Concerning the Collateral and the Related Financing Agreements...........93 Section 12.16 Field Audit and Examination Reports; Disclaimer by Lenders...............93
================================================================================ EXHIBITS - -------------------------------------------------------------------------------- ===================== ========================================================== Exhibit A Form of Amended and Restated Assignment and Acceptance - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit B Form of Amended and Restated Revolving Credit Note - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit C Form of Second Amended and Restated Letter of Credit Agreement - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit D-1 Form of Second Amended and Restated Trademark Collateral Assignment and Security Agreement [Salant] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit D-2 Form of Special Power of Attorney [Salant] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit E-1 Form of Trademark Collateral Assignment and Security Agreement [Holding] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit E-2 Form of Special Power of Attorney [Holding] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit F-1 Form of Second Amended Restated Collateral Assignment of Licenses [Salant] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit F-2 Form of Collateral Assignment of Licenses [Holding] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit G Form of Inventory Confirmation - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit H Form of Second Amended and Restated Guarantee [Guarantor] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit I-(1) Form of Second Amended and Restated General Security Agreement [Guarantor] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit I-(2) Form of Second Amended and Restated Hypothec [Guarantor] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit J Form of Second Amended and Restated Trademark Collateral Assignment and Security Agreement [Guarantor] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit K Form of Special Power of Attorney [Guarantor] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit L Form of Second Amended and Restated Collateral Assignment of Licenses [Guarantor] - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit M Form of UCC-1 Financing Statement - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Exhibit N Consent of Guarantors - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- SCHEDULES - -------------------------------------------------------------------------------- - ---------------------- --------------------------------------------------------- Schedule 1.38 List of Existing Letters of Credit - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 1.64 List of Real Property Subject to Existing Mortgages - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 1.76 Perry Ellis Licenses - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 3.2(b) Letter of Credit Fees - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.1(a) Jurisdictions of Qualification - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.1(b) Subsidiaries - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.4(c) Permits - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.6 Chief Executive Office and Locations of Collateral - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.7 Existing Liens - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.8 Tax Returns - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.9 Pending Litigation - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.12 Employee Benefit Matters - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.13 Environmental Claims and Proceedings - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.14 Bank Accounts of Borrower and its Subsidiaries - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.20 Collective Bargaining Agreements - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.21 Corporate Name; Tradenames; Prior Transactions - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 6.22 Material Contract Defaults - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 7.4 Existing Indebtedness - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 7.6 Loans, Investments and Guarantees - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 7.20(a)(ix) Collateral and Financial Reports - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- Schedule 8.1(g) Certain Perry Ellis Licenses - --------------------- ---------------------------------------------------------- - --------------------- ---------------------------------------------------------- ===================== ========================================================== SECOND AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT THIS SECOND AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT dated November 30, 2001 is entered into by and among SALANT CORPORATION, a Delaware corporation ("Salant") and its wholly owned subsidiary, Salant Holding Corporation, a Delaware corporation ("Holding"; and together with Salant, individually, a "Borrower" and collectively, "Borrowers", as hereinafter further defined), the financial institutions from time to time parties hereto as lenders, whether by execution of this Agreement or an Assignment and Acceptance (individually, a "Lender" and collectively, the "Lenders" as hereinafter further defined) and THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation ("CIT" as hereinafter further defined), in its capacity as administrative agent and collateral agent for the Lenders (in such capacity, the "Agent") and as Lender. W I T N E S S E T H: WHEREAS, CIT and Salant entered into a Revolving Credit, Factoring and Security Agreement dated September 20, 1993 (as amended, modified or supplemented from time to time, the "Original Credit Agreement") pursuant to which CIT made loans and provided other financial accommodations to Salant; and WHEREAS, on December 29, 1998 Salant filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code (as hereinafter defined) with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"); and WHEREAS, pursuant to an Interim Order and a Final Order of the Bankruptcy Court, dated December 29, 1998 and January 19, 1999, respectively, Authorizing Interim and Post-Petition Financing, Granting Senior Liens and Priority Administrative Expense, Modifying the Automatic Stay, and Authorizing Debtor to Enter into Agreements with The CIT Group/Commercial Services, Inc. and Authorizing the Assumption of the Existing Financing Agreements with Debtor, CIT and Salant entered into debtor-in-possession financing arrangements under the Original Credit Agreement pursuant to which CIT continued to make loans and provide financial accommodations to Salant as Debtor and Debtor-in-Possession; and WHEREAS, Salant's First Amended Chapter 11 Plan of Reorganization dated February 3, 1999 (the "Plan") was confirmed by order of the Bankruptcy Court entered on April 16, 1999; and 96 66358-10 WHEREAS, in connection with implementation of the Plan and the satisfaction of Salant's working capital requirements, Salant requested CIT to continue to make financial accommodations to Salant and to extend, amend and restate the Original Credit Agreement pursuant to which Agent on behalf of Lenders would make loans and provide other financial accommodations to Salant to fund the Plan and for working capital; and WHEREAS, Agent, Lenders and Salant entered into the Amended and Restated Credit and Security Agreement dated May 11, 1999 (as amended the "Existing Credit Agreement") pursuant to which Agent on behalf of Lenders made loans and provided other financial accommodations to Salant on the terms and conditions set forth therein; and WHEREAS, Salant has requested that Agent and Lenders agree that Holding become a Borrower under the Existing Credit Agreement; and. WHEREAS, Agent and Lenders are willing to make Holding a Borrower under Existing Credit Agreement by amending and restating the Existing Credit Agreement in its entirety as set forth in this Agreement and Lenders are willing to make loans and provide other financial accommodations to Borrowers on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS For the purposes of this Agreement and the other Financing Agreements, the following terms shall have the respective meanings given to them below: 1.1 "Account Debtor" shall mean each debtor or obligor in any way obligated on or in connection with any Account. 1.2 "Accounts" shall mean all present and future rights of a Borrower to payment of a monetary obligation, whether or not earned by performance, which is not evidenced by chattel paper or an instrument, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a secondary obligation incurred or to be incurred, or (d) arising out of the use of a credit or charge card or information contained on or for use with the card. 1.3 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one-hundredth (1/100) of one (1%) percent) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a decimal, prescribed by any United States or foreign banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. 1.4 "Affiliate" shall mean, with respect to a specified Person, a partnership, corporation or any other person which directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes (a) any Person which beneficially owns or holds ten (10%) percent or more of any class of voting securities of such Person or other equity interests in such Person and (b) any Person of which such Person beneficially owns or holds ten (10%) percent or more of any class of voting securities or in which such Person beneficially owns or holds ten (10%) percent or more of the equity interests. For the purposes of this definition, the term "control" (including with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. 1.5 "Agent Advances" shall have the meaning set forth in Section 12.12 hereof. 1.6 "Amended and Restated Revolving Credit Notes" shall mean the promissory notes issued by Borrowers jointly and severally in favor of each Lender evidencing the joint and several Obligations of Borrowers to each Lender with respect to the Loans made by or on behalf of Lenders with each such note being in a principal amount of up to the respective Lender's Commitment. 1.7 "Amended and Restated Assignment and Acceptance" shall mean an Assignment and Acceptance substantially in the form of Exhibit A attached hereto (with blanks appropriately completed) delivered to the Agent in connection with an assignment of a Lender's interest hereunder in accordance with the provisions of Section 11.6 below. 1.8 "Bankruptcy Code" shall mean title 11 of the United States Code as enacted in 1978, as the same may have heretofore been or may hereafter be amended, recodified, modified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.9 "Bankruptcy Court" shall have the meaning set forth in the recitals hereto. 1.10 "Blocked Accounts" shall have the meaning set forth in Section 9.1 hereof. 1.11 "Board" shall mean the Board of Governors of the Federal Reserve System or any successor thereto. 1.12 "Borrower" shall mean each of Salant and Holding. 1.13 "Borrowers" shall mean Salant and Holding, collectively. 1.14 "Business Day" shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York, and a day on which the Lenders and Agent are open for the transaction of business. 1.15 Capital Expenditures" shall mean, for any Person, all expenditures for any fixed assets or improvements, or for replacements, substitutions or additions thereto, of such Person that under GAAP are capitalized and not expenses in the year in which they are incurred. 1.16 "Capitalized Lease Obligations" shall mean any obligation to pay rent or other amounts under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purposes of this Agreement, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. 1.17 "Capital Stock" shall mean any and all shares, interests, participations, or other equivalents (however designated) of corporate stock, partnership interests or limited liability company interests and any options or warrants with respect to any of the foregoing. 1.18 "Cash Equivalents" shall mean (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within two (2) years from the date of acquisition thereof; (b) marketable direct obligations issued by any State of the United States of America or any political subdivision of any such State or any public instrumentality thereof maturing within two (2) years from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (c) commercial paper maturing no more than two (2) years from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d) certificates of deposit or bankers' acceptances maturing within two (2) years from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any State thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $500,000,000; (e) repurchase obligations with a term of not more than seven (7) days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (d) above; and (f) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (a) through (e) above. 1.19 "CIT" shall mean The CIT Group/Commercial Services, Inc., a New York corporation, in its individual capacity, and its successors and assigns. 1.20 "Code" shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.21 "Collateral" shall have the meaning set forth in Section 5 hereof. 1.22 "Collateral Access Agreement" shall mean an agreement in writing, in form and substance satisfactory to Agent, from any lessor of premises to a Borrower, or any other person to whom any Inventory is consigned or who has custody, control or possession of any Inventory or Equipment or is otherwise the owner or operator of any premises on which any Inventory or Equipment is located, pursuant to which such lessor, consignee or other person, inter alia, acknowledges the first priority security interest of Agent (for itself and the ratable benefit of Lenders) in such Inventory or Equipment, agrees to waive any and all claims such lessor, consignee or other person may, at any time, have against such Inventory or Equipment, whether for processing, storage or otherwise, and agrees to permit Agent access to, and the right to remain on, the premises of such lessor, consignee or other person so as to exercise Agent's rights and remedies and otherwise deal with the Collateral. 1.23 "Commitment" shall have the meaning set forth in Section 3.4 hereof. 1.24 "Commitment Percentage" shall mean, as to each Lender, the percentage of the Maximum Credit provided for hereunder represented by such Lender's Commitment. The Commitment Percentage of each Lender signing this Agreement is set forth on the signature pages hereto below each Lender's respective signature. 1.25 "Consolidated Tangible Net Worth" shall mean, as of any date, stockholders' equity less the aggregate book value of intangible assets, all determined on a consolidated basis for Salant and its Subsidiaries in accordance with GAAP. 1.26 "Credit Facility" shall mean, collectively, the secured Loans and Letter of Credit Accommodations provided for hereunder and under the other Financing Agreements. 1.27 "Effective Date" shall have the meaning set forth in the Plan. 1.28 "Eligible Accounts" shall mean each of those Accounts that, at any time when eligibility is to be determined, meet all of the following requirements: (a) The Account complies in all material respects with all representations, warranties, covenants and other applicable provisions of this Agreement and the other Financing Agreements; (b) The Account is due and payable not more than sixty (60) days from the date of the invoice evidencing such Account and is not more than sixty (60) days past due, or the Account is due and payable not more than ninety (90) days from the date of the invoices evidencing such Account and is not more than thirty (30) days past due; (c) In the case of an Account with respect to which a Borrower has given terms of sale beyond 90 days from the date of the invoice, such Borrower has obtained the prior written consent of Agent to such terms of sale and such Account is not more than 30 days past due; (d) The Account is subject to the first perfected security interest of Agent and is not subject to any lien or security interest except as permitted by this Agreement; (e) The goods, the sale of which gave rise to the Account, were at the time of sale not subject to any lien, except as permitted by this Agreement; (f) The Account does not arise out of a guaranteed sale, sale or return, sale on approval, consignment sale or other kind of sale under which payment by the Account Debtor may be conditional or contingent; (g) The Account does not arise from the sale to an Affiliate of a Borrower; (h) The Account arises out of a sale to an Account Debtor whose chief executive office or principal place of business is located in the United States; (i) The Account Debtor obligated on the Account is not the United States, a state or a political subdivision thereof or any department, agency or instrumentality of the United States, any state or political subdivision thereof, unless there has been compliance with the Assignment of Claims Act of 1940, as amended (31 U.S.C. ss. 3727, et seq.) or any similar state or local law, if applicable; (j) There is no contra relationship, setoff, counterclaim or dispute existing with respect to the invoice evidencing such Account and there are no other facts existing which would reasonably be expected to materially impair or delay the collectibility of all or any portion thereof; (k) The Borrower has delivered to Agent such documents as Agent may have requested pursuant to Section 9.7 hereof in connection with the Account and Agent shall have received verification of such Account, reasonably satisfactory to it, if sent to the Account Debtor obligated on such Account pursuant to Section 9.8 hereof; (l) Except for Accounts arising from post-petition shipments to debtors-in-possession for which CIT is generally approving credit, the Account Debtor obligated on the Account has not filed a petition for relief under the Bankruptcy Code or any other bankruptcy or insolvency law and has not made an assignment for the benefit of creditors, no petition or other application for relief under the Bankruptcy Code or any other bankruptcy or insolvency law has been filed against the Account Debtor, the Account Debtor has not terminated or suspended its business operations in whole or material part, the Account Debtor has not suspended payment of its debts generally, has not become insolvent, and has not suffered a receiver or a trustee to be appointed for any of its assets or affairs; (m) The Account is owing by a single Account Debtor (or a single group of affiliated Account Debtors) and less than fifty (50%) percent of the balance of all Accounts then owing by such Account Debtor (or affiliated Account Debtors) remains unpaid sixty (60) or more days after the due date thereof; (n) The Account is not evidenced by chattel paper or instruments; (o) The Account, together with all other Accounts owing from the same Account Debtor does not represent more than twenty-five (25%) percent of all otherwise Eligible Accounts except that Accounts owing from each of Federated Department Stores, Inc., May Department Stores, Inc., The Marmaxx Group or Dillard Department Stores, Inc., respectively, (or any of their respective Affiliates) do not each represent more than fifty percent (50%) of all otherwise Eligible Accounts. (Accounts excluded from Eligible Account solely by reason of this Section shall nevertheless be considered Eligible Accounts to the extent of the amount of such Accounts which does not exceed fifty percent (50%) of all otherwise Eligible Accounts owing from each of Federated Department Stores, Inc., May Department Stores, Inc., The Marmaxx Group or Dillard Department Stores, Inc. (or any of their respective Affiliates) or from any other Account Debtors twenty-five (25%) percent of all otherwise Eligible Accounts); and (p) If the Account is an Account with respect to which payment is due more than ninety (90) days from the date of the invoice evidencing such Account, such Account together with all other Accounts with respect to which payment is due more than ninety (90) days from the date of the invoices evidencing such Accounts, does not represent more than twenty-five (25%) percent of all otherwise Eligible Accounts. (Accounts excluded from Eligible Accounts solely by reason of this Section shall nevertheless be considered Eligible Accounts to the extent of the amount of such Accounts which does not exceed twenty-five (25%) percent of all such Accounts.) Any account that is not an Eligible Account at any time shall nevertheless remain at all times part of the Collateral. 1.29 "Eligible Inventory" shall mean that Inventory of a Borrower consisting of first quality finished goods held for resale in the ordinary course of business of a Borrower, domestic raw materials (including linings) and work-in-process (excluding such raw materials (including linings) and work-in-process held for more than six (6) months and excluding trim, resin, supplies and samples) that, at any time when eligibility is to be determined, meets all of the following requirements: (a) Inventory that complies in all material respects with all representations, warranties, covenants and other applicable provisions of this Agreement and the other Financing Agreements; (b) Inventory that is subject to the first perfected security interest of Agent and no other liens or security interests except as permitted by this Agreement; (c) Inventory that is merchantable and fit for sale; (d) Inventory that is not consigned to a Borrower; (e) Inventory that meets the following criteria (and all other requirements for Eligible Inventory): Made for Sale In Season Indicated....... Eligibility Spring ........ Eligible through the last day of the September fiscal month of the year for which it was produced; ineligible thereafter. Transition/Summer ........ Eligible through the last day of the December fiscal month of the year for which it was produced; ineligible thereafter. Fall ........ Eligible through the last day of the March fiscal month of the year subsequent to the year for which produced; ineligible thereafter. Holiday ........ Eligible through the last day of the June fiscal month of the year subsequent to the year for which produced; ineligible thereafter. (f) Inventory that does not consist of packaging or shipping materials, except to the extent that packaging is included in finished goods; (g) Inventory that meets all standards imposed by any Governmental Authority having regulatory authority over such Inventory, its use or sale; (h) Inventory that does not consist of bill and hold goods and/or defective goods; and (i) Inventory located at premises in the United States that are owned or leased and operated by a Borrower; provided; however, any Inventory which would otherwise be Eligible Inventory but for its failure to meet the requirements of clause (i) of this Section, as a result of its failure to be located at premises owned or leased and operated by a Borrower, shall nevertheless be considered Eligible Inventory if Agent shall have received a Collateral Access Agreement from the holder of such Inventory or the owner and/or operator of such location, as the case may be. Any Inventory that is not Eligible Inventory shall nevertheless be and remain at all times part of the Collateral. 1.30 "Environmental Laws" shall mean all Federal, State and local laws, rules, regulations, ordinances, and consent decrees relating to health, safety, hazardous substances, pollution and environmental matters, as now or at any time hereafter in effect, applicable to the business and facilities of a Borrower and its Subsidiaries (whether or not owned by it or any of them), including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or hazardous or toxic substances, materials or wastes. Such laws and regulations include, but are not limited to, the Resource Conservation and Recovery Act of 1976, as amended; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the Superfund Amendments and Reauthorization Act; the Water Pollution Control Act of 1972; the Solid Waste Disposal Act; the Insecticide, Fungicide and Rodenticide Act; the Safe Drinking Water Act of 1974; the Toxic Substances Control Act, as amended; the Clean Water Act, as amended; the Clean Air Act, as amended; the Hazardous Materials Transportation Act, as amended; U.S. Department of Transportation and Environmental Protection Agency regulations; and applicable state counterparts to any of such laws and any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to the presence of or exposure to any Hazardous Materials. 1.31 "Equipment" shall mean all of each Borrower's now owned and hereafter acquired equipment and fixtures, of every kind and description, wherever located, including, without limitation, any and all machinery used in connection with the manufacture, sale, exchange or lease of goods or rendition of services, machinery, tooling, tools, telephone equipment, computers, computer hardware and related computer equipment and accessories (including software and records), vehicles, furniture, trade fixtures and fixtures, all attachments, components, parts, accessions and property now or hereafter affixed thereto, installed thereon or used in connection therewith, and all additions to and substitutions and replacements thereof and all existing and future leasehold interests in equipment and fixtures, wherever located, whether now owned or hereafter acquired and all licenses and other rights of such Borrower relating thereto, whether in the possession and control of such Borrower or in the possession and control of a third person for the account of such Borrower and all claims to the proceeds of insurance thereon and all maintenance and warranty records relating thereto. 1.32 "ERISA" shall mean the United States Employee Retirement Income Security Act of 1974, as the same now exists or may hereafter from time to time be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.33 "ERISA Affiliate" shall mean any person required to be aggregated with a Borrower or any of its subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. 1.34 "Eurodollar Rate" shall mean with respect to each day during each Interest Period pertaining to a Eurodollar Rate Loan, the rate of interest published in The Wall Street Journal, Eastern Edition, two business days prior to the first day of such Interest Period as the highest rate in the range of rates quoted for one, two or three month "London Late Eurodollars". In the event that The Wall Street Journal, Eastern Edition, is not published or such rate does not appear in The Wall Street Journal, Eastern Edition, the "Eurodollar Rate" shall be the rate determined by Agent to be the rate at which deposits in United States dollars are offered by the Reference Bank to first class banks in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its eurodollar loans are then being conducted at approximately 11:00 a.m., New York City time, two Business Days prior to the beginning of such Interest Period, in an amount approximately equal to the principal amount of the Eurodollar Rate Loan to which such Interest Period is to apply and for a period of time comparable to such Interest Period. 1.35 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof. 1.36 "Event of Default" shall have the meaning set forth in Section 8.1 hereof. 1.37 "Existing Credit Agreement" shall have the meaning set forth in the recitals hereto. 1.38 "Existing Letters of Credit" shall mean, collectively, Letter of Credit Accommodations arranged for by Agent for the benefit of Salant or its Subsidiaries under the Existing Credit Agreement set forth on Schedule 1.38 hereto. 1.39 "Financing Agreements" shall mean, collectively, this Agreement, together with all other agreements (including, without limitation, security agreements and mortgages), documents and instruments now or at any time hereafter executed and/or delivered by one or more Borrowers or any other person, with, to or in favor of Agent or any Lender in connection herewith or related hereto, as this Agreement and such other agreements, documents or instruments now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced in accordance with the terms and conditions set forth herein and therein. 1.40 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board which are applicable to the circumstances as of the date of determination. 1.41 "General Intangibles" shall mean all of each Borrower's general intangibles, rights, interests, choses in action, causes of action and all other intangible personal property of every kind and nature (other than Accounts) now owned or licensed or hereafter acquired or licensed, including, without limitation, corporate or other business records, loans and other obligations receivable, inventions, designs, patents, patent applications, service marks, trademarks, trademark applications, trade names, trade secrets, goodwill, registrations, copyrights, licenses, royalties, leasehold interests in real and personal property, rights under any future contracts, customer lists, supplier contracts, firm sale orders, partnerships and joint ventures, other contracts and contract rights, federal, state and local tax refund claims of all kinds, duty refund claims of all kinds, rights to indemnification, reversionary, beneficial, and residual interests in trusts. 1.42 "Governmental Authority" shall mean any nation or government, any state, province, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. 1.43 "Guarantees" shall have the meaning set forth in Section 5.2(a) hereof. 1.44 "Guarantors" shall mean Salant Corporation, a Delaware corporation, Salant Holding Corporation, a Delaware corporation, Clantexport Inc., a New York corporation, Denton Mills, Inc., a Delaware corporation, Frost Bros. Enterprises, Inc., a Texas corporation, SLT Sourcing, Inc., a New York corporation, Vera Licensing, Inc., a Nevada corporation, Vera Linen Manufacturing, Inc., a Delaware corporation, and Salant Canada Inc., a Canadian corporation, and each of their respective successors and assigns. 1.45 "Guarantor Collateral" shall have the meaning set forth in Section 5.2 (c) hereof. 1.46 "Hazardous Materials" shall mean any hazardous or toxic substances or materials and wastes, including, without limitation, hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including, without limitation, materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or other substances, materials, or wastes that are or became regulated under any Environmental Laws (including, without limitation, any that are or become classified as hazardous or toxic under any Environmental Laws.) 1.47 "Holding" shall mean Salant Holding Corporation, a Delaware corporation and its successors and assigns. 1.48 "Holding Eligible Inventory" shall mean Eligible Inventory sold by Holding under (i) the TALLIA License, (ii) the "Tricots San Rafael" name, (iii) any Holding Private Line or (iv) any name purchased or licensed by Holding from a business engaged in the import and manufacture of men's apparel and accessories. 1.49 "Indebtedness" shall mean, as to any Person, without duplication, any liability in respect of (a) all indebtedness of such Person for money borrowed (including all indebtedness evidenced by notes, bonds, debentures or other securities); (b) reimbursement obligations relating to letters of credit or similar documents or instruments issued for the account of such Person and drawn upon; (c) the balance deferred and unpaid of the purchase price of any property or services (except accounts payable to trade creditors created, assumed or guaranteed by such Person in the ordinary course of business in connection with obtaining materials or services); (d) all indebtedness incurred by such Person in the acquisition (whether by way of purchase, merger, consolidation or otherwise) of any business, real property or other assets (except assets, other than capital assets, acquired in the ordinary course of the conduct of the acquirer's business); (e) Capitalized Lease Obligations of such Person (f) all obligations with respect to redeemable stock and redemption or repurchase obligations under any Capital Stock or other equity securities issued by such Person; (g) guarantees by such Person of indebtedness or obligations described in clauses (a), (b), (c), (d), (e), or (f) of any Person and (h) renewals, extensions, refundings, deferrals, restructurings, amendments and modifications of any such indebtedness, obligations or guarantees. Indebtedness shall not include (i) any liability for accounts payable or accrued expenses incurred in the ordinary course of business and owed or owing by the Person; (ii) any liability for state, local or other taxes owed or owing by the Person; or (iii) obligations of the Person to employees in respect of stock appreciation rights or (iv) obligations of Salant under its employment agreement with Mr. Michael Setola in effect on the Effective Date. 1.50 "Interest Period" shall mean, for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as a Borrower may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, such Borrower may not elect an Interest Period which will end after the last day of the then-current term of this Agreement. 1.51 "Interest Rate" shall mean as to Prime Rate Loans, a rate of one quarter (.25%) percent per annum in excess of the Prime Rate and, as to Eurodollar Rate Loans, a rate of two and one-quarter (2.25%) percent per annum in excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period selected by a Borrower as in effect three (3) Business Days after the date of receipt by Agent of the request of such Borrower for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to such Borrower); provided, that the Interest Rate shall be increased by one and one-half (1.50%) in excess of the Interest Rate otherwise payable, at Agent's option, without notice, (ai for the period on and after (i) the date of termination or non-renewal hereof and until such time as all Obligations are indefeasibly paid in full (notwithstanding entry of any judgment against any Borrower), or (ii) the date of the occurrence of any Event of Default and for so long as such Event of Default is continuing and (b) on the Loans at any time outstanding in excess of the amounts available to any Borrower under Section 3 (whether or not such excess(es) arise or are made with or without Agent's knowledge or consent and whether made before or after an Event of Default). 1.52 "Interest Rate Protection Obligations" shall mean the obligations of any Person pursuant to any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. 1.53 "Inventory" shall mean all of each Borrower's inventory, of every kind and description, now or hereafter owned or acquired by or in the custody or possession, actual or constructive, of, such Borrower, wherever located, including, without limitation, all raw materials, work-in-process, and finished inventory of any kind, nature or description, including, without limitation, men's, women's and children's apparel and accessories and any other personal property held for sale, exchange or lease or furnished or to be furnished under a contract of service or an exchange arrangement or used or consumed in the business or in connection with the manufacturing, packing, shipping, advertising, selling or finishing of such goods, inventory, merchandise and other personal property, and all names or marks affixed to or to be affixed thereto for purposes of selling the same by the seller, manufacturer, lessor or licensor thereof and all right, title and interest therein and thereto, wherever located, whether now owned or hereafter acquired. 1.54 "Lenders" shall mean the financial institutions who are signatories hereto as lenders and other persons made a party to this Agreement as lenders in accordance with Section 11.6 hereof, and their respective successors and assigns. 