-----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, Jr5eGlh/UcqN/vWBIAW2hPt9/IiUoG4yvbjfnnrDLd1ad0ib6I2PtXr4plMk77jV CdFsEAtnb8/8nkhEzcvLcw== 0000895345-99-000004.txt : 19990106 0000895345-99-000004.hdr.sgml : 19990106 ACCESSION NUMBER: 0000895345-99-000004 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981229 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990105 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: 1229 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-06666 FILM NUMBER: 99500982 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 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DECEMBER 29, 1998 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) SALANT CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 0-2433 13-3402444 (STATE OR OTHER (COMMISSION (IRS EMPLOYER JURISDICTION OF FILE NUMBER) INDENTIFICATION NO.) INCORPORATION) 1114 Avenue of the Americas, New York, New York 10036 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