1.55 "Lending Formulas" shall mean with respect to Borrowers, the percentages set forth in Section 3.1 (a) hereof, in each case subject to the limits set forth in Section 3.1, with respect to Eligible Accounts and Eligible Inventory. 1.56 "Letter of Credit Accommodations" shall mean with respect to the Credit Facility, the letters of credit or other guaranties which are from time to time either (a) issued or opened by Agent for the account of a Borrower or any Obligor or (b) with respect to which Agent or any Lender has agreed to indemnify the issuer or guaranteed to the issuer the performance by a Borrower of its obligations to such issuer (including, without limitation, the Existing Letters of Credit). 1.57 "Letter of Credit Facility Limit" shall mean $45,000,000, plus $2,250,000 for the PBGC L/C. 1.58 "Loans" shall mean the loans made to or for the benefit of any Borrower by Lenders or, at Agent's option, by Agent for the ratable account of Lenders, on a revolving basis (involving advances, repayments and readvances) as set forth in Section 3.1 hereof. 1.59 "Lock Box Agreement" shall have the meaning set forth in Section 9.1(a) hereof. 1.60 "Majority Lenders" shall mean, as of any date of determination thereof, Lenders holding more than fifty (50%) percent of the aggregate outstanding principal amount of Loans and outstanding Letter of Credit Accommodations, or, if there are no Loans or Letter of Credit Accommodations outstanding, then such term shall mean Lenders having aggregate Commitment Percentages of more than fifty (50%) percent. 1.61 "Material Adverse Effect" shall mean a material adverse effect on (a) the condition (financial or otherwise), business, performance, operations or properties of Borrowers, taken as a whole; (b) the legality, validity or enforceability of this Agreement or any of the other Financing Agreements; (c) the legality, validity, enforceability, perfection or priority of the security interests and liens of Agent or any Lender upon the Collateral or any other property which is security for the Obligations; (d) the Collateral or any other property which is security for the Obligations taken in their entirety, or the value of the Collateral or such other property taken in their entirety; (e) the ability of Borrowers to repay the Obligations or of Borrowers to perform their obligations under this Agreement or any of the other Financing Agreements; or (f) the ability of Agent or any Lender to enforce the Obligations or realize upon the Collateral solely with respect to the rights and remedies of Agent or any Lender under this Agreement or any of the other Financing Agreements. 1.62 "Material Contract" shall mean any contract or other arrangements (other than the Financing Agreements), whether written or oral, to which any Borrower or its Subsidiaries is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could be reasonably expected to have a Material Adverse Effect. 1.63 "Maximum Credit" shall mean $85,000,000. 1.64 "Mortgages" shall mean, individually and collectively, the deeds of trust, mortgages and other security agreements with respect to the Real Property listed on Schedule 1.64 hereto, as the same now exist or may hereinafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.65 "Net Amount of Eligible Accounts" shall mean the gross amount of Eligible Accounts less (a) sales, excise or similar taxes included in the amount thereof and (b) rebates, discounts, claims, credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed with respect thereto. 1.66 "Net Cash Proceeds" shall mean (a) proceeds received by a Borrower in cash or Cash Equivalents from the sale, assignment or other disposition of any of its assets or property (other than sales of Inventory in the ordinary course of business), net of payments of Indebtedness secured by such assets or properties (including any fees or prepayment penalties required to be paid as a result of such sale, assignment or other disposition) and the reasonable cash costs of sale, assignment or other disposition, provided, that, evidence of such costs reasonably satisfactory to Agent is provided to Agent upon Agent's request; (b) proceeds of insurance in cash or Cash Equivalents on account of the loss of or damage to any such assets or property, and payments of compensation in cash or Cash Equivalents for any such assets or property taken by condemnation or eminent domain; and (c) proceeds received after the date hereof by a Borrower or any of its Subsidiaries in cash or Cash Equivalents from (i) the issuance of any Capital Stock by such Borrower or any other additions to the equity of such Borrower (other than retained earnings) or any contributions to capital of such Borrower or (ii) issuance of any Indebtedness by such Borrower, in each case net of reasonable underwriting discounts and commissions and reasonable costs incurred in connection with such transaction; provided, that, evidence of such costs reasonably satisfactory to Agent is provided to Agent upon Agent's request. 1.67 "Obligations" shall mean any and all Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by any Borrower and/or any Obligor to Agent or any Lender, including principal, interest, charges, fees, costs and expenses, including, but not limited to, reasonable attorney's fees and disbursements, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under or in connection with the Existing Agreement or this Agreement, any of the other Financing Agreements or by operation of law in connection therewith, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement, after the commencement of any case with respect to any Borrower or any Obligor under the Bankruptcy Code or any similar statute (including the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated or secured and expressly including all indebtedness of any Borrower to CIT as a Lender on accounts arising from the sale of goods or services purchased by such Borrower from any Person whose accounts are factored or financed by CIT and all indebtedness of any Borrower under any of the Financing Agreements or any other agreement now or hereafter entered into between Borrower and any Lender arising from or relating to any instrument, document or agreement to which such Borrower is a party, or by which its property is bound, and which is designed to hedge or protect against foreign currency fluctuations. 1.68 "Obligor" shall mean any guarantor, endorser, acceptor, surety, or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrower. 1.69 "Original Credit Agreement" shall have the meaning set forth in the recitals hereto. 1.70 "Participant" shall mean any financial institution that acquires and holds participation in the interest of any Lender in any of the Loans and Letter of Credit Accommodations in conformity with the provisions of Section 11.6 of this Agreement governing participations. 1.71 "Payment Account" shall have the meaning set forth in Section 9.1 hereof. 1.72 "PBGC L/C" shall mean the letter of credit issued in accordance with Section 3(a) of that certain agreement between Salant and the Pension Benefit Guaranty Corporation entered into in connection with the Plan. 1.73 "Permits" shall have the meaning set forth in Section 6.4 hereof. 1.74 "Perry Ellis Inventory" shall mean Inventory subject to any license agreement between Perry Ellis International Inc. and Salant, including, without limitation, Inventory bearing any trademark licensed to Salant by Perry Ellis International Inc. 1.75 "Perry Ellis Eligible Inventory" shall mean (i) Eligible Inventory subject to any license agreement between Perry Ellis International Inc. and Salant including, without limitation, Eligible Inventory bearing any trademark licensed to Salant by Perry Ellis International Inc. and Eligible Inventory consisting of domestic raw materials and work-in-process for Perry Ellis Inventory and (ii) Eligible Inventory consisting of neckwear and private label belts not sold under the Perry Ellis name. 1.76 "Perry Ellis Licenses" shall mean the licensing agreements and the settlement agreements relating thereto between Salant and Perry Ellis International, Inc. as set forth on Schedule 1.76 hereto and any such license agreements or settlement agreements entered into after the date of this Agreement as the same may from time to time be amended, restated, modified, supplemented, renewed, extended or replaced in accordance with the terms thereof. 1.77 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.78 "Plan" shall have the meaning set forth in the recitals hereto. 1.79 "Prime Rate" shall mean the rate from time to time publicly announced by The Chase Manhattan Bank, or its successors as its prime rate, whether or not such announced rate is the best rate available at such bank, calculated on the basis of a three hundred sixty (360) day year and actual days elapsed, which rate shall increase or decrease by an amount equal to each increase or decrease effective on the date of the change in such prime rate. The Prime Rate is one of several base rates that serve as a basis upon which effective rates of interest are calculated for loans making reference thereto and may not be the lowest of The Chase Manhattan Bank's rates. 1.80 "Private Line" and "Private Line Inventory" shall mean Inventory made and held for any of (i) Salant's private line or non-Perry Ellis designer programs or (ii) Holding's private line programs. 1.81 "Private Line Eligible Inventory" shall mean Eligible Inventory that is Private Line Inventory.. 1.82 "Pro Rata Share" shall mean, with respect to any Lender, a fraction (expressed as a percentage), the numerator of which shall be the amount of such Lender's Commitment and the denominator of which shall be the aggregate amount of all of the Lenders' Commitments, as adjusted from time to time in accordance with the provisions of Section 11.6 hereof, provided, that, if the Commitments have been terminated, the numerator shall be the unpaid amount of such Lender's Loans and its interest in the Letter of Credit Accommodations and the denominator shall be the aggregate amount of all unpaid Loans and Letter of Credit Accommodations. 1.83 "Provision for Taxes" shall mean an amount equal to all taxes imposed on or measured by net income, whether federal, state or local, and whether foreign or domestic, that are paid or payable by any Person and its Subsidiaries in respect of such fiscal year on a consolidated basis in accordance with GAAP. 1.84 "Real Property" shall mean all now owned real property of Salant and, to the extent Salant or any of its Subsidiaries is required to grant Agent a mortgage, for the ratable benefit of Lenders, on hereafter acquired real property pursuant to Section 7.25 hereof, hereafter acquired real property of Salant or any of its Subsidiaries, including, leasehold interests, together with all buildings, structures, fixtures and other improvements relating thereto, and all licenses, easements and appurtenances relating thereto, wherever located, including, without limitation, the real property and related assets of Salant more particularly described in the Mortgages. 1.85 "Records" shall mean all of each Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of such Borrower with respect to the foregoing maintained with or by any other person). 1.86 "Reference Bank" shall mean The Chase Manhattan Bank or such other bank as Agent may designate from time to time. 1.87 "Register" shall have the meaning set forth in Section 11.6 hereof. 1.88 "Renewal Date" shall have the meaning set forth in Section 10.1 hereof. 1.89 "Report" shall have the meaning set forth in Section 12.16 hereof. 1.90 "Salant" shall mean Salant Corporation, a Delaware corporation, and its successors and assigns. 1.91 "Subsidiary" or "subsidiary" shall mean any corporation, association or organization, active or inactive, as to which more than fifty (50%) percent of the outstanding voting stock or shares or interests shall now or hereafter be owned or controlled, directly or indirectly, by Salant, any subsidiary of Salant, or any subsidiary of such subsidiary. 1.92 "TALLIA License" shall mean the license agreement between Hartz & Company, Inc. and Holding relating to the trademark TALLIA as the same may from time to time be amended, restated, modified, supplemented, renewed, renewed extended or replaced in accordance with the terms thereof. 1.93 "Termination Date" shall have the meaning set forth in Section 10.1 hereof. 1.94 "Tradename" shall have the meaning set forth in Section 7.1 hereof. 1.95 "Value" or "value" shall mean, as determined by Agent, with respect to the Inventory, the lower of (a) cost computed on a first-in-first-out basis in accordance with GAAP or (b) market value, as determined in good faith by Agent. 1.96 "Wholly-Owned Subsidiary" shall mean any Subsidiary of such Person to the extent all of the Capital Stock or other ownership interests in such Subsidiary (other than (a) directors' qualifying shares and (b) an immaterial interest owned by other Persons solely to comply with applicable law) is owned directly or indirectly by such Person or a Wholly-Owned Subsidiary of such Person. All accounting terms used in this Agreement which are not specifically defined herein shall be construed in accordance with GAAP consistently applied, except as otherwise stated herein. The words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. All terms used herein which are not specifically defined herein which are defined or used in the Uniform Commercial Code as in effect as of the date hereof in the State of New York (the "UCC") shall have the meanings as defined or used in the UCC. For purposes of this Agreement, unless the context otherwise requires, all other terms hereinbefore or hereinafter defined, including but not limited to those terms defined in the recitals hereto, shall have the meanings herein assigned to such terms. All references to Borrower and other Persons pursuant to the definitions set forth in the recitals hereto or otherwise herein shall include their respective successors and assigns. All references to any term in the plural shall include the singular and all references to any term in the singular shall include the plural. The words "ratable" or "ratably" or words of similar import when used in this agreement shall refer to a sharing or allocation based on the respective Pro Rata Shares of Lenders. SECTION 2. ACKNOWLEDGMENT AND RESTATEMENT Section 2.1 Existing Obligations. Borrowers hereby acknowledge, confirm and agree that Borrowers are indebted to CIT for loans to Salant under the Existing Credit Agreement, as of the close of business on November 27, 2001, in the approximate aggregate principal amount of ($931,637.49), together with all interest accrued and accruing thereon, plus the approximate aggregate amount of $20,018,521.79 in respect of Existing Letters of Credit, and all fees, costs, expenses and other charges payable thereunder, all of which are unconditionally owing by Borrowers to CIT, without defense, offset or counterclaim of any kind, nature or description whatsoever. Section 2.2 Acknowledgment of Security Interests. (ai Borrowers hereby acknowledge, confirm and agree that Agent, for the ratable benefit of CIT and the other Lenders, has and shall continue to have, a security interest in and lien upon the Collateral (as defined in the Existing Credit Agreement) heretofore granted to the Agent, for the ratable benefit of the Lenders, pursuant to the Existing Credit Agreement to secure the Obligations, as well as any Collateral granted to or held by Agent or any Lender under this Agreement or any of the other Financing Agreements. (bi The liens and security interests of Agent, for itself and the ratable benefit of Lenders, in the Collateral shall be deemed continuously granted and perfected from the earliest date of the granting and perfection of such liens and security interests, whether under the Original Credit Agreement, the Existing Credit Agreement, this Agreement or any of the other Financing Agreements. Section 2.3 Acknowledgment of Existing Credit Agreement. Borrowers hereby acknowledge, confirm and agree that: (a) the Existing Credit Agreement was duly executed and delivered by Salant and is in full force and effect as of the date hereof and (b) the agreements and obligations of Salant contained in the Existing Agreement constitute the legal, valid and binding obligations of Salant enforceable against it in accordance with their respective terms and Salant has no valid defense to the enforcement of such obligations. Section 2.4 Restatement. Except as otherwise stated in Section 2.2 hereof and this Section 2.4, as of the date hereof, the terms, conditions, agreements, covenants, representations and warranties set forth in the Existing Credit Agreement are hereby amended and restated in their entirety, and as so amended and restated are replaced and superseded by the terms, conditions, agreements, covenants, representations and warranties set forth in this Agreement and the other Financing Agreements, except that nothing herein or in the other Financing Agreements shall (a) impair or adversely affect the continuation of the liability of Salant for its Obligations heretofore incurred to Agent or any Lender, or (b) adversely affect or terminate Section 2.5 of the Existing Credit Agreement, all of the provisions of which shall continue to remain in full force and effect. The amendment and restatement contained herein shall not, in any manner, be construed to constitute the payment of, or impair, limit, cancel or extinguish, or constitute a novation in respect of, the Indebtedness or any other obligations or liabilities of Salant evidenced by or arising under the Existing Credit Agreement, and the liens and security interests securing such Indebtedness and such other obligations and liabilities shall not in any manner be impaired, limited, terminated, waived or released. SECTION 3. CREDIT FACILITY Section 3.1 Loans. (ai Subject to and upon the terms and conditions contained herein, each of the Lenders severally (and not jointly) agrees to fund its Pro Rata Share of the Loans from time to time requested by Salant up to an amount at any one time outstanding equal to the sum of: (i0 eighty-five percent (85%) of the Net Amount of Eligible Accounts, plus (ii0 the lesser of: A. the sum of: (1) sixty percent (60%) of the Value of Salant's Perry Ellis Eligible Inventory, plus (2) sixty percent (60%) of the Value of Holding Eligible Inventory, plus (3) the lesser of (x) sixty percent (60%) of the Value of Borrowers' Private Line Eligible Inventory and (y) $5,000,000, and not to exceed $1,500,000 in the aggregate at any time outstanding with respect to domestic raw materials and work-in-process attributable to Eligible Inventory described in this clause (A), or B.......$50,000,000, or C. for each of the calendar months of February through May and September through November only, an amount equal to eighty-five percent (85%) of the Net Amount of Eligible Accounts in each such month, but not less than $30,250,000 in each such month. Borrowers may from time to time borrow, repay and reborrow Loans in accordance with the terms hereof. (bi The Loans shall be (i) evidenced by Amended and Restated Revolving Credit Notes duly executed and delivered by Borrowers to each Lender, (ii) repaid, together with interest and other amounts, in accordance with this Agreement, the Amended and Restated Revolving Credit Notes and the other Financing Agreements and (iii) secured by the Collateral. An Amended and Restated Revolving Credit Note for each Lender, duly authorized, executed and delivered by Borrowers, shall be delivered by Borrowers to Agent on the date of the execution and delivery of this Agreement. (ci Except in Agent's discretion with the consent of all of the Lenders, notwithstanding anything to the contrary contained in Section 3.1(a) above, but subject to Section 3.5(a) below, the aggregate principal amount of the Loans and the Letter of Credit Accommodations shall not exceed the Maximum Credit. (di Notwithstanding anything to the contrary contained in this Agreement or any of the other Financing Agreements, at the request of Salant or Holding, as the case may be, , Agent may, as it may deem necessary or advisable in its discretion, subject to the Maximum Credit, from time to time make Loans to Salant and Letter of Credit Accommodations to Salant or Holding on behalf of Lenders in excess of the aggregate amount available to Salant under the Lending Formulas ("Overadvance"), which Overadvance shall be repayable to Agent on demand, provided, that: (a) the aggregate amount of any such Overadvance which Agent may make without the consent of all of the Lenders shall not exceed the lesser of (x) ten (10%) percent of the aggregate amount available to Salant and Holding at the time under the Lending Formulas without reduction for Loans and Letter of Credit Accommodations then outstanding, or (y) $2,500,000 in the aggregate outstanding at any time, and (b) without the consent of all of the Lenders, Agent shall not make any such additional Loans or Letter of Credit Accommodations for more than sixty (60) days from the date of the first such additional Loans or Letter of Credit Accommodations in respect of such Overadvance. Each Lender shall be obligated to pay Agent the amount of its Pro Rata Share of any such additional Loans or Letter of Credit Accommodations provided that Agent is acting in accordance with the terms of this Section 3.1(d). Section 3.2 Letter of Credit Accommodations. (ai Subject to and upon the terms and conditions contained herein, at the request of a Borrower, Agent agrees, for the ratable risk of each Lender according to its Pro Rata Share, to provide or arrange for Letter of Credit Accommodations for the account of such Borrower containing terms and conditions acceptable to Agent and the issuer thereof. Letter of Credit Accommodations for the purchase of Inventory shall be made only for the purchase of Eligible Inventory. Any payments made by Agent, for the ratable risk of each Lender according to its Pro Rata Share, to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Loans to such Borrower pursuant to this Section 3.2(a). (bi In addition to any customary charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, such Borrower shall pay to Agent, for the ratable benefit of Lenders, letter of credit fees as set forth on Schedule 3.2(b) hereto. All letter of credit fees shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of such Borrower to pay such fees shall survive termination or non-renewal of this Agreement. (ci No Letter of Credit Accommodations shall be available unless on the date of the proposed issuance of any Letter of Credit Accommodations the amount of the Loans available to such Borrower (subject to the Maximum Credit) are equal to or greater than (i) if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory consisting of finished goods, an amount equal to the percentage equal to one hundred percent (100%) minus (w) with respect to Salant, the then applicable percentage set forth in Section 3.1(a)(ii)A(1) above and (x) with respect to Holdings, the then applicable percentage set forth in Section 3.1(a)(ii)(A)(2) above, in each case multiplied by the face amount of such Letter of Credit Accommodation; and (ii) if the proposed Letter of Credit Accommodation is for any other purpose, an amount equal to one hundred percent (100%) of the face amount thereof. Effective on the issuance of each Letter of Credit Accommodation, a reserve shall be established in the applicable amount set forth in, and computed in accordance with, Section 3.2(c)(i) or Section 3.2(c)(ii). (di Except in Agent's discretion, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Agent or any Lender in connection therewith shall not at any time exceed $45,000,000, plus $2,250,000 for the PBGC L/C. At any time an Event of Default exists or has occurred and is continuing, upon Agent's request, Borrowers shall either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to Agent, for the ratable benefit of Lenders, for the Letter of Credit Accommodations, and in either case, the Loans otherwise available to Borrowers shall not be reduced as provided in Section 3.2(c) to the extent of such cash collateral. (ei Borrowers shall jointly and severally indemnify and hold Agent and Lenders harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Agent or any Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including, but not limited to, any losses, claims, damages, liabilities, costs and expenses due to any action taken by or an error or omission by any issuer or correspondent with respect to any Letter of Credit Accommodation, except resulting from the gross negligence or wilful misconduct of Agent or any Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Each Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed such Borrower's agent. Borrowers jointly and severally assume all risks for, and agree to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder, except resulting from the gross negligence or wilful misconduct of Agent or any Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Borrowers hereby release and jointly and severally hold Agent and Lenders harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrower, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation, except resulting from the gross negligence or wilful misconduct of Agent or any Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. The provisions of this Section 3.2(e) shall survive the payment of Obligations and the termination or non-renewal of this Agreement. (fi Nothing contained herein shall be deemed or construed to grant any Borrower any right or authority to pledge the credit of Agent or any Lender in any manner. Agent and Lenders shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Agent, unless Agent has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrowers shall be bound by any interpretation made in good faith by Agent, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of any Borrower. Agent shall have the sole and exclusive right and authority to, for the ratable benefit of Lenders, and no Borrower shall, at any time an Event of Default exists or has occurred and is continuing, (i) approve or resolve any questions of non-compliance of documents, (ii) give any instructions as to acceptance or rejection of any documents or goods or (iii) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders. At all times, no Borrower shall, without the prior written consent of Agent, grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents or agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral. Agent may take such actions either in its own name or in a Borrower's name. (gi Any rights, remedies, duties or obligations granted or undertaken by any Borrower to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by such Borrower to Agent, for the ratable benefit of Lenders. Any rights, remedies duties or obligations undertaken by Agent to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Agent in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by such Borrower to Agent, for the ratable benefit of Lenders, and to apply in all respects to such Borrower. Section 3.3 Reserves. Agent may, in its discretion, from time to time, establish a reserve reducing the amount of Loans and Letter of Credit Accommodations otherwise available to a Borrower under the Lending Formulas if Agent determines in good faith that the dilution with respect to Accounts of such Borrower for any twelve month period immediately preceding or at any time from and after the date hereof (based on the ratio of (a) the aggregate amount of chargebacks, returns, allowances, credits issued by such Borrower against such Accounts (excluding credits evidencing inter-company transfers) and write-offs which reduce the amount of such Accounts to (bi the aggregate amounts of such Accounts) exceeds 15%. In the event that said dilution exceeds 15% (such excess, the "Excess Dilution Percentage"), Agent may establish a reserve in an amount equal to the Excess Dilution Percentage but in no event to exceed 15%, of the amount of such Accounts from time to time outstanding. Section 3.4 Commitments. The aggregate amount of each Lender's share of the Loans and Letter of Credit Accommodations shall not exceed the amount set forth below such Lender's signature on the signature pages hereto, as the same may from time to time be amended with the written acknowledgment of Agent in connection with the Assignment and Acceptance executed and delivered to evidence permitted assignments by any Lender as provided in Section 11.6 hereof. Such amount for each Lender is referred to herein as such Lender's "Commitment". Section 3.5 Mandatory Prepayments. (ai In the event that the outstanding amount of any component of the Loans or the outstanding aggregate amount of the Loans and Letter of Credit Accommodations exceeds the amounts available under the Lending Formulas, the sublimit for Letter of Credit Accommodations set forth in Section 3.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive or otherwise affect any rights of Agent and Lenders in that circumstance or on any future occasions and Borrowers shall, upon demand by Agent, which may be made at any time or from time to time, immediately repay to Agent, for the ratable benefit of Lenders, the entire amount of any such excess(es) for which payment is demanded, or in the case of Letter of Credit Accommodations, provide cash collateral to Agent (for itself and the ratable benefit of Lenders) in such amount. (bi Immediately after the receipt by a Borrower or any of its Subsidiaries of any Net Cash Proceeds on account of (i) the sale, assignment or other disposition of assets of such Borrower or any of its Subsidiaries (other than (A) sales of Inventory in the ordinary course of such Borrower's and its Subsidiaries' business, or (B) so long as no Event of Default exists or has occurred, sales of worn-out or obsolete Equipment to the extent permitted under Section 7.14 in the aggregate amount of up to $750,000 for all such sales by Borrowers of such Equipment), or (ii) the loss of or damage to all or any portion of the assets of a Borrower or any of its Subsidiaries, such Borrower shall absolutely and unconditionally, without notice or demand, make a payment to Agent, for the ratable benefit of Lenders, as a mandatory prepayment of the then outstanding principal amount of the Loans, in an amount equal to one hundred (100%) percent of all such Net Cash Proceeds, provided, that, such Borrower or such Subsidiary shall not be required to make such mandatory prepayment with the proceeds of sales of worn-out or obsolete Equipment as provided in clause (i) above prior to an Event of Default, so long as all of such proceeds are used within one hundred twenty (120) days after the date of receipt thereof to purchase new Equipment free and clear of any security interest, lien, claim or other encumbrance. (ci All such payments in respect of the Loans pursuant to this Section 3.5 shall be without premium or penalty. All interest accrued on the principal amount of the Loans paid pursuant to this Section 3.5 shall be paid, or may be charged by Agent to the loan account(s) of any Borrower, at Agent's option, on the date of such payment. Section 3.6 Interest. (ai Borrowers shall pay to Agent, for the ratable benefit of Lenders, interest on the outstanding principal amount of the Loans and other non-contingent Obligations at the Interest Rate. All interest accruing hereunder on and after the date of any Event of Default or termination or non-renewal hereof shall be payable on demand. (bi A Borrower may from time to time request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from a Borrower shall specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate Loans (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Agent of such a request from a Borrower, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, as of such date each of the following conditions is satisfied as determined by Agent: (i) no Event of Default has occurred and is continuing, (ii) no party hereto shall have sent any notice of termination or non-renewal of this Agreement, (iii) the Borrower involved shall have complied with such customary procedures as are established by Agent and specified by Agent to such Borrower in writing from time to time for requests by such Borrower for Eurodollar Rate Loans, (iv) no more than three (3) Interest Periods may be in effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (vi) Agent shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to Agent through the Reference Bank and can be readily determined as of the date of the request for such Eurodollar Rate Loan by such Borrower. Any request by a Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Agent, Lenders and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Agent, Lenders and Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans. (ci Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Agent has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Agent's option, upon notice by Agent to the Borrowers involved, convert to Prime Rate Loans in the event that (i) an Event of Default has occurred and is continuing, (ii) this Agreement shall terminate or not be renewed, or (iii) the aggregate principal amount of the Prime Rate Loans which have previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceed either (A) the aggregate principal amount of Loans then outstanding, or (B) Loans then available to Borrower under this Section 3 hereof. Borrower shall pay to Agent, for the ratable benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan account of Borrowers) any amounts required to compensate Agent, Lenders, the Reference Bank or any Participant for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing. (di All interest shall be payable by Borrowers to Agent, for the ratable benefit of Lenders, monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrowers to Agent exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. Section 3.7 Unused Line Fee. Borrowers shall pay to Agent, for the ratable benefit of Lenders, monthly an unused line fee at a rate equal to one-quarter of one percent (.25%) per annum calculated upon the amount by which the Maximum Credit exceeds the average daily principal balance of the outstanding Loans and Letter of Credit Accommodations during the immediately preceding month (or part thereof) while this Agreement is in effect, which fee shall be payable on the first day of each month in arrears. Section 3.8 Collateral Management Fee. Borrowers shall pay to Agent monthly, for its own account, a collateral management fee in an amount equal to $8,333 for each month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be fully earned as of and payable in advance on the date hereof and on the first day of each month hereafter. Section 3.9 Agency Fee. Borrowers shall pay to Agent, for its own account, an agency fee in an amount equal to $100,000 on each of the first and second anniversary of the dates of this Agreement for acting as Agent and administering the Credit Facility for the benefit of Borrowers and Lenders. Section 3.10 Changes in Laws and Increased Costs of Revolving Loans. (ai Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Agent to Borrowers, convert to Prime Rate Loans in the event that (i) any change in applicable law or regulation (or the interpretation or administration thereof) shall either (A) make it unlawful for Agent, any Lender, Reference Bank or any Participant to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs to Agent, Lenders, Reference Bank or any Participant of making or maintaining any Eurodollar Rate Loans by an amount reasonably deemed by Agent to be material, or (C) reduce the amounts received or receivable by Agent, for the ratable benefit of Lenders, in respect thereof, by an amount reasonably deemed by Agent to be material or (ii) the cost to Agent, Lenders, Reference Bank or any Participant of making or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount reasonably deemed by Agent to be material. Borrowers shall pay to Agent, for the ratable benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan account of Borrowers) any amounts required to compensate Agent, Lenders, the Reference Bank or any Participant for any loss (including loss of anticipated profits), cost or expense incurred by such person as a result of the foregoing, including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain the Eurodollar Rate Loans or any portion thereof. A certificate of Agent setting forth the basis for the determination of such amount necessary to compensate Agent as aforesaid shall be delivered to Borrowers and shall be conclusive, absent manifest error. (bi If any payments or prepayments in respect of the Eurodollar Rate Loans are received by Agent other than on the last day of the applicable Interest Period (whether pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the application of collections under Section 9.1 or any other payments made with the proceeds of Collateral, Borrowers shall pay to Agent upon demand by Agent (or Agent may, at its option, charge any loan account of Borrowers) any amounts required to compensate Agent, Lenders, the Reference Bank or any Participant for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar Rate Loans or any portion thereof. Section 3.11 Authorization to Make Loans and Provide Letter of Credit Accommodations. Agent, for the ratable benefit of Lenders, is authorized to make the Loans and provide the Letter of Credit Accommodations for the account and risk of Lenders based upon telephonic or other instructions received from anyone purporting to be an officer of a Borrower or other authorized person or, at the discretion of Agent, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested Loan is to be made or Letter of Credit Accommodation established (which day shall be a Business Day) and the amount of the requested Loan and Letter of Credit Accommodation. Requests received after 11:00 a.m. New York City time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, a Borrower when deposited to the credit of such Borrower or otherwise disbursed or established in accordance with the instructions of such Borrower or in accordance with the terms and conditions of this Agreement. Section 3.12 Settlement Procedures. (ai Notwithstanding any other provision of this Agreement, and in order to administer the Credit Facility in an efficient manner and to reduce the number of fund transfers between Lenders and Agent, Borrowers, Lenders and Agent agree that Agent may (but shall not be obligated to), and Borrowers and Lenders hereby irrevocably authorize the Agent to, fund, on behalf of the Lenders, Loans pursuant to Section 3.1 and Letter of Credit Accommodations pursuant to Section 3.2, subject to the procedures for settlement set forth in this Section 3.12; provided, that, (i) other than to fund Revolving Loans to make payments to the issuer of any of the Letter of Credit Accommodations or for costs and expenses as provided for herein, Agent shall in no event fund such Loans if the Agent shall have received written notice from the Majority Lenders on the Business Day prior to the day of the proposed Loan that one or more of the conditions precedent contained in Section 4.2 will not be satisfied on the day of the proposed Loan, and (ii) Agent shall not otherwise be required to determine that the conditions precedent in Section 4.2 have been satisfied. (bi With respect to all periods for which the Agent has funded Loans pursuant to Section 3.12(a) above, the amount of each Lender's Pro Rata Share in the outstanding Loans and Letter of Credit Accommodations shall be computed weekly, and shall be adjusted upward or downward on the basis of the average amount of the outstanding Loans for the Business Days of the week immediately preceding the date of each settlement computation; provided, that, Agent retains the absolute right at any time or from time to time to make the above described adjustments at intervals more frequent than weekly. Agent shall deliver to each of Lenders after the end of each week, or such lesser period or periods as Agent shall determine, a summary statement of the amount of outstanding Loans for such period (such week or lesser period or periods being hereinafter referred to as a "Settlement Period"). If the summary statement is sent by Agent and received by a Lender prior to 12:00 noon (New York City time) then such Lender shall make the settlement transfer described in this Section by no later than 2:00 p.m. (New York City time) on the day such summary statement was sent, and if such summary statement is sent by Agent and received by a Lender after 12:00 noon (New York City time), such Lender shall make such settlement transfer by no later than 2:00 p.m. (New York City time) on the next Business Day following the date of the receipt of such summary statement. If, as of the end of any Settlement Period, the amount of a Lender's Pro Rata Share of the outstanding Loans is more than such Lender's Pro Rata Share of the outstanding Loans as of the end of the previous Settlement Period, then such Lender shall forthwith (but in no event later than the time set forth in the preceding sentence) transfer to Agent by wire transfer in immediately available funds the amount of the increase. If the amount of a Lender's Pro Rata Share of the outstanding Loans in any Settlement Period is less than the amount of such Lender's Pro Rata Share of the outstanding Loans for the previous Settlement Period, Agent shall forthwith transfer to such Lender by wire transfer in immediately available funds the amount of the decrease. The obligation of each of the Lenders to transfer such funds and effect such settlement shall be irrevocable and unconditional and without recourse to or warranty by Agent. Each of Agent and Lenders agrees to mark its books and records at the end of each Settlement Period to show at all times the dollar amount of its Pro Rata Share of the outstanding Loans and Letter of Credit Accommodations. Each Lender shall only be entitled to receive interest on its Pro Rata Share of the Loans which have been funded by such Lender. (c) To the extent that Agent has made any such amounts available and the settlement described above shall not yet have occurred, upon repayment of any Loans by Borrowers, Agent may apply such amounts repaid directly to any amounts made available by Agent pursuant to this Section 3.12. In lieu of weekly or more frequent settlements, Agent may at any time require each Lender to provide Agent with immediately available funds representing its Pro Rata Share of each Loan, prior to Agent's disbursement of such Loan to or for the benefit of Borrowers. In such event, all Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Pro Rata Shares. No Lender shall be responsible for any default by any other Lender in the other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender be increased or decreased as a result of the default by any other Lender in the other Lender's obligation to make a Loan requested hereunder. (d) If Agent is not funding a particular Loan pursuant to Section 3.12(a) above on any day, Agent may assume that each Lender will make available to Agent such Lender's Pro Rata Share of the Loan requested or otherwise made on such day and Agent may, in its discretion, but shall not be obligated to, cause a corresponding amount to be made available to Borrowers on such day. If Agent makes such corresponding amount available to Borrowers and such corresponding amount is not in fact made available to Agent by such Lender, Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the Interest Rate. During the period in which such Lender has not paid such corresponding amount to Agent, notwithstanding anything to the contrary contained in this Agreement or any of the other Financing Agreements, the amount so advanced by Agent to Borrowers shall, for all purposes hereof, be a Loan made by Agent for its own account. (e) Nothing in this Section 3.12 or otherwise in this Agreement or the other Financing Agreements shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights that Agent or any Borrower may have against any Lender as a result of any default by such Lender hereunder. Section 3.13 Use of Proceeds. All Loans and Letter of Credit Accommodations made or provided by Agent on behalf of Lenders or made or provided by Lenders to or for the account of Borrowers pursuant to this Agreement and the other Financing Agreements shall be used by Borrowers for general operating and working capital purposes of Borrowers and such other purposes as permitted by the terms hereof. SECTION 4. CONDITIONS PRECEDENT TO LOANS AND OTHER FINANCIAL ACCOMMODATIONS Section 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations. Each of the following is a condition precedent to the initial Loans and Letter of Credit Accommodations pursuant to this Agreement and the other Financing Agreements which shall be satisfied in a manner acceptable to Agent (any of which may be waived, in whole or in part, only by Agent and all of Lenders in writing): (a) Agent shall have received executed copies of the following: (i) The Information Certificate of Holding; (ii) This Agreement; (iii) An Amended and Restated Revolving Credit Note in the form attached hereto as Exhibit B for each Lender in the principal amount of its Commitment; (iv) A Second Amended and Restated Letter of Credit Agreement of even date herewith between Agent and Borrowers in the form attached hereto as Exhibit C; (v) A Second Amended and Restated Trademark Collateral Assignment and Security Agreement of even date herewith between Agent and Salant in the form attached hereto as Exhibit D-1; (vi) A Trademark Collateral Assignment and Security Agreement of even date herewith between Agent and Holding in the form attached hereto as Exhibit D-2. (vii) A Special Power of Attorney (in quintuplicate) of even date herewith executed by Salant pursuant to said Second Amended and Restated Trademark Collateral Agreement and Security Agreement in the form attached hereto as Exhibit E-1; (viii) A Special Power of Attorney (in quintuplicate) of even date herewith executed by Holding pursuant to said Second Amended and Restated Trademark Collateral Agreement and Security Agreement in the form attached hereto as Exhibit E-2; (ix) A Second Amended and Restated Collateral Assignment of Licenses of even date herewith between Agent and Salant in the form attached hereto as Exhibit F; (x) A Second Amended and Restated Guarantee of even date herewith executed by each of the Guarantors in the form attached hereto as Exhibit H; (xi) A Second Amended and Restated General Security Agreement of even date herewith executed by each of the Guarantors other than Salant Canada Inc. and J.J. Farmer Clothing Inc. in the form attached hereto as Exhibit I-(1) and a Amended and Restated Hypothec of even date herewith executed by Salant Canada Inc. in the form attached hereto as Exhibit I-(2); (xii) A Second Amended and Restated Trademark Collateral Assignment and Security Agreement of even date herewith between Agent and each of the Guarantors in the form attached hereto as Exhibit J; (xiii) A Special Power of Attorney (in quintuplicate) of even date herewith executed by each of the Guarantors in the form attached hereto as Exhibit K; (xiv) A Second Amended and Restated Collateral Assignment of Licenses of even date herewith between Agent and each of the Guarantors in the form attached hereto as Exhibit L; (xv) Stamped acknowledgment copies of UCC financing statements executed by each of the Borrowers and each of the Guarantors and filed in those jurisdictions necessary to perfect Agent's security interest in all of the Collateral and the Guarantor Collateral which can be perfected by filing under the UCC in the form attached hereto as Exhibit M, it being understood and agreed that neither Borrower nor any Guarantor shall be required to take any action to perfect Agent's security interest in any of their respective licensed or registered vehicles; (xvi) a Consent of Guarantors in the form attached hereto as Exhibit H; and (xvii) an Agreement modifying, in accordance with the terms of this Agreement, each Mortgage covering the Real Property listed on Schedule 1.61 hereto in a form reasonably satisfactory to Agent, together with all documents reasonably requested to be delivered to Agent in connection therewith. Notwithstanding anything to the contrary set forth in this Section 4.1, a Guarantor who does not own as of the date hereof any Guarantor Collateral consisting of "Trademarks" (as defined in the Second Amended and Restated Trademark Collateral Assignment and Security Agreement attached hereto as Exhibit J) or constituting "Licenses" (as defined in the Second Amended and Restated Collateral Assignment of Licenses attached hereto as Exhibit M) shall not be obligated to execute and deliver to Agent as of the date hereof a Second Trademark Collateral Assignment and Security Agreement or a Second Amended and Restated Collateral Assignment of Licenses (as the case may be), it being understood and agreed that if subsequent to the date hereof, such Guarantor becomes the owner of any Guarantor Collateral consisting of Trademarks or Licenses, such Guarantor shall be obligated to execute and deliver to Agent a Second Amended and Restated Trademark Collateral Assignment and Security Agreement or a Second Amended and Restated Collateral Assignment and Security Agreement or a Second Amended and Restated Collateral Assignment of Licenses, as the case may be. (b) Agent shall have received, in form and substance reasonably satisfactory to Agent, all consents, waivers, acknowledgments and other agreements from third persons which Lender may deem necessary in order to permit, protect and perfect its security interests in and liens upon the Collateral and the Guarantor Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, (i) acknowledgments by lessors, mortgagees and warehousemen of Agent's security interests in the Collateral and the Guarantor Collateral, waivers by such persons of any security interest, liens or other claims by such persons to the Collateral or Guarantor Collateral, and agreements permitting Agent access to, and the right to remain on, the premises to exercise its rights and remedies and otherwise deal with the Collateral or Guarantor Collateral, (ii) acknowledgments by processors and consignees at any time in possession of Collateral or Guarantor Collateral of Agent's security interests and liens therein, waivers by such persons of any security interests, liens or other claims by such persons in and to the Collateral or Guarantor Collateral, and agreements by such persons to follow Agent's directions with respect to the release and delivery of any Collateral or Guarantor Collateral at any time in their possession and (iii) agreements from licensors of trademarks and other intellectual property to Salant or any of its Subsidiaries, including, but not limited to, Perry Ellis International Inc., permitting Agent to use, in a manner and for a period satisfactory to Agent, the marks, logos or other intellectual property licensed by such parties to Salant or any of its Subsidiaries to exercise Agent's rights and remedies and otherwise deal with the Collateral and Guarantor Collateral. (c) Agent shall have received, in form and substance reasonably satisfactory to Agent and its counsel, title insurance policies or, if feasible, endorsements to the existing title insurance policies issued to CIT pursuant to the Original Credit Agreement (i) insuring the priority, amount and sufficiency of the Mortgages, in each case as modified as required by the terms hereof, in favor of Agent with respect to the Real Property, (ii) insuring against matters that would be disclosed by surveys and (iii) containing any endorsements, assurances or affirmative coverage reasonably requested by Agent for protection of its interests. (d) Agent shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance reasonably satisfactory to Agent, and certificates of insurance policies and endorsements naming Agent, for the ratable benefit of Lenders, as loss payee as its interest may appear. (e) Borrowers shall have established one or more lockboxes and Blocked Accounts for their collections and the transfer thereof to Agent, which shall be in form and substance reasonably satisfactory to Agent, in accordance with Section 9.1 hereof. (f) Agent shall have received evidence, in form and substance reasonably satisfactory to Agent, that Borrowers have (i) directed the banks at which Borrowers maintains deposit accounts for the initial receipt of cash, checks and other items from Borrowers to transfer all immediately available funds deposited in such bank only to the Blocked Accounts as required pursuant to Section 9.1 hereof or as otherwise directed by Agent and (ii) notified such banks of the security interests of Agent in such funds and the other Collateral (g) Agent shall have received evidence, in form and substance reasonably satisfactory to Agent, that Agent has valid perfected and first priority security interests in and liens upon the Collateral and the Guarantor Collateral and any other property which is intended to be security for the Obligations or the liability of any Obligor in respect thereof, subject only to the security interests and liens permitted herein or in the other Financing Agreements. (h) Agent shall have completed a field review of the Records and such other information with respect to the Collateral as Agent may require to determine the amount of Loans available to Borrowers including, without limitation, current agings of receivables, current perpetual inventory records and/or roll-forwards of Accounts and Inventory through the date of closing, together with such supporting documentation as may be necessary or appropriate, and other documents and information that will enable Agent to accurately identify and verify the Collateral, the results of which shall be satisfactory to Agent, not more than three (3) Business Days prior to the date hereof. (i) Agent shall have received, in form and substance reasonably satisfactory to Agent and its counsel, Pryor Cashman Sherman & Flynn LLP, counsel to Borrowers and Guarantors, with respect to the Financing Agreements and such other matters as Agent may request. (j) Agent shall have received, in form and substance reasonably satisfactory to Agent and its counsel, certified copies of the certificate of incorporation of each Borrower as amended, resolutions, good standing certificates, incumbency certificates and other documents evidencing the due organization and good standing of such Borrower and each of the Guarantors to execute each of the Financing Agreements to which they are a party and the due authorization and execution of this Agreement and such other Financing Agreements. (k) Agent shall have received, in form and substance reasonably satisfactory to Agent, all of the other Financing Agreements required to be delivered to Lender in accordance with the terms of this Agreement or the other Financing Agreements as a condition precedent to Agent making the Loans and the Letter of Credit Accommodations. (l) Agent shall have received, in form and substance reasonably satisfactory to Agent, such other Financing Agreements as Agent shall reasonably request to further evidence or secure the Obligations or otherwise effectuate the purpose and intent of this Agreement. (m) All representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects as of the date made. (n) No Event of Default shall have occurred hereunder and no event or condition shall have occurred or shall exist, which, with notice or passage of time or both, would constitute an Event of Default hereunder. (o) No material adverse change shall have occurred in the assets, business or prospects of Borrowers since the date of Agent's latest field examination and no change or event shall have occurred which would materially impair the ability of any Borrower or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Agent to enforce the Obligations or realize upon the Collateral. Section 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations. Each of the following is an additional condition precedent to the Loans and Letter of Credit Accommodations to Borrowers, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations: (a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto, except to the extent that such representation and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date); (b) no law, regulation, order, judgment or decree of any Governmental Authority shall, and Agent shall not have received any notice that any action, suit, investigation, litigation or proceeding is pending or threatened in any court or before any arbitrator or Governmental Authority which (i) purports to enjoin, prohibit, restrain or otherwise materially and adversely affect (A) the making of the Loans or (B) the consummation of the transactions contemplated pursuant to the terms hereof or the other Financing Agreements or (ii) has or could reasonably be expected to have a Material Adverse Effect; and (c) no Event of Default and no act, condition or event which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto. SECTION 5. COLLATERAL Section 5.1 Security Interests in Borrowers' Assets. (a) As collateral security for the prompt performance, observance and payment in full of all of the Obligations, each Borrower hereby grants, pledges and assigns to Agent, for itself and the ratable benefit of Lenders continuing security interests in, liens upon, and rights of setoff against, all of the following assets and properties of each Borrower, now owned and hereafter acquired and arising, except as otherwise provided in Section 5.1(b) hereof (which assets and properties, together with all other collateral security for the Obligations heretofore, now or hereafter granted to or otherwise held or acquired by Agent or any Lender are referred to herein as the "Collateral"): (i) (A) all Accounts; (B) all right, title and interest in, to and in respect of all goods relating to Accounts, including, without limitation, all goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, any Account or other Collateral, including, without limitation, all returned, reclaimed or repossessed goods; (C) all right, title and interest, and all enforcement and other rights, remedies, and security and liens, in, to and in respect of the Accounts and other Collateral, including, without limitation, rights of stoppage in transit, replevin, repossession and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, guaranties or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any Account Debtor and credit and other insurance with respect to Accounts; (D) all deposit accounts; (E) all securities and other investment property; (F) all monies, securities and other property and the proceeds thereof, now or hereafter held or received by, or in transit to, Agent or any Lender or any Participant from or for any Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of each Borrower's deposits (general or special), balance, reserves, sums and credits with Agent or any Lender or Participant at any time existing; (ii) all of each Borrower's now owned or hereafter acquired Chattel Paper, Instruments and Documents; (iii) all General Intangibles; (iv) all Inventory; (v) all Equipment located in the United States; (vi) all Real Property located in the United States; (vii) all present and future books and records relating to any of the above, including, without limitation, all ledgers, books of account, records, tapes, cards, computer programs, computer disks or tape files, computer printouts, computer runs, computer data and other computer prepared information in possession or control of any Borrower, any computer service bureau or other third person; and (viii) all products and proceeds of the foregoing, in any form, including, without limitation, any insurance proceeds and any claims against third persons for loss or damage to or destruction of any or all of the foregoing. (b) Notwithstanding anything to the contrary set forth in Subsection 5.1(a)(i) above or in the other Financing Agreements, the types or items of Collateral described in such subsection shall not include any rights under any contract, lease or license agreement covering personal property in respect of which the valid grant of a security interest requires the consent of the other party to the contract, lease or license agreement which has not been or is not obtained, provided, that, the foregoing exclusion shall in no way be construed so as to limit or impair Agent's unconditional continuing security interests in and liens upon any rights or interests of any Borrower to monies due or to become due under any such contract, lease or license agreement. Section 5.2 Security Interests in Guarantors' Assets (a) Concurrently herewith, in order to induce Agent and Lenders to enter into this Agreement and the other Financing Agreements and make the Loans and provide the Letter of Credit Accommodations as set forth herein, each of the Guarantors shall execute and deliver to Agent, for itself and the ratable benefit of Lenders, an absolute and unconditional Second Amended and Restated Guarantee of payment of the Obligations in the form attached as Exhibit H hereto (as from time to time amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the "Guarantees"). (b) Concurrently herewith, each of the Guarantors, other than Borrowers, is granting to Agent, for itself and the ratable benefit of Lenders, security interests in and liens upon certain now owned and hereafter acquired properties and assets of such Guarantor as more fully set forth in the Second Amended and Restated General Security Agreement in the form attached as Exhibit I(1) or I(2) hereto, as applicable, executed and delivered by such Guarantor to Agent concurrently herewith, which security interests and liens shall secure all existing and hereafter arising obligations, liabilities and indebtedness of such Guarantor to Agent and Lenders pursuant to such Guarantor's Guarantee. (c) The Guarantees and the collateral security described in Section 5.2(b) and any other collateral security now or hereafter pledged or granted to Lender by any of the Guarantors, other than Borrowers, or any third person are collectively sometimes referred to herein as the "Guarantor Collateral". Section 5.3 Perfection of Security Interests (a) Each Borrower irrevocably and unconditionally authorizes Agent to file at any time and from time to time such financing statements with respect to the Collateral naming Agent as the secured party and such Borrower as debtor, as Agent may require, and including any other information with respect to such Borrower or otherwise required by part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as Agent may determine, together with any amendment and continuations with respect thereto, which authorization shall apply to all financing statements filed on, prior to or after the date hereof. Each Borrower hereby ratifies and approves all financing statements naming Agent as secured party and such Borrower as debtor with respect to the Collateral (and any amendments with respect to such financing statements) filed by or on behalf of Agent prior to the date hereof and ratifies and confirms the authorization of Agent to file such financing statements (and amendments, if any). Each Borrower hereby authorizes Agent to adopt on behalf of such Borrower any symbol required for authenticating any electronic filing. No Borrower shall at any time file, or permit or cause to be filed, any correction statement or termination statement with respect to any financing statement (or amendment or continuation with respect thereto) naming Agent as secured party and such Borrower as debtor. (b) Each Borrower shall take any other actions reasonably requested by Agent from time to time to cause the attachment, perfection and first priority of, and the ability of Agent to enforce, the security interest of Agent in any and all of the Collateral, including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC or other applicable law, to the extent, if any, that such Borrower's signature thereon is required therefor, (ii) causing Agent's name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of Agent to enforce, the security interest of Agent in such Collateral, (iii) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Agent to enforce, the security interest of Agent in such Collateral, (iv) obtaining the consents and approvals of any Governmental Authority or third party, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, and taking all actions required by any earlier versions of the UCC or by other law, as applicable in any relevant jurisdiction. SECTION 6. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and warrants to Agent and Lenders as follows, which representations and warranties are continuing and shall survive the execution and delivery hereof, and the truth and accuracy of each, together with the representations and warranties in the other Financing Agreements, being a continuing condition of each Loan and Letter of Credit Accommodation: Section 6.1 Organization and Qualification. (a) Each of Borrowers and Guarantors is a duly organized and validly existing corporation in good standing under the laws of its state or jurisdiction of incorporation, and has the corporate power and authority to own its properties and to transact the business in which it is engaged or presently proposes to engage. Each Borrower has qualified to do business as a foreign corporation in the states and other jurisdictions listed on Schedule 6.1(a) hereto, which constitute all states or other jurisdictions in which failure to so qualify could have a Material Adverse Effect. No Guarantor has failed to qualify to do business as a foreign corporation in any state or other jurisdiction in which the failure to so qualify has a Material Adverse Affect. (b) Borrowers and Guarantors do not have any Subsidiaries as of the date hereof, except as set forth on Schedule 6.1(b) hereto. Section 6.2 Corporate Power and Authority. Each Borrower has the corporate power and authority to borrow and each of Borrowers and Guarantors has the corporate power and authority to execute, deliver and carry out the terms and provisions of this Agreement and the other Financing Agreements and all other agreements, instruments and documents delivered by Borrowers and Guarantors pursuant hereto and thereto applicable to it, and each of Borrowers and Guarantors has taken or caused to be taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement, the other Financing Agreements and the other agreements relating hereto or thereto to which it is a party, the present and future borrowings by Borrowers hereunder and thereunder and the execution, delivery and performance of the instruments and documents delivered and to be delivered by it pursuant hereto and thereto. This Agreement and the other Financing Agreements to which each is a party constitute and will constitute legal, valid and binding obligations of each of Borrowers and Guarantors, enforceable in accordance with their respective terms. Section 6.3 Capitalization. (a) All of the issued and outstanding shares of Capital Stock of each Borrower hereto have been duly authorized and are fully paid and nonassessable, free and clear of all claims, liens, pledges and encumbrances of any kind. All of the issued and outstanding shares of Capital Stock of each of the Guarantors are directly and beneficially owned and held by Salant and have been duly authorized and are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind. (b) After the creation of the Obligations and the security interests of Agent, for itself and the ratable benefit of Lenders, and consummation of the transactions contemplated under the Plan, each Borrower will continue to be able to pay its debts as they mature and has (and has reason to believe it will continue to have) sufficient capital (and not unreasonably small capital) to carry on its business and all businesses in which it now engages or proposes to engage. The assets and properties of each Borrower at a fair valuation and at their present fair salable value are, and will be, greater than the Indebtedness and other liabilities of such Borrower, and including contingent liabilities computed in the amount which, to the best of such Borrower's knowledge, represents an amount which can reasonably be expected to become an actual or matured liability. Each Borrower has sufficient capital to carry on all businesses and transactions in which it now engages or proposes to engage in, is solvent and will, in the reasonable, good faith determination of such Borrower as of the date hereof, continue to be solvent after the creation of the Obligations and the security interests in favor of Agent, for itself and the ratable benefit of Lenders, and is able to pay its debts as they mature. Section 6.4 Compliance with Other Agreements and Applicable Law. (a) Each of Borrowers and Guarantors is not in default under, in violation of or in contravention of, in any respect, any indenture, mortgage, deed of trust, deed to secure debt, material agreement or instrument to which it is a party or by which it or any of its assets or properties may be or are bound. (b) Neither the execution and delivery of this Agreement, the other Financing Agreements, or any of the instruments and documents to be delivered pursuant hereto or thereto, nor the consummation of the transactions herein or therein contemplated, nor compliance with the provisions hereof or thereof, has violated any law or regulation or any order or decree of any court or Governmental Authority in any respect or does or will conflict with or result in the breach of, or constitute a default in any respect under, any indenture, mortgage, deed of trust, material agreement or instrument to which any Borrower or any Guarantor is a party or may be bound, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property of any Borrower or any Guarantor (except as specifically contemplated hereunder or under the other Financing Agreements) or violate any provision of the Certificate of Incorporation or By-Laws of any Borrower or any Guarantor. (c) Each of the Borrower and each of the Guarantors has obtained all material permits, licenses, approvals, consents, certificates, orders or authorizations of any Governmental Authority required for the lawful conduct of its business and is in compliance in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority relating to such Borrower's or such Guarantor's business, as the case may be, (including, but not limited to, those set forth in or promulgated pursuant to ERISA, the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, the Code, and the Environmental Laws). Schedule 6.4(c) hereto sets forth all material permits, licenses, approvals, consents, certificates, orders or authorizations (collectively, "Permits") issued to or held by each Borrower as of the date hereof by any Federal, State or local Governmental Authority. The Permits constitute all permits, licenses, approvals, consents, certificates, orders or authorizations necessary for Borrowers and Guarantors to own and operate their respective businesses as presently conducted or proposed to be conducted where the failure to have such Permits would have a Material Adverse Effect. Except as described on Schedule 6.4(c) hereto, all of the Permits are valid and subsisting and in full force and effect and there are no actions, claims or proceedings pending or threatened that seek the revocation, cancellation, suspension or modification of any of the Permits. Section 6.5 Governmental Approval. No consent, approval or other action of, or filing with, or notice to any Governmental Authority is required in connection with the execution, delivery and performance of this Agreement, the other Financing Agreements or any of the instruments or documents to be delivered pursuant hereto or thereto, except for the filing of UCC financing statements and the recording of other instruments required to perfect security interests or liens in certain of the Collateral, including, but not limited to, the recording of the modification agreements with respect to the existing Mortgages. Section 6.6 Chief Executive Office; Collateral Locations. The address of the principal place of business, the chief executive office and the location of books and records relating to the Accounts of each Borrower is as set forth on Schedule 6.6 hereto, which address is the mailing address for such principal place of business and chief executive office. Subject to Section 7.2 below, as of the date hereof, the Collateral is located only at the locations set forth on Schedule 6.6. Section 6.7 Priority of Liens; Title to Properties. (a) The security interests and liens granted to Agent for itself and the ratable benefit of Lenders under this Agreement and the other Financing Agreements constitute valid and perfected liens and security interests in and upon the Collateral subject only to the liens indicated on Schedule 6.7 hereto and the liens permitted under Section 7.5 hereof. (b) Each of Borrowers and Guarantors has good and marketable title to all of its properties and assets, subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those directly in favor of or assigned to Agent and such others as are specifically permitted under the provisions of this Agreement as listed on Schedule 6.7 hereto or under Section 7.5 hereof and the other Financing Agreements. Each of Borrowers and Guarantors has peaceful and undisturbed possession of all Real Property and Equipment and such other assets as may be necessary for its business as presently conducted or proposed to be conducted and under all leases, licenses and easements necessary for the operation of its properties and business as presently conducted or proposed to be conducted. Section 6.8 Tax Returns. Except as set forth on Schedule 6.8, each of Borrowers and Guarantors has filed, or caused to be filed all Federal, State, county, local, foreign and other tax returns, reports and declarations which are required to be filed by it and as to which an extension has not been granted and has paid or caused to be paid all taxes shown to be due and payable on said returns and reports or in any assessment received by it, to the extent that such taxes have become due and payable, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Borrower or such Guarantor and with respect to which adequate reserves have been set aside on its books in accordance with GAAP. Adequate provision has been made in accordance with GAAP for the payment of all material accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. Section 6.9 Litigation. Except as set forth on Schedule 6.9 hereto, there is no present investigation by any Governmental Authority pending or, to the best of the knowledge of any Borrower or Guarantor, threatened against or affecting any Borrower or any Guarantor or their respective properties or business and there is no present action, suit, proceeding or claim by any Person pending or, to the best of the knowledge of any Borrower or any Guarantor, threatened against any Borrower or any Guarantor or its assets or goodwill, or affecting any transactions contemplated by this Agreement, the other Financing Agreements, or other instruments, agreements or documents delivered in connection herewith or therewith, which if adversely determined with respect to it, would have a Material Adverse Effect. Section 6.10 Intellectual Property. Each of Borrowers and Guarantors owns or licenses all patents, trademarks, servicemarks, logos, tradenames, trade secrets, know-how, copyrights, or licenses and other rights with respect to any of foregoing, which are necessary for the operation of its business as presently conducted or proposed to be conducted. No claim or litigation is pending or threatened against or affecting any Borrower or any Guarantor contesting its right to sell or use any product, process, method, substance, part or other material. Section 6.11 Accounts. Each Account represents a valid and legally enforceable indebtedness based upon an actual and bona fide sale and delivery, lease, license, assignment or other disposition of goods or rendition of services in the ordinary course of the business of the respective Borrowers which has been finally accepted by the Account Debtor and for which the Account Debtor is unconditionally liable to make payment of the amount stated in each invoice, document or instrument evidencing the Account in accordance with the terms thereof, without offset, defense or counterclaim, except where such offset, defense of counterclaim would not have a Material Adverse Effect. All statements made and all unpaid balances appearing in the invoices, documents and instruments evidencing each Account, in each case made by the Borrowers, are true and correct in all material respects and are in all material respects what they purport to be and all signatures and endorsements that appear thereon that have been made by the Borrowers are genuine and all signatories and endorsers have full capacity to contract. None of the transactions underlying or giving rise to any Account violates any Federal, State or foreign laws or regulations applicable to any Borrower where any such violation would have a Material Adverse Effect, and all documents relating to the Accounts are legally sufficient under such laws or regulations and shall be legally enforceable in accordance with their terms and all recording, filing and other requirements of giving public notice under any applicable law have been duly complied with in all material respects. Section 6.12 Employee Benefits. (a) Each of Salant and its Subsidiaries has not engaged in any transaction in connection with which Salant and its Subsidiaries or any of its or their ERISA Affiliates, could be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code. (b) No liability to the Pension Benefit Guaranty Corporation (other than liability for premiums in the ordinary course of the business of Salant) has been or is expected by Salant or any Subsidiary to be incurred with respect to any employee pension benefit plan of Salant or its Subsidiaries or any of its or their ERISA Affiliates. There has been no reportable event (within the meaning of Section 4043(b) of ERISA) or any other event or condition with respect to any employee pension benefit plan of Salant or any of its Subsidiaries or any of its or their ERISA Affiliates which presents a risk of termination of any such plan by the Pension Benefit Guaranty Corporation except as set forth on Schedule 6.12 hereto. (c) Full payment has been made of all amounts which Salant and its Subsidiaries or any of its or their ERISA Affiliates is required under Section 302 of ERISA and Section 412 of the Code to have paid under the terms of each employee pension benefit plan as contributions to such plan as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, except as set forth on Schedule 6.12 hereto, and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any employee pension benefit plan except as set forth on Schedule 6.12 hereto. (d) The current value of all vested accrued benefits under all employee pension benefit plans maintained by Salant or its Subsidiaries that are subject to Title IV of ERISA does not exceed the current value of the assets of such plans allocable to such vested accrued benefits, except as set forth on Schedule 6.12 hereto. The terms "current value" and "accrued benefit" have the meanings specified in Section 4062(b)(1)(A) and Section 3 of ERISA, respectively. (e) Neither Salant nor any of its Subsidiaries nor any of its or their ERISA Affiliates is or has ever been obligated to contribute to any "multi-employer plan" (as such term is defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA, except as set forth on Schedule 6.12 hereto. Section 6.13 Environmental Compliance. (a) Except as set forth on Schedule 6.13 hereto, neither Salant nor any of its Subsidiaries have generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time materially violates any applicable Environmental Law or any license, permit, certificate, approval or similar authorization thereunder in any material respect and the operations of Salant and its Subsidiaries comply in all material respects with all Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder. (b) Except as set forth on Schedule 6.13 hereto, there has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any Governmental Authority or any other person nor is any pending or, to the best of Salant's knowledge, threatened, with respect to any material noncompliance with or violation of the requirements of any Environmental Law by Salant or any of its Subsidiaries in any material respect or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which materially affects Salant or its Subsidiaries or their businesses, operations or assets or any properties at which Salant or its Subsidiaries transported, stored or disposed of any Hazardous Materials. (c) Except as set forth on Schedule 6.13 hereto, neither Salant nor any of its Subsidiaries have any material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials. (d) Salant and its Subsidiaries have all material licenses, certificates, approvals and other Permits required to be obtained or filed in connection with the operations of Salant and its Subsidiaries under any Environmental Law and all of such licenses, permits, certificates, approvals and other Permits are valid and in full force and effect. Section 6.14 Bank Accounts. All of the deposit accounts, investment accounts or other accounts in the name of or used by Salant or its Subsidiaries maintained at any bank or other financial institution are set forth on Schedule 6.14 hereto, subject to the right of each to establish new accounts in accordance with Section 7.18 below. Section 6.15 Investment Company. Salant and its Subsidiaries are not an "investment company", or an "affiliated person" or "promoter" or "principal underwriter", as such terms are defined in the Investment Company Act of 1940, as amended. The making of the Loans by Agent on behalf of Lenders, the application of the proceeds and the repayment thereof by Borrowers and the performance of the transactions contemplated herein will not violate any provision of the Investment Company Act of 1940, as amended, or any rule, regulation or order issued pursuant thereto. Section 6.16 Regulation G; Regulation U; Securities Exchange Act of 1934. No Borrower owns any "margin security" or "margin stock" as such term is defined in Regulation G and Regulation U, respectively, each as amended by the Board. The proceeds of the borrowings made pursuant to this Agreement and the other Financing Agreements will be used by Borrowers only for the purposes contemplated hereunder. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any margin security or margin stock or for any other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation G or U of the Board, each as amended. Borrowers will not take, nor will Borrowers permit any agent acting in its behalf to take, any action which might cause this Agreement or the other Financing Agreements, or instruments delivered pursuant hereto or thereto, to violate any regulation of the Board or to violate the Securities Exchange Act of 1934 or any state or other securities laws, in each case as in effect on the date hereof or as amended hereafter. Section 6.17 No Material Adverse Change. There has been no material adverse change in the business, assets, condition (financial or otherwise) or results of operations of Salant and its Subsidiaries (taken as a whole) since the date of the most recent financial statements with respect thereto submitted to Agent or the date of the most recent field examination with respect thereto conducted by Agent. Section 6.18 Financial Statements. (a) None of the financial statements, reports and other information furnished or to be furnished by Salant to Agent or any Lender with respect to Salant and its Subsidiaries contain, as of their respective dates, any untrue statement of material fact or (taken as a whole) omit to state any material fact necessary to make the information therein not misleading. Such financial statements and reports were and will be prepared in accordance with GAAP consistently applied, and shall fairly present the consolidated and consolidating financial condition and results of operations of the applicable Persons, as of the dates and for the periods indicated thereon. (b) Consolidated cash flow projections for Salant and its Subsidiaries (together with summaries of assumptions and projected assumptions, based on historical performance with respect thereto) furnished by Salant to Agent represent the reasonable good faith opinion of Salant and its management as to the subject matter thereof and based on assumptions which Salant has determined to be fair and reasonable in view of current and reasonably foreseeable business conditions. Section 6.19 Disclosure. (a) The information contained in the representations and warranties of Borrowers and Guarantors set forth in this Agreement, the other Financing Agreements, or in any other instrument, document, list, certificate, statement, schedule or exhibit heretofore delivered or to be delivered to Agent or any Lender, as contemplated in this Agreement or in the other Financing Agreements, does not contain and will not contain any untrue statement of a material fact and (taken as a whole) does not omit and will not omit to state a material fact necessary in order to make the information contained herein or therein not misleading. (b) After giving effect to the transactions contemplated by this Agreement, the other Financing Agreements, and the other instruments or documents delivered in connection herewith and therewith, there does not exist and there has not occurred any act, condition or event which constitutes an Event of Default or which, with notice or passage of time or both would constitute an Event of Default. Section 6.20 Labor Disputes. There is no collective bargaining agreement or other labor contract covering employees of Salant or its Subsidiaries, except as set forth on Schedule 6.20 hereto. To the best of Salant's knowledge, no union or other labor organization is seeking to organize, or to be recognized as, a collective bargaining unit of employees of Salant or any of its Subsidiaries. There is no pending or threatened strike, work stoppage, material unfair labor practice claim, or other material labor dispute against or affecting Borrower or its Subsidiaries or their respective employees, except as set forth on Schedule 6.20 hereto. Section 6.21 Corporate Name; Prior Transactions. No Borrower has, during the past five years, been known by or used any other corporate or fictitious name or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property or assets out of the ordinary course of business, except as set forth on Schedule 6.21 hereto. Section 6.22 Material Contracts. No Borrower is in breach of or in default under any Material Contract, except as set forth on Schedule 6.22 hereto. SECTION 7. ADDITIONAL COVENANTS. In addition to the covenants set forth in the other Financing Agreements, each Borrower hereby covenants to and agrees with Agent and Lenders that Borrower shall comply with the following covenants or cause the same to be complied with, unless Agent shall otherwise consent in writing: Section 7.1 Tradenames. Each invoice issued by a Borrower shall bear the name of such Borrower in such manner so as to indicate that such Borrower is the issuer thereof. Some of a Borrower's invoices may from time to time be rendered to customers under the tradenames listed on Schedule 6.21 hereto (which, together with any new tradenames used after the date hereof are referred to collectively as the "Tradenames" and individually, as a "Tradename"). As to the Tradenames used by it, and the related Accounts, each Borrower hereby agrees that: (a) Each Tradename is a tradename (and not an independent corporation or other legal entity) by which such Borrower may identify and sell or lease certain of its goods or services and conduct a portion of its business. (b) All Accounts and proceeds thereof (including any returned merchandise) which arise from the sale or lease of goods or rendition of services invoiced under the Tradename shall be owned solely by such Borrower and shall be subject to the security interests of Agent and other terms of this Agreement and the other Financing Agreements. (c) All assignments or confirmatory schedules of Accounts delivered to Agent by such Borrower, whether in the name of any of the Tradenames or of such Borrower, shall be executed by such Borrower as owner of such assigned Accounts. (d) New Tradenames may be used by a Borrower, but only if (i) Agent is given at least thirty (30) days prior written notice of the intended use of any new Tradename and (ii) such supplemental financing statements or similar instruments as Agent may request shall be executed and delivered to Agent by such Borrower for filing or recording by Agent, prior to the use of such new Tradename. Section 7.2 New Collateral Locations. A Borrower may open any new location within the continental United States provided it (i) gives Agent thirty (30) days prior written notice of the intended opening of any such new location and (ii) executes and delivers, or causes to be executed and delivered, to Agent such agreements, documents, and instruments consistent with the other then existing Financing Agreements to the extent applicable or otherwise as Agent may deem reasonably necessary or desirable to protect its interests in the Collateral to be located in such location, including, without limitation, UCC financing statements and Collateral Access Agreements from appropriate Persons. Section 7.3 Subsidiaries. No Borrower shall form or acquire, or shall permit any Subsidiary to form or acquire, any Subsidiary without the prior written consent of Agent. In the event Agent so consents, promptly upon such formation or acquisition, (a) such Subsidiary shall be subject to the terms of this Agreement and bound by the terms and conditions hereof applicable to the Subsidiaries of such Borrower; (b) such Borrower shall cause any such Subsidiary to execute and deliver to Agent, in form and substance satisfactory to Agent and its counsel: (i) an absolute and unconditional guarantee of payment of any and all present and future Obligations of Borrowers to Agent and Lenders containing terms substantially similar to those guarantees entered into by the existing Subsidiaries of such Borrower in favor of Agent and Lenders as of the date hereof, (ii) a security agreement granting to Agent for itself and the ratable benefit of Lenders a first security interest and lien (except as otherwise consented to in writing by Agent) upon all of the assets of such Subsidiary containing terms substantially similar to the security agreements entered into by the existing Subsidiaries of such Borrower in favor of Agent and Lenders as of the date hereof, (iii) related Uniform Commercial Code Financing Statements, and (iv) such other agreements, documents and instruments as Agent may require, including, but not limited to, supplements and amendments hereto and other loan agreements or instruments evidencing Indebtedness of such new Subsidiary to Agent and Lenders. Section 7.4 Indebtedness. No Borrower shall, or shall permit any Subsidiary to, create, incur, assume or permit to exist, contingently or otherwise, any Indebtedness, except: (a) the Obligations; (b) Indebtedness consisting of trade obligations and normal accruals in the ordinary course of business not yet due and payable, or with respect to which such Borrower is contesting in good faith the amount or validity thereof by appropriate proceedings diligently pursued and available to such Borrower and with respect to which adequate reserves have been set aside on its books; (c) Indebtedness incurred in the ordinary course of its business secured only by liens permitted under Section 7.5(b) hereof; (d) Indebtedness of Salant or its Subsidiaries to the extent permitted under Section 7.5(d) hereof; (e) contingent Indebtedness permitted under Section 7.6 hereof; (f) Indebtedness incurred in the ordinary course of business consisting of unsecured non-current accruals and deferred liabilities relating to deferred compensation and taxes, environmental liabilities, post-employment benefits for health care, pensions, life insurance and long term disability benefits and similar items; (g) Indebtedness of a Borrower in respect of Interest Rate Protection Obligations incurred in the ordinary course of business; (h) unsecured Indebtedness of a Borrower to any Subsidiaries arising after the date hereof pursuant to loans by such Subsidiaries to such Borrower, provided, that, (i) such Indebtedness is subject to, and subordinate in right of payment to, the right of Agent and Lenders to receive the prior indefeasible payment and satisfaction in full of all of the Obligations on terms and conditions acceptable to Agent, (ii) Agent shall have received, in form and substance satisfactory to Agent, a subordination agreement providing for, inter alia, the terms of the subordination in right of payment of such Indebtedness of such Borrower to the prior indefeasible payment and satisfaction in full of all of the Obligations, duly authorized, executed and delivered by such Subsidiaries and such Borrower, (iii) such Borrower shall not, directly or indirectly make, or be required to make, any payments in respect of such Indebtedness so long as any of the Obligations are outstanding and unpaid and this Agreement has not been terminated, (iv) such Borrower shall not, directly or indirectly, (A) amend, modify, alter or change any terms of such Indebtedness or any agreement, document or instrument related thereto, or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose, and (v) such Borrower shall furnish to Agent all notices, demands or other materials in connection with such Indebtedness either received by such Borrower or on its behalf, promptly after receipt thereof, or sent by such Borrower or on its behalf, concurrently with the sending thereof, as the case may be; (i) unsecured Indebtedness of Subsidiaries of Salant to a Borrower arising after the date hereof pursuant to loans by such Borrower to such Subsidiaries to the extent such loans by such Borrower are permitted under Section 7.6 below, provided, that, such Indebtedness shall not be evidenced by any promissory note or other instrument, unless the original of such note or other instrument is pledged and delivered to Agent (with such endorsement thereof as Agent may require); (j) Indebtedness, the proceeds of which are used to refinance (or which represents an amendment, renewal, extension or refunding of) outstanding Indebtedness of a Borrower or any of its Subsidiaries other than the Obligations, which is subordinated to the Obligations to the same extent as the Indebtedness so refinanced and, in the case of Indebtedness which is subordinated to the Obligations, with an average life to maturity equal to or greater than the remaining term of this Agreement; provided, that to the extent the principal amount of the new Indebtedness exceeds the principal amount of the Indebtedness to be refinanced, such excess must be used to reduce the outstanding Obligations. (k) Indebtedness of any Borrower or any Guarantor existing on the date hereof which is described on Schedule 7.4 hereto, provided, that, except for prepayments incident to refinancings permitted under Section 7.4 hereof: (i) any Borrower may, and shall cause any such Guarantor to, only make regularly scheduled payments of principal and interest as set forth in Schedule 7.4, and (ii) each Borrower shall not, and shall cause any such Guarantor not to, directly or indirectly, (A) make any prepayments or other non-mandatory payments in respect of such Indebtedness or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose or (C) amend, modify, alter or change the terms of the arrangements related thereto, or any agreement or instrument evidencing such Indebtedness, and (iii) each Borrower shall furnish to Lender all notices or demands received concerning such Indebtedness promptly after receipt thereof or sent by such Borrower, concurrently with the sending thereof, as the case may be. (l) Any other Indebtedness in an amount not to exceed $1,000,000 in the aggregate at any one time. Section 7.5 Limitation on Liens. Each Borrower will not, and will not permit any Guarantor to, create, incur, assume, or permit to exist any mortgage, pledge, security interest, lien, encumbrance of any nature whatsoever on any of its respective assets or properties (including, without limitation, the Collateral), whether now owned or hereafter acquired, except: (a) the security interests and liens upon the Collateral and the Guarantor Collateral in favor of Agent and Lenders; (b) tax, mechanics and other non-consensual statutory liens arising in the ordinary course of a Borrower's or any Guarantors' business to the extent: (i) such liens secure Indebtedness which is not overdue or (ii) until foreclosure or similar proceedings shall have been commenced, such liens secure Indebtedness relating to claims or liabilities which are (A) fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or (B) being contested in good faith by appropriate proceedings available to such Borrower or any such Guarantor prior to the commencement of foreclosure or other similar proceedings and are adequately escrowed for or reserved against in the reasonable judgment of Agent; (c) liens arising in connection with worker's compensation, unemployment insurance, surety, insurance or financial responsibility, appeal and release bonds upon securities pledged as collateral for any of the foregoing; (d) purchase money mortgages or other purchase money liens or security interests upon any specific fixed assets hereafter acquired, or mortgages, liens, or security interests existing on any such future fixed assets at the time of acquisition thereof (including, without limitation, Capitalized Lease Obligations) or in connection with the refinancing of existing capitalized leases with respect to specific fixed assets, provided, that (i) the aggregate amount of all Indebtedness secured by such purchase money mortgages or other purchase money liens or security interests shall not exceed $10,000,000 outstanding at any time, (ii) no such purchase money mortgage, lien or security interest (or capitalized or finance lease, as the case may be) with respect to specific future fixed assets or as refinanced shall extend to or cover any other property, other than the specific fixed assets so acquired, or acquired or refinanced subject to such mortgage, lien or security interest (or lease) and the proceeds thereof, (iii) such mortgage, lien or security interest secures the obligation to pay the purchase price of such specific fixed assets only (or the Capitalized Lease Obligations), or existed on such assets at the time of such Borrower's acquisition thereof, and (iv) except for mortgages, liens and security interests which existed on assets at the time of such Borrower's acquisition thereof, the principal amount secured thereby shall not exceed one hundred (100%) percent of the cost of the fixed assets so acquired (it being agreed that for purposes of this Section 7.5(d), purchase money financing of a fixed asset shall include such financing (including, without limitation, sale-leaseback financing) that is consummated with respect to any such fixed asset within ninety (90) days after such Borrower's acquisition of such fixed asset) and (v) at the time of the granting of such mortgage, lien or security interest, no Event of Default or act condition, or event which with notice or passage of time or both would constitute and Event of Default, shall exist or have occurred and be continuing. (e) the liens, encumbrances or security interests listed on Schedule 6.7 hereto, permitted under the other Financing Agreements, if any, or set forth on the title insurance policy(ies) issued to Lender with respect to the Real Property, provided, that, such liens, encumbrances or security interests with respect to the Real Property: (i) do not materially interfere with the use of the Real Property or the ordinary conduct of such Borrower's business as presently conducted or proposed to be conducted thereon and (ii) do not materially impair the value of the affected Real Property. Section 7.6 Loans, Investments, Guaranties, Etc. Each Borrower will not, and will not permit any Guarantor to, directly or indirectly, make any loans or advance money or property to any Person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the Capital Stock or Indebtedness or all or a substantial part of the assets or property of any Person, or guarantee, assume, endorse, or otherwise become responsible (directly or indirectly) for the Indebtedness, performance, obligations or dividends of any Person or agree to do any of the foregoing, except: (a) the Guarantee by each of the Guarantors of the Obligations in favor of Lender or by any other Subsidiary of a Borrower in favor of Lender; (b) the endorsement of instruments for collection or deposit in the ordinary course of business; (c) loans by Salant to, guarantees by Salant of the obligations of and/or investments by Salant in (i) Holding, (ii) Birdhill Limited, a Hong Kong corporation and Manhattan Industries (Far East) Limited, a Hong Kong corporation not to exceed $3,000,000 in the aggregate at any time outstanding, (iii) Salant Caribbean, a Guatemalan corporation, not to exceed $1,000,000 in the aggregate at any time outstanding; (d) investments in the stock of any guaranteeing Subsidiary, which Subsidiary is permitted in accordance with Section 7.3 hereof, and Guarantees by such Subsidiary in favor of Agent of the Obligations of Borrowers to Agent and Lenders; (e) advances to officers and employees in the ordinary course of business not to exceed, in the aggregate for the Borrowers and the Guarantors at any one time outstanding, the sum of (i) $1,000,000 plus (ii) amounts outstanding as of the Effective Date; (f) investments in Cash Equivalents, which shall be pledged and delivered to Agent upon Agent's request; (g) the additional capital investments (which for this purpose shall not include Capital Expenditures), guarantees, insurance bonds, performance or surety bonds described on Schedule 7.6 annexed hereto, which sets forth the parties, amounts, time periods and key terms with respect thereto. Section 7.7 Transactions with Affiliates. Each Borrower will not, and will not permit any Guarantor to, directly or indirectly purchase, acquire or lease any property from, or sell, transfer or lease any property to, any shareholder, officer, director, agent, employee or Affiliate, except on prices or terms no less favorable than would have been obtained in an arm's length transaction with a non-affiliated Person. Section 7.8 Restricted Payments. Each Borrower shall not, directly or indirectly, (i) declare or pay any cash dividends or dividends payable in property other than stock on account of any shares of any class of Capital Stock of such Borrower now or hereafter outstanding, or set apart any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of Capital Stock of such Borrower (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration other than stock or apply or set apart any sums, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing, (ii) pay to any shareholder, officer, director, agent, employee or other Affiliate of such Borrower any management, consulting or other fees or any amount for any management assistance or services rendered by such persons to such Borrower or (iii) make any payments in respect of Indebtedness owing to any shareholder, officer, director or other Affiliate of such Borrower. Section 7.9 Maintenance of Existence. Each Borrower will, and will cause each Guarantor to, at all times preserve, renew and keep in full force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all material Permits, licenses, trademarks, tradenames, approvals, authorizations, leases and contracts necessary to carry on its business as presently or proposed to be conducted; provided, however, that this Section 7.9 shall not prohibit the merger or consolidation of any Guarantor into (i) a Borrower or (ii) another Subsidiary of Salant that is or becomes a Guarantor. Section 7.10 Sale and Leasebacks. Except as permitted in Section 7.5(d), such Borrower will not and will not permit any Guarantor to enter into any arrangement, directly or indirectly, with any Person whereby such Borrower or any Guarantor shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred. Section 7.11 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each Borrower will not, and will not permit any Guarantor to, directly or indirectly, merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with such Borrower or any Guarantor, or sell, assign, lease, transfer, abandon or otherwise dispose of any Capital Stock or Indebtedness to any other Person or any of its property or assets to any other Person (other than (i) sales of Inventory in the ordinary course of business, and (ii) Equipment as permitted under Section 7.14) or wind up, liquidate or dissolve or agree to do any of the foregoing. Section 7.12 Compliance with Laws, Regulations, Etc. (a) Each Borrower shall, and shall cause each Guarantor to, at all times comply in all material respects with all applicable provisions of laws, rules, regulations, licenses, Permits, approvals and orders and duly observe all requirements, of any foreign, Federal, State or local Governmental Authority, including, without limitation, ERISA, the Code, the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended and the rules and regulations thereunder and all other statutes, rules, regulations, orders, permits and stipulations relating to environmental matters and employee health and safety, including, without limitation, all of the Environmental Laws, except for such noncompliance that would not result in fines, penalties, injunctive relief or other liabilities which, in the aggregate, would result in a Material Adverse Effect with respect to Borrowers and the Guarantors. (b) Borrowers shall take prompt and appropriate action to respond to any material non-compliance with any of the Environmental Laws and shall regularly report to Agent on such response. If a Borrower receives any notice of (i) the happening of any event involving the use, spill, discharge or clean-up of any Hazardous Material or (ii) any complaint, order, citation or notice with regard to air emissions, water discharges, noise emissions or any other environmental, health or safety matter affecting such Borrower from any Person, including, but not limited to, the United States Environmental Protection Agency or any state or local environmental agency or authority, then such Borrower shall within five (5) business days of such receipt give written notice of same to Agent and Lenders. Without limiting the generality of the foregoing, whenever there is material non-compliance, or any condition which requires any action by or on behalf of any Borrower in order to avoid any such non-compliance, with any Environmental Law, and such non-compliance could result in fines, penalties, injunctive relief or other liabilities, which, in the aggregate, would result in a Material Adverse Effect, such Borrower shall, at Lender's request and such Borrower's expense: (i) cause an independent environmental engineer acceptable to Agent to conduct an assessment of the site where such Borrower's noncompliance or alleged non-compliance with Environmental Laws has occurred and prepare and deliver to Agent and Lenders a report setting forth the results of such assessment, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof; and (ii) provide to Agent and Lenders a supplemental report of such engineer whenever the scope of the environmental problems, or such Borrower's response thereto or the estimated costs thereof, shall materially change. Section 7.13 Payment of Taxes and Claims. Borrowers shall, and shall cause Guarantors to, duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against them or their properties or assets, except for taxes which are being contested in good faith and by appropriate proceedings and which are adequately reserved against in accordance with GAAP, prior to the date on which penalties attach thereto. Borrowers shall be liable for any sales, transfer, documentary, stamp or similar tax or penalty imposed upon any transaction under this Agreement or any of the other Financing Agreements or giving rise to the Accounts or any other Collateral, provided, that, nothing contained herein shall be construed to require Borrowers to pay or indemnify Lenders and Agent from and against any income or withholding tax attributable to the income of Agent, any Lender or Participant from any amounts charged or paid hereunder to Agent, any Lender or Participant. Section 7.14 Properties in Good Condition; Covenants as to Inventory, Real Property and Equipment (a) Each Borrower shall keep its properties, and shall cause each Guarantor to keep its properties, in good repair, working order and condition (reasonable wear and tear excepted) and, from time to time, make and cause each Guarantor to make all necessary and proper repairs, renewals, replacements, additions and improvements thereto, so that the business carried on may be properly conducted at all times in accordance with prudent business management. (b) All of the Inventory is and will be held for sale or lease, or to be furnished in connection with the rendition of services, in the ordinary course of each Borrower's business, and is and will be fit for such purposes. Each Borrower will keep the Inventory in good and marketable condition, at its own expense. Each Borrower will not, without prior written notice to Lender, acquire or accept any Inventory on consignment or approval and any such Inventory shall at all times be clearly identified on the books and records of such Borrower as Inventory held on consignment or approval and such Inventory shall be separately reported to Agent and not included in the Inventory of such Borrower as reported to Agent. Each Borrower agrees that all Inventory will be produced in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations, and orders thereunder. Each Borrower will conduct a physical count of the Inventory at least once per fiscal year, and at such other times as Agent reasonably requests, but not to exceed, prior to the occurrence and continuance of an Event of Default, two (2) times during any calendar year, and shall promptly supply Lender with a copy of such count accompanied by a report of the Value of such Inventory. Each Borrower will not, without Agent's written consent, sell any material portions of such Borrower's Inventory on a bill-and-hold, sale and return, sale on approval, or other repurchase or return basis. (c) The Equipment, other than any Equipment constituting fixtures as of the date hereof, is now and shall remain personal property and each Borrower shall not permit any of such Equipment to be or become a part of or affixed to real property without (i) prior written notice to Lender and (ii) using such Borrower's best efforts to deliver or cause to be delivered to Agent such agreements and other documentation as are reasonably requested by Lender for the protection and preservation of its security interests and liens, in form and substance reasonably satisfactory to Lender, including, without limitation, waivers and subordination agreements by any landlords or mortgagees of statutory and non-statutory liens and rights of distraint. (d) Each Borrower will not, without Lender's prior written consent, alter or remove any identifying symbol or number on the Equipment. Each Borrower shall not, without Agent's prior written consent, sell, lease as a lessor, or otherwise dispose of any of the Real Property or Equipment; provided, however, that, without Agent's consent, subject to the conditions set forth below, (i) Salant may dispose of obsolete or unusable Equipment used in Salant's Perry Ellis or Private Line business having a book value no greater than $250,000 individually, and $750,000 in the aggregate in any fiscal year, and (ii) upon at least five (5) Business Days prior written notice to Agent, any Borrower may dispose of Real Property and/or Equipment not used in Salant's Perry Ellis and/or Private Line business, provided that each sale transaction pursuant to which any such property is sold is arms-length, such Borrower receives fair market value for such property. In the event any of the Real Property and/or Equipment is sold, transferred or otherwise disposed of with the Lender's prior written consent or as otherwise permitted hereby, such Borrower shall deliver all of the Net Cash Proceeds of any such sale, transfer or disposition to Agent, which proceeds shall be applied to the repayment of the Obligations in such order and manner as Agent shall determine, (e) Borrowers assume all responsibility and liability arising from or relating to the use, sale or other disposition of the Inventory and the Equipment except to the extent of any sale or other disposition thereof by Agent in the exercise of its remedies after an Event of Default as set forth in Section 8.2 hereof. Section 7.15 Appraisals. Upon the request of Agent or the Majority Lenders, Borrowers shall, at Borrowers' expense, no more than once in any twelve (12) month period, but at any time or times as Agent or the Majority Lenders may request on or after an Event of Default, deliver, or cause to be delivered, to Agent and Lenders written reports or appraisals of Borrowers' Inventory in form, scope and methodology, and by an appraiser acceptable to Agent. Such reports or appraisals shall list all items and categories thereof, describing the condition of same and setting forth the lower of cost (calculated on a first-in-first-out basis) or fair market value, in such form as is satisfactory to Agent. Section 7.16 Insurance. Borrowers shall, and shall cause Guarantors to, at all times maintain with financially sound and reputable insurers, insurance with respect to the Collateral and Guarantor Collateral against loss or damage of a kind and in the amounts customarily insured against by corporations of established reputation engaged in the same or similar business and similarly situated as Borrowers and Borrowers shall, and shall cause Guarantors to, maintain public liability insurance against claims for personal injury, death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it and occurring in connection with the use (or otherwise) of any products manufactured or sold by it, workmen's compensation insurance, and business interruption insurance. Borrowers shall, and shall cause Guarantors to, furnish copies of certificates, policies or endorsements to Agent as proof of such insurance, and, if it fails to do so, Agent is authorized, but not required, to obtain such insurance at the expense of Borrowers. All policies shall provide for at least thirty (30) days' prior written notice to Agent of any cancellation or reduction of coverage and that Agent may act as attorney for any Borrower or Guarantor, as the case may be, in obtaining, and at any time following, and during the continuance of an Event of Default, adjusting, settling, amending and canceling such insurance. Borrowers will, and will cause Guarantors to, obtain non-contributory lender's loss payable endorsements to all property and casualty insurance policies in form and substance satisfactory to Agent specifying that the proceeds of such insurance shall be payable to Agent as its interests may appear and further specifying that Agent shall be paid regardless of any act or omission by any Borrower or Guarantor, as the case may be. At its option, Agent may, with the consent of the Majority Lenders, and upon the direction of the Majority Lenders shall, apply any insurance proceeds received by Agent at any time to the cost of repairs or replacement of Collateral or Guarantor Collateral and/or after the occurrence and during the continuance of an Event of Default to payment of the Obligations, whether or not then due, in any order and in such manner as Agent, in its discretion, may determine, or as directed by the Majority Lender or Agent may hold such insurance proceeds as cash collateral for the Obligations as Agent may determine or as directed by the Majority Lenders, except as otherwise specifically provided in any mortgage or deed of trust executed and delivered by any Borrower in favor of Agent. Section 7.17 Compliance with ERISA. Salant shall not, with respect to all employee pension benefit plans maintained by Salant or any Subsidiary: (a) (i) terminate any of such employee pension benefit plans so as to incur any liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction involving any of such employee pension benefit plans or any trust created thereunder that would subject Salant or any Subsidiary to a tax or penalty or other liability on prohibited transactions imposed under section 4975 of the Code or ERISA, (iii) fail to pay to any such employee pension benefit plan any contribution that it is required to pay to such plan, (iv) allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such employee pension benefit plan, (v) allow or suffer to exist any occurrence of a reportable event or any other event or condition that presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such employee pension benefit plan that is a single employer plan, which termination could result in any liability to the Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability with respect to any multi-employer pension plan which is not fully bonded if, in each case, such action or inaction would materially and adversely affect the business, properties, operations or condition, financial or otherwise, of Salant. (b) As used in this Section 7.17, the term "employee pension benefit plans," "employee benefit plans", "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in section 4975 of the Code and ERISA. Section 7.18 Additional Bank Accounts. Each Borrower shall not, and shall not permit any Guarantor to, directly or indirectly, open, establish or maintain any deposit account, investment account or any other account with any bank or other financial institution, other than the Blocked Accounts and the accounts set forth in Schedule 6.14 hereto, except: (a) as to any new or additional Blocked Accounts and other such new or additional accounts which contain any Collateral or Guarantor Collateral or proceeds thereof, with the prior written consent of Agent and subject to such conditions thereto as Agent may establish and (b) as to any accounts used by such Borrower or any Guarantor to make payments of payroll, taxes or other obligations to third parties, after prior written notice to Agent. Section 7.19 Notice of Default. Promptly upon becoming aware of the existence of any condition or event that constitutes an Event of Default pursuant to the provisions of this Agreement or the other Financing Agreements, Borrower shall give Agent written notice thereof specifying the nature of such condition or event and the actions that such Borrower has taken, is taking and/or proposes to take to remedy such Event of Default. Section 7.20 Financial Statements and Other Information. (a) Borrowers shall promptly furnish to Agent and Lenders all such financial and other information as Agent shall reasonably request relating to the Collateral and the Guarantor Collateral and the assets, businesses and operations of Borrowers, and notify the auditors and accountants of Borrowers that Agent is authorized to obtain such information directly from them. Without limiting the foregoing, Salant shall furnish to Agent and Lenders, in such detail as Agent shall request, the following: (i) As soon as available, but in any event not later than one hundred five (105) days after the close of each fiscal year, audited consolidated balance sheet, consolidated statement of operations and consolidated statement of cash flows for Salant and its Subsidiaries for such fiscal year, and the accompanying notes thereto, and, (x) if there is material business activity by any Subsidiary, (y) if the assets of Salant Canada Inc. are $1,000,000 or more at any time or (z) if the assets of any other Subsidiary are at any time $1,000,000 or more, unaudited consolidating balance sheets, statements of operations and statements of cash flows for Salant and any such Subsidiary for such fiscal year, and the accompanying notes thereto, setting forth in comparative form figures for the previous fiscal year, all in reasonable detail, fairly presenting the financial position and the results of operations of Salant and any such Subsidiary as at the date thereof and for the fiscal year then ended, and prepared in accordance with GAAP consistently applied. Such audited consolidated statements of Salant and its Subsidiaries shall be examined in accordance with generally accepted auditing standards by and accompanied by a report thereon unqualified as to scope of independent certified public accountants selected by Salant and satisfactory to Agent. (ii) As soon as available, but in any event not later than sixty (60) days after the close of each fiscal quarter other than the fourth quarter of a fiscal year (which shall be delivered within one hundred five (105) days), consolidated and consolidating unaudited balance sheets of Salant and its Subsidiaries as at the end of such quarter, and consolidated and consolidating unaudited statements of operations and statements of cash flow for Salant and its Subsidiaries for such quarter and for the period from the beginning of the fiscal year to the end of such quarter, together with the accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and results of operation of Salant and its Subsidiaries as at the date thereof and for such periods, prepared in accordance with GAAP consistently applied (subject to normal year-end adjustments) provided, however, that consolidating statements shall be provided only with respect to Salant and any Subsidiary which has material business activity or assets in the amount of $1,000,000 or more. Such statements shall be certified to be correct by the chief financial officer of Salant, subject to normal year-end adjustments. (iii) As soon as available, but in any event no later than sixty (60) days after the close of each fiscal quarter other than the fourth quarter of each fiscal year, the Form 10-Q filed by Borrower with the Securities and Exchange Commission. (iv) As soon as available, but in any event not later than seventy-five (75) days after the end of each January, sixty (60) days after the end of each February, and thirty (30) days after the end of each other month, consolidated unaudited balance sheets of Salant and its Subsidiaries as at the end of such month, and consolidated unaudited statements of operations for Salant and its Subsidiaries for such month and for the period from the beginning of the fiscal year to the end of such month, all in reasonable detail, fairly presenting the financial position and results of operation of Salant and its Subsidiaries as at the date thereof and for such periods, and prepared in accordance with GAAP consistently applied (except that such interim financial statements shall not include accompanying notes and shall be subject to normal year-end adjustments). Such statements shall be certified to be correct by the chief financial officer of Salant, subject to normal year-end adjustments. (v) With each of the audited financial statements delivered pursuant to Section 7.20(a)(i) above, a certificate of the independent certified public accountants that examined such statements to the effect that they have reviewed and are familiar with the Financing Agreements and that, in examining such financial statements, they did not become aware of any fact or condition which then constituted an Event of Default, except for those, if any, described in reasonable detail in such certificate. (vi) Simultaneously with the delivery of each of the annual audited financial statements and quarterly Form 10-Q's as set forth herein, Agent and Lenders shall receive a certificate of the chief financial officer of Salant (A) setting forth in reasonable detail the calculations required to establish that Salant was in compliance with the covenants set forth in Sections 7.21, 7.22, 7.23 and 7.24 hereof during the period covered in such financial statements or Form 10-Q, as the case may be; and (B) stating that, except as explained in reasonable detail in such certificate, (1) all of the representations, warranties and covenants of Borrowers contained in this Agreement and the other Financing Agreements are correct and complete as at the date of such certificate and (2) no Event of Default then exists or existed during the period covered by such financial statements or Form 10-Q, as the case may be. If such certificate discloses that a representation or warranty is not correct or complete, or that a covenant has not been complied with, or that an Event of Default existed or exists, such certificate shall set forth what action Borrowers have taken or proposes to take with respect thereto. (vii) No sooner than ninety (90) days and no later than fifteen (15) days prior to the beginning of each fiscal year of Salant, projected consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flow for Salant and its Subsidiaries as at the end of and for each month of such fiscal year. (viii) Promptly after delivery thereof, any management letters and reports by such independent certified public accountants to Salant containing financial information with respect to Salant and/or its Subsidiaries or any summary or analysis thereof. (ix) Collateral and financial reports and schedules to be delivered by Borrowers as and when set forth on Schedule 7.20(a)(ix) hereto, together with any further financial and other information regarding the Collateral, as Agent may reasonably request from time to time. (b) Salant will, and will cause each Guarantor to, promptly notify Lender in writing of any investigation, action, suit, proceeding or claim which if adversely determined could reasonably be expected to have a Material Adverse Effect. (c) Salant will, and will cause each Guarantor to, promptly provide Lender with any material information, notices, requests or reports filed with, or furnished to, or received from any governmental or regulatory authority or furnished to the shareholders of Salant. (d) Salant shall promptly notify Agent of any of the following events: (i) any Material Contract of Salant or any of its Subsidiaries is terminated or any new Material Contract is entered into (in which event Salant shall provide Agent with a copy of such Material Contract); or (ii) any of the material terms (other than price) upon which material suppliers of Salant or any of its Subsidiaries do business with Salant or any Subsidiary are changed or amended in any manner adverse to Salant or such Subsidiary in any material respect; or (iii) any notification of violation of any law or regulation shall have been received by Salant or any of its Subsidiaries from any Governmental Authority the results of which are reasonably likely to have a Material Adverse Effect. (e) Salant shall promptly provide Agent and Lenders such budgets, forecasts, projections and other information respecting the business operations and financial or other condition of Salant and its Subsidiaries, as Agent may, from time to time, reasonably request. (f) Agent and Lenders are hereby authorized to deliver a copy of any financial statement or any other information relating to the business, operations or financial condition of Salant or its Subsidiaries, which may be furnished to it hereunder or otherwise, to any regulatory body or agency or other Governmental Authority having jurisdiction over Agent or Lenders or upon notice to Salant (to the extent permitted under applicable law), to any court or to any other Person which shall, or shall have any right or obligation to, succeed to all or any part of Agent or any Lender's interests in any of the Loans, this Agreement, the other Financing Agreements or the Collateral or the Guarantor Collateral, including, without limitation, any assignee pursuant to Section 11.6 hereof or any Participant who shall have agreed to treat such information as confidential to the extent provided in Section 10.7 hereof. (g) Salant hereby irrevocably authorizes and directs all accountants, auditors or other third parties to deliver to Agent upon Agent's reasonable request, at Salant's expense, copies of the financial statements, and other accounting records relating to Salant and its Subsidiaries of any nature in their possession and to disclose to Agent and any Lender any information they may have regarding the business affairs and financial condition of Salant and its Subsidiaries. Section 7.21 Consolidated Tangible Net Worth. Salant shall maintain as of the end of each fiscal quarter during each period set forth below Consolidated Tangible Net Worth in an amount not less than the amount set forth below opposite each such period: =============================================================================== Minimum Consolidated Period Tangible Net Worth - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Beginning of the fourth fiscal quarter of 2000 through the end of the third fiscal quarter of 2001 $55,000,000 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Beginning of the fourth quarter of 2001 and thereafter $60,000,000 =============================================================================== Section 7.22 Minimum Pre-Tax Income. Except for the last fiscal quarter of 2001 and the first fiscal quarter of 2002, Salant shall achieve cumulative pre-tax income of at least $5,000,000 for each twelve month period through the end of each fiscal quarter during the effectiveness of this Agreement on any renewal hereof. Notwithstanding anything to the contrary contained in this Section 7.22, write-offs by Salant for intangible assets (including, without limitation, trademarks and goodwill) which Salant would otherwise be required to include in the determination of Salant's pre-tax loss or income under this Section 7.22 shall be excluded from such determinations. Section 7.23 Minimum Interest Coverage Ratio. Salant shall not permit the ratio of (a) the sum of (i) the consolidated net income (including royalty income) from continuing operations (excluding any unusual or non recurring items of income or expense) before interest and taxes and (ii) the consolidated depreciation and amortization expenses of Salant and its Subsidiaries for such computation period to (b) the consolidated interest expense (including all imputed interest on Capitalized Lease Obligations) of Salant and its Subsidiaries during the computation period, to be less than 5.0:1.00 for the twelve month period through the end of the fourth fiscal quarter of 2000 and for each twelve month period through the end of each fiscal quarter thereafter. Section 7.24 Capital Expenditures. Salant shall not, and shall not permit any Subsidiary to, directly or indirectly, make, whether through purchase, capital leases or otherwise, Capital Expenditures on a limited cumulative basis in fiscal 1999 or in any fiscal year thereafter in excess of (i) $8,000,000, plus (ii) in each year after fiscal 1999, fifty percent (50%) of the $8,000,000 of Capital Expenditures permitted and not made in the fiscal year immediately preceding such fiscal year; provided, that, in no event shall any Capital Expenditures permitted and not made in one fiscal year be carried forward and used in any fiscal year pursuant to clause (ii) hereof other than in the immediately succeeding fiscal year. Section 7.25 After Acquired Real Property. If Salant or any of its Subsidiaries hereafter acquires any Real Property, fixtures or any other property that is of the kind or nature described in the Mortgages and such Real Property, fixtures or other property at any one location has a fair market value in an amount equal to or greater than $500,000 (or if an Event of Default, or act, condition or event which with notice or passage of time or both would constitute an event which with notice or passage of time or both would constitute an Event of Default exists, then regardless of the fair market value of such assets), or without limiting any other rights of Agent or Lenders, or duties or obligations of Borrowers, upon Agent's request, Salant shall, or shall cause its Subsidiary, to execute and deliver to Agent a mortgage, deed of trust or deed to secure debt, as Agent may reasonably determine, in form and substance substantially similar to the Mortgages and as to any provisions relating to specific state laws satisfactory to Agent and in form appropriate for recording in the real estate records of the jurisdiction in which such Real Property or other property is located granting to Agent a first lien, mortgage and security interest in such Real Property (except as would otherwise be permitted under the Mortgages or as otherwise consented to in writing by Agent or as otherwise permitted herein) and such other agreements, documents and instruments as Agent may reasonably require in connection therewith. Section 7.26 Further Assurances. Each Borrower has executed or will contemporaneously herewith execute and deliver to Agent such of the other Financing Agreements to which it is a party and financing statements pursuant to the UCC, in form and substance reasonably satisfactory to Agent. Each Borrower shall, and shall cause each Guarantor to, at Borrowers' expense, at any time or times duly execute and deliver, or shall cause to be duly executed and delivered, (a) such further agreements, instruments and documents, including, without limitation, additional security agreements, mortgages, deeds of trust, deeds to secure debt, collateral assignments, Uniform Commercial Code financing statements or amendments or continuations thereof, and (b) on a best efforts basis, Collateral Access Agreements with respect to the Collateral and the Guarantor Collateral. In addition, each Borrower shall, and shall cause each Guarantor to, do or cause to be done such further acts as may be necessary in Agent's reasonable opinion to evidence, perfect, maintain and enforce its security interests in the Collateral and Guarantor Collateral (other than that portion of the Collateral and Guarantor Collateral consisting of registered or licensed motor vehicles) and the priority thereof and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Where permitted by law, each Borrower hereby authorizes Agent to execute and file one or more Uniform Commercial Code financing statements covering the Collateral and the Guarantor Collateral signed only by Agent. Upon the request of Agent, at any time and from time to time, each Borrower shall, and shall cause each Guarantor to, at its cost and expense, do, make, execute, deliver and record, register or file, financing statements, mortgages, deeds of trust, deeds to secure debt, and other instruments, acts, pledges, assignments and transfers (or cause the same to be done) and will deliver to Agent such instruments evidencing items of Collateral or Guarantor Collateral as may be reasonably requested by Agent. Section 7.27 Borrowers Jointly and Severally Liable. Borrowers acknowledge, covenant and agree that Borrowers are jointly and severally liable for the payment and performance in full of all Obligations on the terms and subject to the conditions set forth in his Agreement and the other Financing Agreements. SECTION 8. EVENTS OF DEFAULT AND REMEDIES. Section 8.1 Events of Default The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder: (a) any Borrower shall fail to pay any of the Obligations when due; or (b) any representation, warranty or material statement of fact, other than as set forth in Section 6.11 above, when made by or on behalf of any Borrower or any Guarantor to Agent or any Lender is false or misleading in any material respect; or (c) any representation, warranty or material statement of fact made by any Borrower as set forth in Section 6.11 above when made by or on behalf of Borrower is false or misleading (any of the foregoing being hereinafter referred to as a "Misrepresentation") and the actual facts and/or circumstances with respect to which the Misrepresentation was made materially and adversely affect the business, properties, operations or condition, financial or otherwise, of Borrowers taken as a whole; or (d) any Borrower or any Guarantor shall fail to observe or perform any covenant or agreement contained in this Agreement, the other Financing Agreements or in any other document or instrument referred to herein or therein other than as described in Section 8.1(a) above; provided that if such failure is capable of being remedied, such failure continues unremedied for thirty (30) days after Agent has notified Salant thereof; or (e) an "event of default" (as defined in any of the other Financing Agreements) shall occur; or (f) Michael Setola ceases to be Chief Executive Officer of Salant and within ninety (90) days thereof a replacement Chief Executive Officer reasonably satisfactory to Agent is not appointed; or (g) an event of default shall occur and be continuing under any of the Perry Ellis Licenses that would enable Perry Ellis International Inc. to terminate any one of the agreements set forth on Schedule 8.1(g); or (h) any Borrower or any Guarantor shall default in the payment of any amounts at any time due on any Indebtedness in excess of $1,000,000 at any time owing to any one person other than Lenders or in the performance of any other material term or covenant in respect of such Indebtedness or other agreement relating thereto or securing same if the effect thereof is to accelerate, or permit the holder(s) of such Indebtedness to accelerate the maturity of such Indebtedness; or (i) a judgment not covered by insurance of the Borrowers is rendered against any Borrower or any Guarantor in excess of $300,000 in any one case or in excess of $1,000,000 in the aggregate and the same shall remain undischarged for a period in excess of forty-five (45) days or execution shall at any time not be effectively stayed; or (j) any Borrower or any Guarantor shall be generally unable to pay its debts as they mature, suspend or discontinue doing business for any reason, become insolvent, call a meeting of creditors or have a creditors' committee appointed, or shall admit in writing its inability to pay its debts as they become due or shall commence any action or proceeding for the appointment of any trustee, receiver, custodian or liquidator of such Borrower or such Guarantor of all or any part of their respective properties and assets; or (k) any Borrower or any Guarantor shall commence any action or proceeding for relief under the Bankruptcy Code or any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Bankruptcy Code or any other present or future statute, law or regulation or shall take any corporate action to authorize any of such actions or proceedings; or (l) any Borrower or any Guarantor shall have commenced against it any action or proceeding for relief under the Bankruptcy Code or any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Bankruptcy Code or any other present or future statute, law or regulation, or any action or proceeding for the appointment of any trustee, receiver, custodian or liquidator of any Borrower or any Guarantor or all or any part of their respective properties or assets, which is not dismissed within sixty (60) days of its commencement, or any Borrower or any Guarantor shall file any answer admitting or not contesting the allegations of a petition filed against it in any such proceeding or by any act or omission indicates its consent to, acquiescence in or approval of, any such action or proceeding or if the relief requested is granted sooner; or (m) any Guarantee or any other guarantee of the Obligations shall at any time cease to be in full force and effect, or shall be declared void or invalid or the validity or enforceability thereof shall be contested by any Guarantor or any Guarantor shall deny it has any further liability or obligation, or shall fail to perform its obligations, under any Guarantee; or (n) any disputed claim as of the date of this Agreement of an unsecured creditor that relates to litigation commenced against Salant prior to the filing of Salant's chapter 11 bankruptcy case and (x) that is allowed in Salant's chapter 11 bankruptcy case pursuant to a final order of the Bankruptcy Court in an amount which is $3,000,000 or more than the insurance coverage, if any, that has been agreed to by, or required to be paid by the applicable insurance carrier for any such claim and (y) that requires payment in the amount of $3,000,000 or more; or (o) there shall be a material adverse change in the business, properties, operations or condition, financial or otherwise, of Borrowers and Guarantors taken as a whole after the date hereof. Section 8.2 Remedies. (a) Without limiting Agent's rights to demand payment sooner, for the ratable benefit of Lenders, as provided in this Agreement, upon or at any time after the occurrence and continuance or existence of any one or more of such Events of Default, upon termination of this Agreement or the other Financing Agreements, or if this Agreement and the other Financing Agreements are not renewed, in addition to any other rights Agent or any Lender may have under the Financing Agreements or otherwise: (i) Agent shall at the request, or may with the consent, of the Majority Lenders, declare the Commitments of each Lender terminated, whereupon the Commitment of each Lender will terminate immediately (such that no more Loans shall be made or Letter of Credit Accommodations provided hereunder), without presentment for payment, demand, notice of dishonor or notice of protest or any other or further notice, all of which are hereby expressly waived by Borrower; and/or (ii) Agent shall at the request, or may with the consent, of the Majority Lenders, declare any or all of the Obligations to be immediately due and payable, together with interest at the highest rate of interest hereunder until fully and indefeasibly paid, without presentment for payment, demand, notice of dishonor or protest or any or other further notice, all of which are hereby expressly waived by Borrowers (provided, that, upon the occurrence of any Events of Default described in Sections 8.1(k) or 8.1(l), all Obligations shall automatically become immediately due and payable); and (iii) without further notice to any Borrower, Agent, for the ratable benefit of Lenders, may appropriate, set off and apply to the payment of any or all of the Obligations, any or all Collateral, in such manner as Agent shall determine, enforce payment of any Collateral, settle, compromise or release in whole or in part, any amounts owing on the Collateral, make allowances and adjustments with respect thereto, issue credits in Agent's or any Borrower's name, sell, assign and deliver the Collateral (or any part thereof), at public or private sale, at broker's board, for cash, upon credit or otherwise, at Agent's option and discretion, and Agent may bid or become purchaser at any such sale, if public, free from any right of redemption which is hereby expressly waived; (iv) without limiting the generality of the foregoing, Agent and Lenders are hereby authorized at any time and from time to time, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by Agent or any Lender to or for the credit or the account of any Borrower against any and all of the Obligations, whether or not then due and payable; (v) Agent, for the ratable benefit of Lenders, shall have the right, without notice to any Borrower (except as otherwise expressly provided herein), at any time and from time to time in its discretion, with or without judicial process or the aid or assistance of others and without cost to Agent or Lenders (A) to enter upon any premises on or in which any of the Inventory or Equipment may be located and, without resistance or interference by any Borrower, take possession of the Inventory or Equipment, (B) to complete processing, manufacturing and repair of all or any portion of the Inventory or Equipment, (C) to sell, foreclose or otherwise dispose of any part or all of the Inventory or Equipment on or in any premises of any Borrower or premises of any other party, (D) to require any Borrower, at its expense, to assemble and make available to Agent any part or all of the Inventory or Equipment at any reasonable place and time designated by Agent, and (E) to remove any or all of the Inventory or Equipment from any premises on or in which the same may be located, for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose. (b) Agent, for the ratable benefit of Lenders, shall have all of the rights and remedies of a secured party under the UCC or applicable law of any State in which any Collateral may be situated, in addition to all of the rights and remedies set forth in this Agreement and the other Financing Agreements, and in any instrument or document referred to herein or therein, and/or under any other applicable law relating to this Agreement, the other Financing Agreements, the Obligations or the Collateral. (c) Each Borrower agrees that the giving of ten (10) days notice to such Borrower by Agent at such Borrower's address set forth below, designating the place and time of any public sale or of the time after which any private sale or other intended disposition of the Collateral is to be made, shall be deemed to be reasonable notice thereof and each Borrower waives any other notice with respect thereto. (d) The net cash proceeds resulting from the exercise of any of the foregoing rights or remedies shall be applied by Agent, for the ratable benefit of Lenders, to the payment of the Obligations in such order as Agent may elect, and each Borrower shall remain liable to Agent and Lenders for any deficiency. Without limiting the generality of the foregoing, if Agent, for the ratable benefit of Lenders, enters into any credit transaction, directly or indirectly, in connection with the disposition of any Collateral, it shall have the option, at any time, in its discretion, to reduce the Obligations by the principal amount of such credit transaction or to defer the reduction thereof until actual receipt by Agent, for the ratable benefit of Lenders, of cash or other immediately available funds in connection therewith. (e) In the event Agent, for the ratable benefit of Lenders, institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy or otherwise, each Borrower hereby irrevocably waives (i) the posting of any bond, surety or security with respect thereto which might otherwise be required, (ii) any demand for possession prior to the commencement of any suit or action to recover the Collateral, and (iii) any requirement that Agent retain possession and not dispose of any Collateral until after trial or final judgment. (f) Agent may, at its option, cure any default by any Borrower under any agreement with any Person, which constitutes, or with notice or passage of time or both would constitute, an Event of Default hereunder or under any of the other Financing Agreements, or pay or bond on appeal any judgment entered against any Borrower (irrespective of the amount of said judgment or the time elapsed since entry thereof), and charge such Borrower's account(s) therefor, such amounts to be repayable by such Borrower on demand, together with interest thereon at the highest rate of interest payable hereunder; provided, however, Agent shall be under no obligation to effect such cure, payment or bonding and shall not, by making any payment for such Borrower's account(s), be deemed to have assumed any obligation or liability of such Borrower. (g) The enumeration of the foregoing rights and remedies is not intended to be exclusive, and such rights and remedies are in addition to and not by way of limitation of any other rights or remedies Agent may have under the UCC or other applicable law. Agent shall have the exclusive right to determine which rights and remedies, and in which order any of the same, are to be exercised, and to determine which Collateral is to be proceeded against and in which order, and the exercise of any right or remedy shall not preclude the exercise of any others, all of which shall be cumulative. (h) No act, failure or delay by Agent or any Lender shall constitute a waiver of any of the rights and remedies of Agent and Lenders. No single or partial waiver by Agent or Lenders of any provision of this Agreement or any of the other Financing Agreements, or breach or default thereunder, or of any right or remedy which Agent and Lenders may have shall operate as a waiver of any other provision, breach, default, right or remedy or of the same provision, breach, default, right or remedy on a future occasion. (i) Each Borrower waives presentment, notice of dishonor, protest and notice of protest of all instruments included in or evidencing any of the Obligations or the Collateral and any and all notices or demands whatsoever (except as expressly provided herein). Agent may, at all times, for the ratable benefit of Lenders, proceed directly against Borrower to enforce payment of the Obligations and shall not be required to take any action of any kind to preserve, collect or protect any rights in the Collateral SECTION 9. COLLECTION AND ADMINISTRATION Section 9.1 Collections; Management of Collateral. (a) All invoices evidencing Accounts shall indicate that remittances with respect thereto are to be made to Borrowers at the address of a lock box controlled by the Agent pursuant to an agreement between Agent and the Reference Bank (as it may be amended, the "Lock Box Agreement"), of which address if different from the address of such lock box to which remittances are currently made, Agent shall notify Salant in writing. All such remittances shall be deposited in Agent's account with the Reference Bank pursuant to the Lock Box Agreement (the "Payment Account"). (b) Any checks or other forms of remittance which may be received directly by any Borrower in respect of the Accounts and other Collateral shall not be commingled with such Borrower's property, but shall be segregated, held by such Borrower in trust for Agent as the exclusive property of Agent, for the ratable benefit of Lenders, and immediately deposited by such Borrower, in the identical form received, with proper endorsements, into such account or accounts as Agent may designate from time to time. All funds received by Agent in respect of Accounts or other Collateral by wire transfer of federal funds or in other immediately available funds will be credited to the Payment Account upon receipt of such funds. All amounts received by Agent in respect of Accounts or other Collateral in remittances which are not immediately available, will be credited to the Payment Account as and when such remittances have become immediately available. All bank fees and expenses relating to the Payment Account, the Lock Box Agreement and the Blocked Accounts (as defined below) shall be charged to any of Borrower's account(s) maintained by Agent. Each Borrower shall jointly and severally indemnify and hold Agent harmless from and against any and all losses, costs, damages and expenses (including reasonable attorneys' fees and disbursements) incurred by Agent in connection with the Lock Box Agreement, the Blocked Accounts or the ownership or maintenance of such lock box or the deposit, collection or processing of any item deposited therein. (c) In addition to, and not in limitation of the provisions contained in Sections 9.1(a) and (b) hereof, each Borrower shall, at its expense, in the manner requested by Agent from time to time, direct that all proceeds of Accounts, letters of credit, banker's acceptances and other proceeds of Collateral (i) be payable to a lock box or post office box designated by Agent and under its control and/or deposited into an account maintained in Agent's name and under its control and in connection therewith shall execute such lock box and other agreement as Agent in its discretion shall specify, and/or (ii) be remitted to blocked accounts ("Blocked Accounts") with such banks as are acceptable to Agent. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance satisfactory to Agent, providing that all items received or deposited in the Blocked Accounts are the property of Agent and Lenders according to their interests hereunder, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Agent as Agent may from time to time designate for such purpose. Each Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Agent, whether on the Accounts or as proceeds of Inventory, Equipment or other Collateral or otherwise shall be the property of Agent and Lenders according to their interests hereunder. Section 9.2 Payments. (a) All Obligations shall be payable to the Payment Account as designated under Section 9.1 or such other place as Agent may designate from time to time. The Obligations shall be payable upon the effective date of termination or non-renewal or maturity of the Credit Facility, or earlier upon an Event of Default, or otherwise as provided elsewhere herein or in the other Financing Agreements. Agent may apply payments received or collected from any Borrower or for the account of any Borrower (including, without limitation, the monetary proceeds of collections or of realization upon any Collateral) to such of the Obligations in respect of the Loans, whether or not then due, and to such other Obligations then due, in each case in such order and manner as Agent determines. Agent shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Obligations. Upon the request of Agent, each Borrower shall execute and deliver to Agent one or more promissory notes, in form and substance satisfactory to Agent, to evidence further the Loans, or any portion thereof. (b) Except as otherwise provided in this Section 9.2(b), aggregate principal and interest payments shall be apportioned among all outstanding Loans to which such payments relate and payments of the fees required to be paid by Borrowers to Agent for the account of the Lenders hereunder shall, as applicable, be apportioned ratably among the Lenders, in each case according to their Pro Rata Shares. All payments shall be remitted to Agent. Agent shall distribute to each Lender at its primary address set forth on the appropriate signature page hereof, or at such other address as such Lender may designate in writing to Agent, such funds as it may be entitled to receive in the manner provided in Section 3.12. The foregoing apportionment of payments is solely for the purpose of determining the obligations of Borrowers hereunder and, notwithstanding such apportionment, any Lender may on its books and records allocate payments received by it in a manner different from that contemplated hereby. No such different allocation shall alter the rights and obligations of Borrowers under this Agreement determined in accordance with the apportionments contemplated by this Section 9.2(b). (c) If after receipt of any payment of, or proceeds applied to the payment of, all or any part of the Obligations, Agent or any Lender is for any reason required to surrender such payment or proceeds to any Person, because such payment or proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, or a diversion of trust funds, or for any other reason, then the Obligations or any part thereof intended to be satisfied shall be revived, reinstated and continue and this Agreement shall continue in full force as if such payment or proceeds had not been received by Agent or such Lender and Borrowers shall be jointly and severally liable to pay to Agent or such Lender, and hereby does indemnify Agent and Lenders and hold them harmless for the amount of such payment or proceeds surrendered. The provisions of this Section 9.2(c) shall be and remain effective notwithstanding any contrary action which may have been taken by Agent or any Lender in reliance upon such payment or proceeds, and any such contrary action so taken shall be without prejudice to the rights of Agent and Lenders under this Agreement and shall be deemed to have been conditioned upon such payment or proceeds having become final and irrevocable. The provisions of this Section 9.2(c) shall survive the termination of this Agreement and the other Financing Agreements. (d) At Agent's option, all principal, interest, fees, commissions, costs, expenses, or other charges hereunder, under the other Financing Agreements or in connection herewith or therewith, and any and all Loans, may be charged directly to any account(s) of any Borrower maintained by Agent. (e) Each Borrower shall make all payments in respect of the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholdings, restrictions or conditions of any kind or nature whatsoever. Section 9.3 Sharing of Payments, Etc. (a) Each Borrower agrees that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim Agent or any Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances held by it for the account of such Borrower at any of its offices, in dollars or in any other currency, against any principal of or interest on any Loans owed to such Lender or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to such Borrower), in which case it shall promptly notify such Borrower and Agent thereof; provided, that, such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender (including Agent) shall obtain from any Borrower payment of any principal of or interest on any Loan owing to it or payment of any other amount under this Agreement or any other Financing Agreement through the exercise of any right of setoff, banker's lien or counterclaim or similar right or otherwise (other than from Agent as provided herein), and, as a result of such payment, such Lender shall have received more than its Pro Rata Share of the principal of or interest on the Loans or such other amounts then due hereunder by Borrowers to such Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount of such excess and simultaneously purchase from such other Lenders a participation in the Loans or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) in accordance with their respective Pro Rata Shares. Amounts received by Agent under this Section 9.3 shall be treated as payments received from Borrowers under Section 9.2 hereof. To such end all Lenders shall make appropriate adjustments among themselves (by the resale of participation sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) Each Borrower agrees that any Lender so purchasing such a participation (or direct interest) may exercise, in a manner consistent with this Section 9.3, all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of Borrowers. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 9.3 applies, such Lender shall, to the extent practicable, assign such rights to Agent for the benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section 9.3 to share in the benefits of any recovery on such secured claim. Section 9.4 Borrower's Loan Account. (A) Subject to the provisions of subsection(B) of this Section 9.4, Agent shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other Obligations and the Collateral, (b) all payments made by or on behalf of any Borrower and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Agent's customary practices as in effect from time to time. All Collateral or other collateral security held by or granted to Agent or Lenders by any Borrower or any third persons shall be security for the payment and performance of any and all Obligations of Borrowers to Agent and Lenders (including, but not limited to, the Loans), notwithstanding the maintenance of separate accounts for each Borrower or third persons or the existence of the Revolving Credit Notes or any other notes. B. In order to utilize the collective borrowing powers of the Borrowers (collectively the "Collective Borrowers") in the most efficient and economical manner, and in order to facilitate the handling of the accounts of the Collective Borrowers on the Agent's books, the Collective Borrowers have requested, and the Agent has agreed, notwithstanding anything to the contrary contained in this Agreement, to handle accounts of the Collective Borrowers on the Agent's books on a combined basis, all in accordance with the following provisions: (a) In lieu of maintaining separate accounts on the Agent's books in the name of each of the Collective Borrowers, the Agent shall maintain one account under the name: Salant (herein the "Collective Account"). Confirmatory assignments of Accounts will continue to be made to the Agent by each of the Collective Borrowers. Loans and advances made by the Agent to any of the Collective Borrowers will be charged to the Collective Account indicated above, along with any charges and expenses under this Agreement. The Collective Account will be credited, with all amounts received by the Agent from any of the Collective Borrowers or from others for their account including all amounts received by the Agent in payment of Accounts assigned to the Agent as provided in this Agreement; (b) Each month the Agent will render to the Collective Borrowers one extract of the combined Collective Account, which shall be deemed to be an account stated as to each of the Collective Borrowers and which will be deemed correct and accepted by all of the Collective Borrowers unless the Agent receives a written statement of exceptions from them within sixty (60) days after such extract has been mailed by the Agent. It is expressly understood and agreed by each of the Collective Borrowers that the Agent shall have no obligation to account separately to any of the Collective Borrowers; (c) Requests for Loans and advances may be made by Salant as agent for the Collective Borrowers and the Agent is hereby authorized and directed to accept, honor and rely on such instructions and requests, subject to the limitation and provisions set forth in this Agreement. It is expressly understood and agreed by each of the Collective Borrowers that the Agent shall have no responsibility to inquire into the correctness of the apportionment, allocation, or disposition of (x) any Loans and advances made to any of the Collective Borrowers or (y) any of the Agent's expenses and charges relating thereto. All Loans and advances are made for the Collective Account; (d) The Collective Borrowers jointly and severally unconditionally guarantee to the Agent and the Lenders the prompt payment in full of (A) all Loans and advances made and to be made by the Agent and/or the Lenders to any of them under this Agreement, as well as (B) all other Obligations of the Collective Borrowers to the Agent and/or the Lenders and hereby expressly confirm in all respects the Guaranties executed by each of the Collective Borrowers in the Agent's and/or the Lenders' favor as more fully set forth therein; (e) All Accounts assigned to the Agent for the benefit of the Lenders by any of the Collective Borrowers and any other collateral security now or hereafter given to the Agent and/or the Lenders by any of the Collective Borrowers (be it Accounts or otherwise), shall secure all Loans and advances made by the Agent and/or the Lenders to any of the Collective Borrowers, and shall be deemed to be pledged to the Agent as security for any and all other Obligations of the Collective Borrowers to the Agent and/or the Lenders as set forth under this Agreement, the Guaranties, or any other agreements between the Agent and/or the Lenders and any of the Collective Borrowers; (f) It is understood that the handling of the accounts of the Collective Borrowers in a combined fashion, as more fully set forth herein, is done solely as an accommodation to the Collective Borrowers and at their request, and that the Agent shall incur no liability to the Collective Borrowers as a result hereof. To induce the Agent and the Lenders to do so, and in consideration thereof, each of the Collective Borrowers hereby agrees to indemnify the Agent and the Lenders and hold the Agent and the Lenders harmless against any and all liability, expense, loss or claim of damage or injury, made against the Agent and/or the Lenders by any of the Collective Borrowers or by any third party whosoever, arising from or incurred solely by reason of (1) the method of handling the accounts of the Collective Borrowers as herein provided, (2) the Agent relying on any instructions of any of the Collective Borrowers, or (3) any other action taken by the Agent in accordance with this subparagraph (b) of Paragraph 3.6 of Section 3 of this Agreement; and (g) The foregoing request was made because the Collective Borrowers are engaged in an integrated operation that requires financing on a basis permitting the availability of credit from time to time to each of the Collective Borrowers as required for the continued successful operation of each of the Collective Borrowers. Each of the Collective Borrowers expects to derive benefit, directly or indirectly, from such availability since the successful operation of each of the Collective Borrowers is dependent on the continued successful performance of the functions of the integrated group. In addition, the Companies have informed the Agent that: (A) Salant, in order to increase the efficiency and productivity of each of the other Collective Borrowers, has centralized in itself a cash management system which entails, in part, central disbursement and operating accounts in which it provides the working capital needs of each of the other Collective Borrowers and manages and timely pays the accounts payable of each of the other Collective Borrowers; (B) Salant, is further enhancing the operating efficiencies of the other Collective Borrowers by purchasing, or causing to be purchased, in its name for its account all materials, supplies, inventory and services required by the other Collective Borrower which will result in reducing the operating costs of the other Collective Borrowers; and (C) Since all of the Collective Borrowers are now engaged in an integrated operation that requires financing on an integrated basis and since each Collective Borrower expects to benefit from the continued successful performance of such integrated operations and in order to best utilize the collective borrowing powers of each Collective Borrower in the most effective and cost efficient manner and to avoid adverse effects on the operating efficiencies of each Collective Borrower and the existing back-office practices of the Collective Borrowers, each Collective Borrower has requested that all Loans and advances be disbursed solely upon the request of Salant and to bank accounts managed solely by Salant and that Salant will manage for the benefit of each Collective Borrower the expenditure and usage of such funds. Section 9.5 [Intentionally Omitted] Section 9.6 Right of Inspection; Access. Agent, Lenders and their representatives shall, at any time during regular business hours after reasonable notice to Salant prior to an Event of Default and at any time and without notice on or after an Event of Default, have free access to and right of inspection of the Collateral and have full access to and the right to examine and make copies of the books and records of Borrowers to confirm and verify all Accounts, to perform general audits and to do whatever else Agent or any Lender deems necessary to protect the interests of Agent and Lenders. Agent may at any time after the declaration by Agent of an Event of Default, and during the continuance thereof, remove from the premises of any Borrower or require any Borrower or any accountants and auditors employed by any Borrower to deliver any books and records and Agent and Lenders may, without cost or expense to any of them, use such of any Borrower's personnel, supplies, computer equipment and space at its places of business as may be necessary for the handling of collections. Section 9.7 Accounts Documentation. Each Borrower shall maintain its shipping forms, invoices and other related documents in a form satisfactory to Agent and each Borrower shall maintain its books, records and accounts in accordance with GAAP consistently applied. Each Borrower shall keep and maintain, at its cost and expense, satisfactory and complete books and records of all Accounts, all payments received or credits granted thereon, and all other dealings therewith. At such times as Agent may request, each Borrower shall deliver to Agent, all original documents evidencing the sale and delivery of goods or the performance of services which created any Accounts, including, but not limited to, all contracts, orders, invoices, bills of lading, warehouse receipts, delivery tickets and shipping receipts, together with schedules describing the Accounts and/or written confirmatory assignments to Agent of each Account, in form and substance satisfactory to Agent and duly executed by Borrower, together with such other information as Agent may request. In no event shall the making or the failure to make or the content of any schedule or assignment or any Borrower's failure to comply with the provisions hereof be deemed or construed as a waiver, limitation or modification of the security interest in, lien upon and assignment of the Collateral or the representations, warranties or covenants under this Agreement or the other Financing Agreements. Section 9.8 Specific Powers. Each Borrower hereby constitutes Agent and its designees, as such Borrower's attorney-in-fact, with power of substitution, at the cost and expense of such Borrower, to exercise at any time all or any of the following powers which appointment, being coupled with an interest, shall be irrevocable until all Obligations have been indefeasibly paid in full: (a) to receive, take, endorse, assign, deliver, accept and deposit, in the name of Agent or such Borrower, any and all checks, notes, drafts, remittances and other instruments and documents or chattel paper relating to the Collateral; (b) on or after the occurrence of an Event of Default, or an act, condition or event which with notice, passage of time or both would constitute an Event of Default, to receive, open and dispose of all mail addressed to such Borrower and to notify postal authorities to change the address for delivery thereof to such address as Agent designates; (c) to transmit to Account Debtors notice of Agent's interest therein and to request from such Account Debtors at any time, in the name of Agent or such Borrower or that of Agent's designee, information concerning the Collateral and the amounts owing thereon; (d) on or after the occurrence of an Event of Default, or an act, condition or event which with notice, passage of time or both would constitute an Event of Default, to notify Account Debtors to make payment directly to Agent; (e) on or after the occurrence of an Event of Default, or an act, condition or event which with notice, passage of time or both would constitute an Event of Default, to take or bring, in the name of Agent or such Borrower, all steps, actions, suits or proceedings deemed by Agent necessary or desirable to effect collection of the Collateral; and (f) to execute in such Borrower's name and on its behalf any UCC financing statements or amendments thereto. Each Borrower hereby releases Agent and its officers, employees and designees, from any liability arising from any act or acts under this Agreement or in furtherance thereof, whether of omission or commission, and whether based upon any error of judgment or mistake of law or fact, except for acts of gross negligence or wilful misconduct of Agent as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Section 9.9 Returns, Credits and Allowances. Each Borrower agrees to issue credit memoranda promptly upon accepting returns or granting allowances, and may continue to do so until (i) the occurrence and during the continuance of an Event of Default and (ii) Agent has notified Salant that such credits or allowances are to be made only after Agent's prior written approval. Upon the occurrence and during the continuance of an Event of Default and on notice from Agent, each Borrower agrees that all returned, reclaimed or repossessed merchandise or goods shall be set aside by such Borrower, marked with Agent's name and held by such Borrower for Agent's account as owner and assignee for the ratable benefit of Lenders. If Agent so requests, each Borrower agrees promptly to pay Agent the fair market value thereof, or if Agent so elects, such Borrower will deliver such merchandise or goods to Agent or sell same for such Borrower's account; provided, however, that prior to the occurrence of an Event of Default, such Borrower shall have the right to sell or otherwise dispose of such goods on terms acceptable to such Borrower without notice to Agent. SECTION 10 EFFECTIVE DATE; TERMINATION; COSTS Section 10.1 Term. (a) This Agreement and the other Financing Agreements shall become effective as of the date hereof and shall continue in full force and effect for a term ending on May 11, 2002 (the "Renewal Date") and from year to year thereafter, unless sooner terminated pursuant to the terms hereof; provided, that, Agent, any Lender (as to such Lender), or Borrower may terminate this Agreement and the other Financing Agreements effective on the Renewal Date or on the anniversary of the Renewal Date in any subsequent year by giving to the other parties hereto at least forty-five (45) days prior written notice; provided that, upon payment of the early termination fee provided for in Section 10.1(e) hereof, Salant may terminate this Agreement and the other Financing Agreements at any time by giving the other parties hereto at least forty-five (45) days prior written notice of such termination; provided, that, in the event any one Lender shall send a notice of its intention to terminate this Agreement as to such Lender, any of the other Lenders may upon receipt of such notice purchase the Commitment of the Lender sending such notice of termination. Upon the exercise of the option to purchase such Commitment by any Lender and upon payment in full to the terminating Lender of the amounts owing to it by the purchasing Lender in accordance with Section 11.6, the Lender sending such notice of termination shall assign its rights and obligations under this Agreement and the other Financing Agreements to the Lender exercising such option in accordance with Section 11.6 hereof. This Agreement and all other Financing Agreements must be terminated simultaneously. (b) In addition, Agent may, upon the consent of the Majority Lenders, and upon the direction of the Majority Lenders shall, terminate this Agreement and the other Financing Agreements, or terminate only the provisions of this Agreement as to future Loans and Letter of Credit Accommodations, immediately at any time upon the occurrence of an Event of Default or an act, condition or event which with notice or passage of time or both would constitute an Event of Default. (c) Upon the effective date of termination or non-renewal of the Financing Agreements (the "Termination Date"), Borrowers shall pay to Agent for the account of Lenders in full, all outstanding and unpaid Obligations (including, but not limited to, the Loans and all interest, fees charges, expenses and other amounts provided for hereunder, under the other Financing Agreements or otherwise) and shall furnish cash collateral to Agent in such amounts as Agent determines are reasonably necessary to secure Agent and Lenders from loss, cost, damage or expense, including reasonable attorneys' fees and legal expenses, in connection with any contingent Obligations, including Letter of Credit Accommodations and any checks or other payments provisionally credited to the Obligations and/or as to which Agent or any Lender has not yet received full and final payment. Such payments in respect of the Obligations and cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Agent, as Agent may, in its discretion, designate in writing to Salant for such purpose. Interest at the Interest Rate shall be due until and including the next Business Day, if the amounts so paid by Salant to the bank account designated by Agent are received in such bank account later than 12:00 noon, New York, New York time. (d) No termination of the Financing Agreements or the Commitments shall relieve or discharge any of Borrowers or Guarantors of their respective duties, obligations and covenants under the Financing Agreements until all Obligations have been fully discharged and paid, and the continuing security interests of Agent in the Collateral shall remain in effect until all such Obligations have been fully discharged and paid. (e) If this Agreement terminates upon the occurrence of an Event of Default or at the request of Salant prior to the Renewal Date, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of the lost profits of Agent and Lenders as a result thereof, Borrowers hereby agree to pay to Agent for the ratable benefit of Lenders, upon the effective date of such termination, an early termination fee in an amount equal to: (i) two (2%) percent of the average aggregate daily balance of Loans and Letter of Credit Accommodations outstanding for the twelve (12) month period prior to the Termination Date, if such termination is effective after the date of this Agreement but on or prior to May 11, 2001; or (ii) one (1%) percent of the average aggregate daily balance of Loans and Letter of Credit Accommodations outstanding for the twelve (12) month period prior to the Termination Date, if such termination is effective after May 11, 2001 but prior to May 11, 2002. Such early termination fee shall be presumed to be the amount of damages sustained by said early termination and each Borrower agrees that it is reasonable under the circumstances currently existing. The early termination fee provided for in this Section 10.1 shall be deemed included in the Obligations. Section 10.2 Expenses and Additional Fees. (a) Borrowers shall pay to Agent on demand all reasonable costs and expenses that Agent or any Lender may pay or incur in connection with the negotiation, preparation, consummation, administration, enforcement, and termination of this Agreement and the other Financing Agreements, including, without limitation: (i) reasonable attorneys' and paralegals' fees and disbursements of counsel to Agent, Lenders and any Participant; (ii) costs and expenses (including reasonable attorneys' and paralegals' fees and disbursements), and for any amendment, supplement, waiver, consent, or subsequent closing in connection with the Financing Agreements and the transactions contemplated thereby; (iii) costs and expenses of lien and title searches and title insurance; (iv) taxes, fees and other charges for recording any agreements or documents with the Office of Patents and Trademarks, the Copyright Office or any other governmental authority, and the filing of UCC financing statements and continuations, and other actions to perfect, protect, and continue the security interests and liens of Lenders in the Collateral; (v) sums paid or incurred to pay any amount or take any action required of any Borrower under the Financing Agreements that such Borrower fails to pay or take; (vi) costs of appraisals, environmental audits, inspections, and verifications of the Collateral, including, without limitation, travel, lodging, and meals for inspections of the Collateral and each Borrower's operations by Agent, any Lender or their agents, plus a charge of $750 per person per day for the field examiners of Agent and any Lender; (vii) costs and expenses of forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining payment accounts and lock boxes; (viii) costs and expenses of preserving and protecting the Collateral; and (ix) costs and expenses (including reasonable attorneys' and paralegals' fees and disbursements) paid or incurred to obtain payment of the Obligations, enforce the security interests and liens of Agent, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of this Agreement and the other Financing Agreements, or to defend any claims made or threatened against Agent or any Lender arising out of the transactions contemplated hereby (including, without limitation, preparations for and consultations concerning any such matters). The foregoing shall not be construed to limit any other provisions of the Financing Agreements regarding costs and expenses to be paid by any Borrower. (b) Borrowers shall pay to Agent all of its customary charges and fees in connection with (i) any payment, claim or refund relating to the dishonor of any checks or other items of any Borrower or Account Debtors, and (ii) wire transfers to any Borrower. (c) All sums provided for in this Section 10.2 shall be part of the Obligations, shall be payable on demand, and shall accrue interest after demand for payment thereof at the applicable rate of interest then payable hereunder. Agent is hereby irrevocably authorized to charge any amounts payable hereunder directly to any of the account(s) maintained by Agent with respect to Borrowers. Section 10.3 Survival of Agreement. All agreements, representations and warranties contained herein or made in writing by the parties hereto in connection with the transactions contemplated hereby shall survive the execution and delivery of this Agreement, the other Financing Agreements and the consummation of the transactions contemplated herein or therein regardless of any investigation made by or on behalf of Agent or any Lender. Section 10.4 No Waiver; Cumulative Remedies. No failure to exercise, and no delay in exercising on the part of Agent or any Lender any right, power or privilege under this Agreement or under any of the other Financing Agreements or other documents referred to herein or therein shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power and privilege. No notice to or demand on any of Borrowers or Guarantors required hereunder or any under the other Financing Agreements shall entitle any of Borrowers or Guarantors to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of Agent or any Lender to any other or further action in any circumstances without notice or demand. The rights and remedies of Agent and Lenders under this Agreement, the other Financing Agreements and any other present and future agreements between Agent and/or Lenders and any Borrower or Agent and/or Lenders and Guarantors are cumulative and not exclusive of any rights or remedies provided by law or under any of the Financing Agreements or such other agreements and all such rights and remedies may be exercised successively or concurrently. Section 10.5 Notices. All notices, requests and demands hereunder shall be in writing and, if made to Salant, shall constitute a notice, request or demand, as the case may be, to or upon Holdings to the extent applicable to Holdings, and shall be (a) made to the applicable party at its address set forth on the signature page hereof, or to such other address as either party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, ten (10) days after mailing. Section 10.6 Entire Agreement. This Agreement (which amends and restates the Existing Credit Agreement in its entirety), the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represent the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and, except for (i) existing UCC-1 Financing Statements heretofore filed by CIT against Salant and Guarantors and (ii) the Mortgages supersede all other prior and contemporaneous agreements, understandings, negotiations and discussions, representations, warranties, commitments, offers and contracts concerning the subject matter hereof and thereof, whether oral or written. Section 10.7 Confidentiality. (a) Agent and each Lender shall use all reasonable efforts to keep confidential, in accordance with its customary procedures for handling confidential information and safe and sound lending practices, any non-public information supplied to it by any Borrower pursuant to this Agreement which is clearly and conspicuously marked as confidential at the time such information is furnished by such Borrower to Agent and Lenders, provided, that, nothing contained herein shall limit the disclosure of any such information: (i) to the extent required by statute, rule, regulation, subpoena or court order, (ii) to bank examiners and other regulators, auditors and/or accountants, (iii) in connection with any litigation to which Agent or any Lender is a party, (iv) to any Affiliate of Agent or any Lender, (v) to any assignee or Participant (or prospective assignee or Participant) so long as such assignee or Participant (or prospective assignee or Participant) shall have first agreed in writing to treat such information as confidential in accordance with this Section 10.7, or (vi) to counsel for Agent or any Lender or any Participant or assignee (or prospective Participant or assignee). (b) In no event shall this Section 10.7 or any other provision of this Agreement or applicable law be deemed: (i) to apply to or restrict disclosure of information that has been or is made public by any Borrower or any third party without breach of this Section 10.7 or otherwise becomes generally available to the public other than as a result of a disclosure in violation hereof, (ii) to apply to or restrict disclosure of information that was or becomes available to Agent or any Lender on a non-confidential basis from a person other than a Borrower, (iii) require Agent or any Lender to return any materials furnished by a Borrower to Agent or such Lender or (iv) prevent Agent or any Lender from responding to routine informational requests in accordance with the Code of Ethics for the Exchange of Credit Information promulgated by The Robert Morris Associates or other applicable industry standards relating to the exchange of credit information. The obligations of Agent and Lenders under this Section 10.7 shall supersede and replace the obligations of (i) CIT under the Existing Agreement and (ii) Agent and Lenders under any confidentiality letter signed prior to the date hereof. Section 10.8 Partial Invalidity. If any provision of this Agreement or the other Financing Agreements is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement or the other Financing Agreements as a whole but this Agreement or the particular Financing Agreement, as the case may be, shall be construed as though it did not contain the particular provision or provisions held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by law. Section 10.9 Headings. The headings used herein are for convenience only and do not constitute matters to be considered in interpreting this Agreement. Section 10.10 [Intentionally Omitted] Section 10.11 Counterparts. This Agreement may be executed in any number of counterparts, and by Agent, Lenders and Borrowers in separate counterparts, each of which shall be an original, but all of which shall together constitute one and the same agreement. SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW Section 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements (other than the Mortgages to the extent otherwise specifically provided therein) and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law). (b) Borrowers, Agent and Lenders each hereby irrevocably consent and submit to the non-exclusive jurisdiction of the Supreme Court of the State of New York in New York County and the United States District Court for the Southern District of New York and the courts of any jurisdiction in which any of the Collateral is located and waive any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above. (c) Each Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail, postage prepaid, directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed ten (10) days after the same shall have been so deposited in the U.S. mails, registered mail, postage prepaid, or, at Agent's option, by service upon such Borrower in any other manner provided under the rules of any of the foregoing courts. Within thirty (30) days after such service, such Borrower shall appear in answer to such process, failing which such Borrower shall be deemed in default and judgment may be entered by Agent against such Borrower for the amount of the claim and other relief requested. (d) BORROWERS, AGENT AND LENDERS EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS, AGENT AND LENDERS EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER OR AGENT OR ANY LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Neither Agent nor any Lender shall have any liability to any Borrower or any Guarantor (whether in tort, contract, equity or otherwise) for losses suffered by any Borrower or any Guarantor in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment by a court of competent jurisdiction that the losses were the result of such party's own acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Agent and each of Lenders shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. Section 11.2 Waiver of Notices. Each Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on any Borrower which Agent may elect to give shall entitle such Borrower to any other or further notice or demand in the same, similar or other circumstances. Without limiting the generality of the foregoing, each Borrower waives (a) notice prior to Agent's taking possession or control of any of the Collateral or any bond or security which might be required by any court prior to allowing Agent to exercise any of Agent's remedies, including the issuance of an immediate writ of possession and (b) the benefit of all valuation, appraisement and exemption laws. Section 11.3 Amendments and Waivers. (a) No amendment or modification of any provision of this Agreement or of any of the other Financing Agreements shall be effective without the written agreement of the Majority Lenders and Borrowers and no termination or waiver of any provision of this Agreement or of any of the Financing Agreements, or consent to any departure by any Borrower therefrom, shall in any event be effective without the written concurrence of the Majority Lenders, which the Majority Lenders shall have the right to grant or withhold at their discretion; except that any amendment, modification, or waiver (i) of any provision of Section 3 hereof, which amendment, modification or waiver increases the Commitment of any Lender, reduces the principal of, or interest on, the Loans or the Letter of Credit Accommodations, reduces the amount of any fee payable for the account of any Lender, or postpones or extends any date fixed for any payment of principal of, or interest or fees on the Loans or Letter of Credit Accommodations payable to any Lender, (ii) that increases the aggregate amount of the Commitments of the Lenders, (iii) that increases the advance percentages for Eligible Accounts or Eligible Inventory provided for in Section 3.1(a) hereof or the amount set forth in Section 3.1(a)(ii)(B), (iv) that increases the limit on Letter of Credit Accommodations set forth in Section 3.2(d) hereof or that increases the Maximum Credit, (v) of the definitions of "Renewal Date", "Majority Lenders" or "Pro Rata Shares", (vi) of the definitions of "Eligible Accounts" or "Eligible Inventory" if the effect of such amendment, modification or waiver is to increase the amount of the Loans and/or Letter of Credit Accommodations available to Borrowers under the Lending Formulas, (vii) of any provision of this Agreement or any of the Financing Agreements that would permit security interests in or liens upon on the Collateral or release any Collateral (except as set forth in Section 12.12 hereof or except as otherwise permitted herein) or release any guarantee of the Obligations, (viii) of the provisions contained in this Section 11.3, shall be effective only if evidenced by a writing signed by or on behalf of (A) any Lender affected thereby in the case of the amendments, modifications or waivers described in clause (i) above or (B) all Lenders in the case of the amendments to definitions or waivers described in clauses (ii) through (viii) above. No amendment, modification, termination or waiver of any provision of Section 11 or any other provision referring to Agent shall be effective without the written concurrence of Agent. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Borrower in any case shall entitle such Borrower to any other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent effected in accordance with this Section 11.3 shall be binding on each Lender, each future Lender, and, if signed by Borrowers, on the Borrowers. (b) Notwithstanding anything to the contrary contained in Section 11.3(a), in the event that Borrowers request that this Agreement or any other Financing Agreements be amended or otherwise modified in a manner which would require the unanimous consent of all of the Lenders and such amendment or other modification is agreed to by the Majority Lenders, then, with the consent of Borrowers and the Majority Lenders, Borrowers and the Majority Lenders may amend this Agreement without the consent of the Lender or Lenders which did not agree to such amendment or other modification (collectively, the "Minority Lenders") to provide for (i) the termination of the Commitment of each of the Minority Lenders, (ii) the addition to this Agreement of one or more other Lenders, or an increase in the Commitment of one or more of the Majority Lenders, so that the Commitments, after giving effect to such amendment, shall be in the same aggregate amount as the Commitments immediately before giving effect to such amendment, (iii) if any Loans are outstanding at the time of such amendment, the making of such additional Loans by such new Lenders or Majority Lenders, as the case may be, as may be necessary to repay in full the outstanding Loans of the Minority Lenders immediately before giving effect to such amendment and (iv) the payment of all interest, fees and other Obligations payable or accrued in favor of the Minority Lenders and such other modifications to this Agreement as Borrowers and the Majority Lenders may determine to be appropriate. (c) Agent and Lenders shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of the rights, powers and/or remedies of Agent or Lenders unless such waiver shall be in writing and signed as provided in Section 11.3(a) above. Any such waiver shall be enforceable only to the extent specifically set forth therein. Neither this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement approved as required under this Section 11.3. A waiver by Agent or Lenders of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Agent or any Lender would otherwise have on any future occasion, whether similar in kind or otherwise. Section 11.4 Waiver of Counterclaims. Each Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other than compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. Section 11.5 Indemnification. Borrowers shall jointly and severally indemnify and hold Agent, Lenders and their respective officers, directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the fees and expenses of counsel except to the extent resulting directly from the gross negligence or wilful misconduct of Agent or Lenders as determined pursuant to a final non-appealable order of a court of competent jurisdiction, provided, that, such gross negligence or wilful misconduct of any one Lender shall not affect the obligations of Borrowers hereunder as to Agent or any other Lender. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrowers shall pay the maximum portion which it is permitted to pay under applicable law to Agent and/or the affected Lender(s) in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. Section 11.6 Assignments; Participations. (a) Each Lender may with the written consent of the Agent, which consent shall not be unreasonably withheld, and after prior notice to Salant, assign to one or more commercial banks or other financial institutions a portion of its rights and obligations under this Agreement (including, without limitation, a portion of its Commitment, the Loans owing to it and its rights and obligations as a Lender with respect to the Letter of Credit Accommodations) and the other Financing Agreements; provided, that, (i) each such assignment shall be in a principal amount of not less than $10,000,000 and in integral multiples of $1,000,000 in excess thereof (or the remainder of such Lender's Commitment), and (ii) the parties to each such assignment shall execute and deliver to Agent, for its acceptance and recording in the Register an Assignment and Acceptance. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and to the other Financing Agreements and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations (including, without limitation, the obligation to participate in Letter of Credit Accommodations) of a Lender hereunder and thereunder and (ii) the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement. (c) By executing and delivering an Assignment and Acceptance, the assignor and assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Financing Agreements or the execution, legality, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Financing Agreements furnished pursuant hereto, (ii) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrowers, Guarantors or any of their Subsidiaries or the performance or observance by Borrowers or Guarantors of any of the Obligations; (iii) such assignee confirms that it has received a copy of this Agreement and the other Financing Agreements, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (iv) such assignee will, independently and without reliance upon the assigning Lender, the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Financing Agreements, (v) such assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Financing Agreements as are delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto, and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Financing Agreements are required to be performed by it as a Lender. Agent and Lenders may furnish any information concerning Borrowers, Guarantors or their Subsidiaries in the possession of Agent or any Lender from time to time to (x) assignees and (y) Participants who have entered into a confidentiality agreement with Salant in form and substance reasonably satisfactory to Salant. (d) Agent shall maintain at its address referred to on the signature page hereto, a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of Lenders and the Commitment of each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrowers, Agent and Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrowers and any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee Lender, together with the Revolving Credit Note subject to such assignment, Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) give prompt notice thereof to Salant and (iii) record the information contained therein in the Register. Within five (5) Business Days after its receipt of such notice, Borrowers, at its expense, shall execute and deliver to Agent in exchange for the surrendered Revolving Credit Note, a new Revolving Credit Note to the order of such assignee Lender in an aggregate principal amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance, and a new Revolving Credit Note to the order of the assigning Lender in an aggregate principal amount equal to the Commitment retained by it hereunder, in each case prepared by or on behalf of the Agent. Such new Revolving Credit Note(s) shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Revolving Credit Note, shall be dated the date of Agent's acceptance of such assignment and acceptance and shall otherwise be in substantially the form of the Revolving Credit Notes as in effect on the date hereof. (f) Each Lender may sell participations to one or more commercial banks or other financial institutions in or to all or a portion of its rights and obligations under this Agreement and the other Financing Agreements (including, without limitation, all or a portion of its Commitments and the Loans owing to it and its participation in the Letter of Credit Accommodations); provided, that, (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment hereunder) and the other Financing Agreements shall remain unchanged, and (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and Borrowers, Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Financing Agreements. Each Lender shall inform Agent of the persons who have purchased such participations. Section 11.7 Successors and Assigns. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns, except that no Borrower may not assign its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of the Majority Lenders. SECTION 12. THE AGENT Section 12.1 Appointment. (a) Each Lender hereby irrevocably appoints and authorizes Agent as its agent to exercise on such Lender's behalf the following, and Agent shall have the sole and exclusive right to take the following actions on behalf of Lenders: (i) to receive on behalf of each Lender any payment of principal of or interest on the Revolving Credit Notes outstanding hereunder and all other amounts accrued hereunder for the account of the Lenders and paid to Agent, and, subject to Section 3.12 of this Agreement, to distribute promptly to each Lender its Pro Rata Share of all payments so received, (ii) to distribute to each Lender copies of all material notices and agreements received by the Agent and not required to be delivered to each Lender pursuant to the terms of this Agreement, provided, that, the Agent shall not have any liability to Lenders for the Agent's failure to distribute any such notice or agreements to Lenders and (iii) subject to Section 11.3 of this Agreement, to take such action as Agent deems appropriate on its behalf to administer the Loans, Letter of Credit Accommodations and this Agreement and the other Financing Agreements and to exercise such other powers delegated to Agent by the terms hereof and the other Financing Agreements (including, without limitation, the power to give or to refuse to give notices, waivers, consents, approvals and instructions and the power to make or to refuse to make determinations and calculations) together with such powers as are reasonably incidental thereto to carry out the purposes hereof and thereof. As to any matters not expressly provided for by this Agreement and the other Financing Agreements (including, without limitation, enforcement or collection of the Revolving Credit Notes), Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions of the Majority Lenders shall be binding upon all Lenders; provided, that, Agent shall not be required to take any action which, in the reasonable opinion of the Agent, exposes the Agent to liability or which is contrary to this Agreement, any of the other Financing Agreements or applicable law. The provisions of this Section 12 are solely for the benefit of Agent and Lenders. Borrowers and Guarantors shall not have any rights as a third party beneficiary of any of the provisions contained in this Section 12. Notwithstanding anything to the contrary contained in Section 11.3 hereof, no amendments to this Section 12 shall require the written agreement of any Borrower or Guarantor. (b) Without limiting the generality of the foregoing, or of any other provision of this Agreement or the other Financing Agreements that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (i) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Loans, the Letter of Credit Accommodations, the Collateral, and related matters; (ii) execute and/or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to this Agreement and the other Financing Agreements; (iii) make Loans for itself or on behalf of Lenders as provided herein; (iv) exclusively receive, apply and distribute proceeds of the Collateral as provided herein; (v) open and maintain such bank accounts and lock boxes as Agent deems necessary and appropriate in accordance with this Agreement and the other Financing Agreements for the foregoing purposes and with respect to the Collateral and proceeds thereof; (vi) perform, exercise and enforce any and all other rights and remedies of the Lenders with respect to Borrowers, Guarantors, the Loans and the Collateral, or otherwise related to any of same as provided herein and in the other Financing Agreements; and (vii) incur and pay such costs and expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to this Agreement and the other Financing Agreements. Section 12.2 Nature of Duties. Agent shall have no duties or responsibilities except those expressly set forth in this Agreement or in the other Financing Agreements. The duties of Agent shall be mechanical and administrative in nature. Agent shall not have by reason of this Agreement or any of the other Financing Agreements a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any of the other Financing Agreements, express or implied, is intended to or shall be construed to impose upon Agent any obligations in respect of this Agreement or any of the other Financing Agreements except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of Borrowers, Guarantors and any other Obligor in connection with the making and the continuance of the Loans hereunder and the issuance of the Letter of Credit Accommodations and shall make its own appraisal of the creditworthiness of Borrowers, Guarantors and any other Obligor and the value of the Collateral, and Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the date hereof or at any time or times hereafter, provided, that, upon the reasonable request of a Lender, Agent shall provide to such Lender any documents or reports delivered to Agent by Borrowers pursuant to the terms of this Agreement or any of the other Financing Agreements. If Agent seeks the consent or approval of the Majority Lenders to the taking or refraining from taking any action hereunder, Agent shall send notice thereof to each Lender. Agent shall promptly notify each Lender any time that the Majority Lenders have instructed Agent to act or refrain from acting pursuant hereto. Section 12.3 Delegation of Duties. Except as otherwise provided in this section, Agent may execute any of its duties under this Agreement or any of the other Financing Agreements by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made in compliance with this Section and without gross negligence or willful misconduct. Section 12.4 Rights, Exculpation, Etc. Agent and its directors, officers, agents or employees shall not be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any of the other Financing Agreements, except for their own gross negligence or willful misconduct as determined by a final non-appealable order of a court of competent jurisdiction. Without limiting the generality of the foregoing, Agent (a) may treat the payee of any Revolving Credit Note as the holder thereof until Agent receives written notice of the assignment or transfer thereof, pursuant to Section 11.6 hereof, signed by such payee and in form satisfactory to the Agent; (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, certificates, warranties or representations made in or in connection with this Agreement or any of the other Financing Agreements; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any of the other Financing Agreements; (e) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any of the other Financing Agreements on the part of any Person, the existence or possible existence of any Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default, or to inspect the Collateral or other property (including, without limitation, the books and records) of any Person; (f) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Financing Agreements or any other instrument or document furnished pursuant hereto or thereto; and (g) shall not be deemed to have made any representation or warranty regarding the existence, value or collectibility of the Collateral, the existence, priority or perfection of the security interest in, or mortgage or lien upon, any of the Collateral, or the Loans available to Borrowers or any certificate prepared by any Borrower or any Guarantor in connection therewith, nor shall Agent be responsible or liable to the Lenders for any failure to monitor or maintain availability of Loans hereunder or any portion of the Collateral. Agent shall not be liable for any apportionment or distribution of payments made by it in good faith pursuant to Section 9.2, and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount which they are determined to be entitled. Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Financing Agreements Agent is permitted or required to take or to grant, and if such instructions are promptly requested, Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval hereunder or under any of the other Financing Agreements until it shall have received such instructions from the Majority Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Financing Agreements in accordance with the instructions of the Majority Lenders. Section 12.5 Reliance. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any of the other Financing Agreements unless it shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable so long as it is not grossly negligent or guilty of wilful misconduct. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any of the other Financing Agreements in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. Section 12.6 Notice of Event of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders and with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or a Borrower referring to this Agreement, describing such Event of Default, and stating that such notice is a "notice of default." Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has, or is deemed to have, actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Section 12.7 Credit Decision. Each Lender acknowledges that the Agent has not made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Salant and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by Agent to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financing and other condition and creditworthiness of Borrowers and any other Person (other than any Lender) party to any of the other Financing Agreements, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrowers. Each Lender also represents that it will, independently and without reliance upon Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and any of the other Financing Agreements, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financing and other condition and creditworthiness of Borrowers and any other Person (other than any Lender) party to this Agreement or any of the other Financing Agreements. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrowers and any other Person party to this Agreement or any of the other Financing Agreements that may come into the possession of Agent. Section 12.8 Indemnification. To the extent that Agent is not reimbursed and indemnified by Borrowers, the Lenders will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any of the other Financing Agreements or any action taken or omitted by Agent under this Agreement or any of the other Financing Agreements, in proportion to each Lender's Pro Rata Share, provided, that, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements for which there has been a final non-appealable order of a court of competent jurisdiction that such resulted from Agent's gross negligence or willful misconduct. The obligations of the Lenders under this Section 12.8 shall survive the payment in full of the Obligations and the termination or non-renewal of this Agreement. Section 12.9 CIT in its Individual Capacity. With respect to its Pro Rata Share of the Commitments hereunder, the Loans made by it and the Revolving Credit Note issued to or held by it, CIT shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein as any other Lender or holder of a Revolving Credit Note. The terms "Lenders" or "Majority Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include CIT in its individual capacity as a Lender or one of the Majority Lenders. CIT and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Borrowers, Guarantors or any of its or their Subsidiaries or Affiliates as if it were not acting as Agent pursuant hereto without any duty to account to Lenders. Section 12.10 Successor Agent. (a) Agent may resign from the performance of all its functions and duties hereunder and under the other Financing Agreements at any time by giving at least thirty (30) Business Days' prior written notice to Salant and each Lender. Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to Sections 12.10(b) and 12.10(c) below or as otherwise provided below. (b) Upon any such notice of resignation, the Majority Lenders shall appoint a successor Agent. The successor Agent must be reasonably satisfactory to Salant. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the other Financing Agreements. After any Agent's resignation hereunder as the Agent, the provisions of this Section 12 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Financing Agreements. (c) If a successor Agent shall not have been so appointed within such thirty (30) Business Day period, the retiring Agent, with the consent of Salant, shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Majority Lenders, with the consent of the Salant, appoint a successor Agent as provided above. Section 12.11 Withholding Tax. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the Code (or is otherwise not a United States Person within the meaning of Section 7701(a)(30) of the Code) and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent and Salant: (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 or applicable successor forms before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement, or at such earlier time as may be necessary to ensure the continuing validity of such form; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form 4224 or applicable successor forms before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement or at such earlier time as may be necessary to ensure the continuing validity of such form, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees to promptly notify Agent and Salant of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender is entitled to a reduction in the applicable withholding tax, Borrowers and Agent may, without duplication, withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Salant and Agent, then Borrowers and Agent may, without duplication, withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (c) If the Internal Revenue Service or any other Governmental Authority of the United States of America or other jurisdiction asserts a claim that Borrowers or Agent did not properly withhold tax from amounts paid to or for the account of any Lender or Participant (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Salant or Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify Borrower and Agent fully for all amounts paid, directly or indirectly, by Borrowers or Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Borrowers or Agent under this Section, together with all costs and expenses (including attorneys' fees and expenses). The obligations of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. Section 12.12 Collateral Matters. (a) In addition to, and not in limitation of the provisions of Section 3.1(f) above, Agent may from time to time, at any time on or after the occurrence of an Event of Default and for so long as the same is continuing, make such disbursements and advances ("Agent Advances") which Agent, in its sole discretion, deems necessary or desirable either (i) to preserve or protect the Collateral or Guarantor Collateral or any portion thereof, (ii) to enhance the likelihood or maximize the amount of repayment by Borrowers and Guarantors of the Loans and other Obligations or (iii) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement, including, without limitation, costs, fees and expenses as described in Section 10.2 and payments to any issuer of Letter of Credit Accommodations. Agent Advances shall be repayable on demand and be secured by the Collateral. Agent Advances shall not constitute Loans but shall otherwise constitute Obligations hereunder. Agent shall notify each Lender and Salant in writing of each such Agent Advance, which notice shall include a description of the purpose of such Agent Advance. Without limitation of its obligations pursuant to Section 12.5, each Lender agrees that it shall make available to Agent, upon Agent's demand, in immediately available funds, the amount equal to such Lender's Pro Rata Share of each such Agent Advance. If such funds are not made available to Agent by such Lender, Agent shall be entitled to recover such funds, on demand from such Lender together with interest thereon, for each day from the date such payment was due until the date such amount is paid to Agent, at the Interest Rate. (b) Lenders hereby irrevocably authorize Agent, at its option and in its discretion to release any security interest in, mortgage or lien upon, any of the Collateral upon termination of the Commitments and payment and satisfaction of all of the Obligations and delivery of cash collateral as provided in Section 10.1 above; or constituting property being sold or disposed of if Salant certifies to Agent that the sale or disposition is made in compliance with Section 7.11 hereof (and Agent may rely conclusively on any such certificate, without further inquiry); or constituting property in which no Borrower owned any interest at the time the security interest, mortgage or lien was granted or at any time thereafter; or if approved, authorized or ratified in writing by the Majority Lenders. Except as provided above, Agent will not release any security interest in, mortgage or lien upon, any of the Collateral without the prior written authorization of the Majority Lenders; provided, that, Agent may not release such security interests in, mortgage or lien upon, any of the Collateral having a value in excess of $5,000,000, without the prior written authorization of all of the Lenders. Upon request by Agent at any time, the Lenders will confirm in writing Agent's authority to release particular types or items of Collateral pursuant to this Section 12.12. (c) Without in any manner limiting Agent's authority to act without any specific or further authorization or consent by the Majority Lenders, each Lender agrees to confirm in writing, upon request by Agent, the authority to release Collateral conferred upon Agent under this Section 12.12. So long as no Event of Default is then continuing, upon receipt by Agent of confirmation from the Majority Lenders of its authority to release any particular item or types of Collateral, and upon at least five (5) Business Day's prior written request by Salant, Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the security interest, mortgage or liens granted to Agent for the benefit of the Lenders upon such Collateral; provided, that, (i) Agent shall not be required to execute any such document on terms which, in Agent's opinion, would expose Agent to liability or create any obligations or entail any consequence other than the release of such security interest, mortgage or liens without recourse or warranty and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any security interest, mortgage or lien upon (or obligations of Borrower in respect of) the Collateral retained by Borrowers. (d) Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by any Borrower, any Guarantor or any Obligor (as the case may be) or is cared for, protected or insured or has been encumbered or that the security interest, mortgage or lien granted to Agent pursuant to any of the Financing Agreements has been properly or sufficiently or lawfully created, perfected, protected or enforced or is entitled to any particular priority, or to exercise at all or in particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Section 12 or in any of the other Financing Agreements, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its sole discretion, given Agent's own interest in the Collateral as one of the Lenders and that Agent shall have no duty or liability whatsoever to any other Lender. Section 12.13 Agency for Perfection. Agent and each Lender hereby appoints each other Lender as agent for the purpose of perfecting the security interests in and liens upon the Collateral of Agent for itself and the ratable benefit of Lenders in assets which, in accordance with Article 9 of the UCC, can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver such Collateral to Agent or in accordance with Agent's instructions. Section 12.14 [Intentionally Omitted.] Section 12.15 Concerning the Collateral and the Related Financing Agreements. Each Lender authorizes and directs Agent to enter into this Agreement and the other Financing Agreements relating to the Collateral, for the ratable benefit of Lenders and Agent. Each Lender agrees that any action taken by Agent or Majority Lenders in accordance with the terms of this Agreement or the other Financing Agreements relating to the Collateral, and the exercise by the Agent or Majority Lenders of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. Section 12.16 Field Audit and Examination Reports; Disclaimer by Lenders. By signing this Agreement, each Lender: (a) is deemed to have requested that Agent furnish Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by Agent; (b) expressly agrees and acknowledges that Agent (i) does not make any representation or warranty as to the accuracy of any Report, or (ii) shall not be liable for any information contained in any Report; (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Borrowers and will rely significantly upon Borrowers' books and records, as well as on representations of Borrowers' personnel; and (d) agrees to keep all Reports confidential and strictly for its internal use in accordance with the terms of Section 10.7 hereof, and not to distribute or use any Report in any other manner. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, Agent, Lenders, Borrower and Guarantor have caused these presents to be duly executed as of the day and year first above written. AGENT ........BORROWERS THE CIT GROUP/COMMERCIAL ........SALANT CORPORATION SERVICES, INC., as Agent By: By: Title: Title: Address Chief Executive Office: 1211 Avenue of the Americas 1114 Avenue of the Americas New York, New York 10036 New York, New York 10036 LENDERS THE CIT GROUP/COMMERCIAL SALANT HOLDING CORPORATION SERVICE, INC. By: By: Title: Title: Address: Chief Executive Office: 1211 Avenue of the Americas 1114 Avenue of the Americas New York, New York 10036 New York, New York 10036 Commitment: $85,000,000 Commitment Percentage: 100% EX-10 4 posner.txt HOWARD POSNER EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of August 24, 1999 (the "Commencement Date"), between SALANT CORPORATION, a Delaware corporation, (the "Corporation") and Howard Posner (the "Employee"). WHEREAS, this Agreement will confirm the understanding between the Employee and the Corporation concerning the Employee's employment with the Corporation. 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 Employees Services . The Corporation agrees to employ the Employee and the Employee agrees to serve the Corporation as Executive Vice President of Global Sourcing. The Employee shall perform such services and duties as shall be assigned to him or delegated to him from time to time by Chief Executive Officer of the Corporation, or at the direction of the Chief Executive Officer, in conjunction with the President, Chief Operating Officer or Chief Financial Officer provided, however, that such duties shall be consistent with those customarily performed by a senior executive 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. 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. 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, (the "Salary"), such Salary shall be reviewed for increase annually while employed by the Corporation. (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. Each bonus shall be paid by the Corporation to the Employee on or about the succeeding March 31 following the end of the fiscal year to which such bonus relates. If the employment of the Employee is terminated 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 days of employment completed by the Employee during that fiscal year bears to 360. Notwithstanding anything contained herein to the contrary, no bonus or Minimum Bonus shall be payable to the Employee (i) if the Employee is terminated pursuant to Section 5(c) or (ii) if the Employee terminates his/her employment other than pursuant to Section 5(e). Section 3. Employee Benefit Plans . The Employee, while employed by the Corporation, shall 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 4. 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) While the Employee is employed by the Corporation, the Corporation will provide the Employee with an automobile allowance in the amount of $500 per month, payable in equal bi-weekly installments. Section 5. Termination. (a) Definition of the Termination Date The "Termination Date" shall be the date which is earlier of (i) 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 (ii) the final date of employment worked by such employee after he or she delivers written notice to the Corporation that he or she is terminating his/her 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 2(b); (iii) in the case of death only, an additional 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 3 or 4; (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 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 three (3) consecutive months or for a total of 90 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 misconduct in carrying out his duties under this Agreement or (ii) 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 3 or 4; 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 pursuant to a change in control as herein defined or 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 commencing on the Termination Date and ending 6 months following such termination; plus, an amount paid in accordance with the Corporation's normal severance policy (the "Severance Period"); (iii) pro-rated Bonus for the fiscal year in which termination occurs, payable in accordance with Section 2(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 3 or 4; and (vi) 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 5 (c)). (e) Termination by Employee for Good Reason . The Employee shall have the right to terminate his/her employment for "good reason" (as hereinafter defined), provided that the Employee shall have given the Corporation 90 days prior 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 the Employee's positions, titles, offices, duties, responsibilities or status with the Corporation as an executive, 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 3 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 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 5(d) "Termination by the Corporation Without Cause". (f) 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 5 (c) above for a termination for Cause. (g) 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. Section 6. 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 6, the "Restriction Period" shall mean the period beginning on the Commencement Date and ending on the last day of either (i) the employment of the Employee by the Corporation (determined without giving effect to any termination of employment) or (ii) the Severance Period whichever is longer. Section 7. Non-Disclosure Covenant . The Employee further agrees that while employed by the Corporation 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 verbal 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 at the risk of liability 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 other- wise, 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 8. 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 9. 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 11 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 10. 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: Senior Vice President Corporate Affairs If to the Employee, then to the following: Howard Posner 14 Escher Drive Marlboro, New Jersey 07746 Each party may, by notice or other party, change the above address. Section 11. 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. This Agreement may be amended from time to time by action of the Executive Committee of the Corporation. 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 12. 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 13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original. Section 14. 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 15. 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; (ii) the Corporation consolidates with or merges into another 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; or (iii) the Corporation conveys, transfers or leases all or substantially all of its assets to any Person. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur if the Person described in clause (i), (ii) or (iii) is Magten Asset Management Corp. or is an Affiliate of Magten Asset Management Corp. "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:_____________________________________ Michael J. Setola Chairman of the Board and Chief Executive Officer ________________________________________ Howard Posner 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 annual business plan for the Corporation for that fiscal year ("Planned Annual Pre-tax Income"), the Employee shall receive a cash bonus equal to 35% of his annual Salary at the end of the applicable fiscal year ("Annual Salary"). (b) If Actual Annual Pre-tax Income is less than 100% of Planned Annual Pre-tax Income, the Employee's cash bonus shall be reduced by .7% for each full 1% decrease (after rounding to the nearest 1/100th of a percent) by which Actual Annual Pre-tax Income is less than 100% of Planned Annual Pre-tax Income. For example, if Actual Annual Pre-tax Income was 95% of Planned Annual Pre-tax Income, the Employee would receive a cash bonus equal to 31.5% of his Annual Salary. In no event shall the Employee receive a cash bonus if the Actual Annual Pre-tax Income is less than 90% of the Planned Annual Pre-tax Income. (c) If Actual Annual Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income, then in addition to the bonus specified in paragraph (a) above, the Employee shall receive additional cash bonuses, each equal to 1% of his Annual Salary, for each full 1% increment (after rounding to the nearest 1/100th of a percent) by which Actual Annual Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income. (d) The following principles shall apply in calculating the "Pre-tax Income" which term shall mean the aggregate income of the Corporation before provisions for all Federal, State and local income taxes thereon. In calculating such "Pre-tax Income", all items of income and deductions shall be determined in accordance with generally accepted accounting principles applied on a consistent basis, subject, however, to the provisions of the following subparagraphs: (i) There shall be excluded from income: all extraordinary items of income such as gains and losses on the sale of fixed assets or intangible assets; all insurance recoveries other than for business interruption; non-recurring gains or losses including, without limitation, gains or losses on the termination of any employee benefit plans or gains or losses realized on the sale quota. (ii) Deductions from income shall include all interest expenses, fixed charges and reasonable provisions for depreciation, amortization and obsolescence, inventory write-offs and the salary and bonus payable to all of the employees of the Corporation and the Employee hereunder. (iii) The amount of "Planned Annual Pre-tax Income" for each fiscal year shall be determined by the Corporation's Chief Executive Officer. EX-10 5 manzer.txt WILLIAM MANZER EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of March 13, 2000 (the "Commencement Date"), between SALANT CORPORATION, a Delaware corporation, (the "Corporation" or "Salant") and William O. Manzer (the "Employee"). WHEREAS, this Agreement will confirm the understanding between the Employee and the Corporation concerning the Employee's employment with the Corporation. 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 Executive Vice President of Merchandising. The Employee shall perform such services and duties as shall be assigned to him or delegated to him from time to time by Chief Executive Officer of the Corporation, or at the direction of the Chief Executive Officer, in conjunction with the President, Chief Operating Officer or Chief Financial Officer provided, however, that such duties shall be consistent with those customarily performed by a senior executive 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 or affiliates 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. 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 Employees responsibilities as an employee of the Corporation in accordance with this Agreement. Section 2. 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 $350,000 per annum payable in equal bi-weekly installments, (the "Salary"), such Salary shall be reviewed for increase annually while employed by the Corporation. (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. Each Bonus, if any, shall be paid by the Corporation to the Employee on or about ninety (90) days following the first anniversary of the end of the fiscal year to which such Bonus relates. If the employment of the Employee is terminated 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 days of employment completed by the Employee during that fiscal year bears to 360. Notwithstanding anything contained herein to the contrary, no Bonus shall be payable to the Employee (i) if the Employee is terminated pursuant to Section 5(c) or (ii) if the Employee terminates his employment other than pursuant to Section 5(e). Section 3. Term of Employment . The term of Employee's employment under this Agreement shall commence on the Commencement Date and end on March 12, 2002 (the "Initial Period"). Thereafter, the Employee's employment shall be automatically renewed annually subject to the terms herein set forth (the "Employment Period"). Section 4. Employee Benefit Plans . The Employee, while employed by the Corporation, shall 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) While the Employee is employed by the Corporation, the Corporation will provide the Employee with an automobile allowance in the amount of $500 per month, payable in equal bi-weekly installments. Section 6. Termination. (a) Definition of the Termination Date The "Termination Date" shall be the date which is earlier of (i) 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 (ii) the final date of employment worked by such employee after he 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 (ashereinafter 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 2(b); (iii) in the case of death only, an additional 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 3 or 4; (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 to the amount of benefits he would have received had he continued to be eligible to participate in the Plan; and other or additional benefits then due or earned in accordance with applicable plans and programs of the Corporation (ix) 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 three (3) consecutive months or for a total of 90 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 misconduct in carrying out his duties under this Agreement or (ii) a violation of the Company's Code of Conduct or other similar guidelines then in effect, 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 Section 3 ; and (C) other or additional benefits then due or earned in accordance with applicable plans or programs of the Corporation (other than the Bonus described in Exhibit 1)(d) Termination by the Corporation Without Cause . In the event the Employee's employment is terminated pursuant to a change in control as herein defined, or 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) Continuation of Salary, at the annualized rate in effect on the Termination Date, payable in accordance with the Company's customary pay period practice, for a period commencing on the Termination Date and ending (six) 6 months following such termination (the "Severance Period"), provided, however, such continuation of Salary as herein described and any benefits described in subsection (vi) below shall cease at such time that Employee secures employment with another employer; plus, an amount paid in accordance with the Corporation's normal severance policy (iii) pro-rated Bonus, if any, for the fiscal year in which termination occurs, payable in accordance with Section 2(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 3 or 4; and (vi) 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 5 (c)). (e) Termination by Employee for Good Reason . The Employee shall have the right to terminate his/her employment for "Good Reason") (as hereinafter defined), provided that the Employee shall have given the Corporation ninety 90 days prior 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 the Employee's positions, titles, offices, duties, responsibilities or status with the Corporation as an executive, 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 3 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 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 5(d) "Termination by the Corporation Without Cause". (f) 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 5 (c) above for a termination for Cause. (g) 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. 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 6, the "Restriction Period" shall mean the period beginning on the Commencement Date and ending on the last day of either (i) the employment of the Employee by the Corporation (determined without giving effect to any termination of employment) or (ii) the Severance Period whichever is longer. Section 8. Non-Disclosure Covenant . The Employee further agrees that while employed by the Corporation 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 verbal 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 at the risk of liability 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 other- wise, 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. 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 10. 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 11 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 11. 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: Senior Vice President Corporate Affairs If to the Employee, then to the following: William O. Manzer 425 E. 63 Street Apt.Wphe New York, New York 10021 Each party may, by notice or other party, change the above address. Section 12. 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. This Agreement may be amended from time to time by action of the Executive Committee of the Corporation. 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 13. Waiver. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach thereof. Section 14. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original. Section 15. 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 16. 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; (ii) the Corporation consolidates with or merges into another 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; or (iii) the Corporation conveys, transfers or leases all or substantially all of its assets to any Person. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur if the Person described in clause (i), (ii) or (iii) is Magten Asset Management Corp. or is an Affiliate of Magten Asset Management Corp. "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:_____________________________________ Michael J. Setola Chairman of the Board and Chief Executive Officer ________________________________________ William O. Manzer 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 Initial Period or 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 annual business plan for the Corporation 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 (b) If Actual Annual Pre-tax Income is less than 100% of Planned Annual Pre-tax Income, the Employee's cash bonus shall be reduced by 1% for each full 1% decrease (after rounding to the nearest 1/100th of a percent) by which Actual Annual Pre-tax Income is less than 100% of Planned Annual Pre-tax Income. For example, if Actual Annual Pre-tax Income was 95% of Planned Annual Pre-tax Income, the Employee would receive a cash bonus equal to 45% of his Annual Salary. In no event shall the Employee receive a cash bonus if the Actual Annual Pre-tax Income is less than 90% of the Planned Annual Pre-tax Income. (c) If Actual Annual Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income, then in addition to the bonus specified in paragraph (a) above, the Employee shall receive additional cash bonuses, each equal to 1% of his Annual Salary, for each full 1% increment (after rounding to the nearest 1/100th of a percent) by which Actual Annual Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income. (d) The following principles shall apply in calculating the Pre-tax Income which term shall mean the aggregate income of the Corporation before provisions for all Federal, State and local income taxes thereon. In calculating such APre-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 Chief Executive Officer. EX-10 6 kwiatkowski.txt JERRY KWIATKOWSKI EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), dated as of August 24, 1999 (the "Commencement Date"), between SALANT CORPORATION, a Delaware corporation, (the "Corporation") and Jerry J. Kwiatkowski (the "Employee"). WHEREAS, this Agreement will confirm the understanding between the Employee and the Corporation concerning the Employee's employment with the Corporation. 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 Executive Vice President of Design. The Employee shall perform such services and duties as shall be assigned to him or delegated to him from time to time by Chief Executive Officer of the Corporation, or at the direction of the Chief Executive Officer, in conjunction with the President, Chief Operating Officer or Chief Financial Officer provided, however, that such duties shall be consistent with those customarily performed by a senior executive 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. 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. 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, (the "Salary"), such Salary shall be reviewed for increase annually while employed by the Corporation. (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. Each bonus shall be paid by the Corporation to the Employee on or about the succeeding March 31 following the end of the fiscal year to which such bonus relates. If the employment of the Employee is terminated 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 days of employment completed by the Employee during that fiscal year bears to 360. Notwithstanding anything contained herein to the contrary, no bonus or Minimum Bonus shall be payable to the Employee (i) if the Employee is terminated pursuant to Section 5(c) or (ii) if the Employee terminates his/her employment other than pursuant to Section 5(e). Section 3. Employee Benefit Plans . The Employee, while employed by the Corporation, shall 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 4. 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) While the Employee is employed by the Corporation, the Corporation will provide the Employee with an automobile allowance in the amount of $500 per month, payable in equal bi-weekly installments. Section 5. Termination. (a) Definition of the Termination Date The "Termination Date" shall be the date which is earlier of (i) 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 (ii) the final date of employment worked by such employee after he or she delivers written notice to the Corporation that he or she is terminating his/her 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 2(b); (iii) in the case of death only, an additional 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 3 or 4; (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 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 three (3) consecutive months or for a total of 90 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 misconduct in carrying out his duties under this Agreement or (ii) 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 3 or 4; 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 pursuant to a change in control as herein defined or 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 commencing on the Termination Date and ending 6 months following such termination; plus, an amount paid in accordance with the Corporation's normal severance policy (the "Severance Period"); (iii) pro-rated Bonus for the fiscal year in which termination occurs, payable in accordance with Section 2(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 3 or 4; and (vi) 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 5 (c)). (e) Termination by Employee for Good Reason . The Employee shall have the right to terminate his/her employment for "good reason" (as hereinafter defined), provided that the Employee shall have given the Corporation 90 days prior 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 the Employee's positions, titles, offices, duties, responsibilities or status with the Corporation as an executive, 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 3 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 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 5(d) "Termination by the Corporation Without Cause". (f) 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 5 (c) above for a termination for Cause. (g) 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. Section 6. 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 6, the "Restriction Period" shall mean the period beginning on the Commencement Date and ending on the last day of either (i) the employment of the Employee by the Corporation (determined without giving effect to any termination of employment) or (ii) the Severance Period whichever is longer. Section 7. Non-Disclosure Covenant . The Employee further agrees that while employed by the Corporation 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 verbal 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 at the risk of liability 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 8. 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 9. 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 11 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 10. 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: Senior Vice President Corporate Affairs If to the Employee, then to the following: Jerry J. Kwiatkowski 302 W. 12 Street Apt. 14-A New York, New York 10014 Each party may, by notice or other party, change the above address. Section 11. 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. This Agreement may be amended from time to time by action of the Executive Committee of the Corporation. 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 12. Waiver. The waiver by either party of a breach of any provision of this Agreement shal not operate or be construed as a waiver of any subsequent breach thereof. Section 13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original. Section 14. 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 15. 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; (ii) the Corporation consolidates with or merges into another 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; or (iii) the Corporation conveys, transfers or leases all or substantially all of its assets to any Person. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur if the Person described in clause (i), (ii) or (iii) is Magten Asset Management Corp. or is an Affiliate of Magten Asset Management Corp. "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:_____________________________________ Michael J. Setola Chairman of the Board and Chief Executive Officer ---------------------------------------- Jerry J. Kwiatkowski 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 annual business plan for the Corporation for that fiscal year ("Planned Annual Pre-tax Income"), the Employee shall receive a cash bonus equal to 35% of his annual Salary at the end of the applicable fiscal year ("Annual Salary"). (b) If Actual Annual Pre-tax Income is less than 100% of Planned Annual Pre-tax Income, the Employee's cash bonus shall be reduced by .7% for each full 1% decrease (after rounding to the nearest 1/100th of a percent) by which Actual Annual Pre-tax Income is less than 100% of Planned Annual Pre-tax Income. For example, if Actual Annual Pre-tax Income was 95% of Planned Annual Pre-tax Income, the Employee would receive a cash bonus equal to 31.5% of his Annual Salary. In no event shall the Employee receive a cash bonus if the Actual Annual Pre-tax Income is less than 90% of the Planned Annual Pre-tax Income. (c) If Actual Annual Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income, then in addition to the bonus specified in paragraph (a) above, the Employee shall receive additional cash bonuses, each equal to 1% of his Annual Salary, for each full 1% increment (after rounding to the nearest 1/100th of a percent) by which Actual Annual Pre-tax Income exceeds 100% of Planned Annual Pre-tax Income. (d) The following principles shall apply in calculating the "Pre-tax Income" which term shall mean the aggregate income of the Corporation before provisions for all Federal, State and local income taxes thereon. In calculating such "Pre-tax Income", all items of income and deductions shall be determined in accordance with generally accepted accounting principles applied on a consistent basis, subject, however, to the provisions of the following subparagraphs: (i) There shall be excluded from income: all extraordinary items of income such as gains and losses on the sale of fixed assets or intangible assets; all insurance recoveries other than for business interruption; non-recurring gains or losses including, without limitation, gains or losses on the termination of any employee benefit plans or gains or losses realized on the sale quota. (ii) Deductions from income shall include all interest expenses, fixed charges and reasonable provisions for depreciation, amortization and obsolescence, inventory write-offs and the salary and bonus payable to all of the employees of the Corporation and the Employee hereunder. (iii) The amount of "Planned Annual Pre-tax Income" for each fiscal year shall be determined by the Corporation's Chief Executive Officer. -----END PRIVACY-ENHANCED MESSAGE-----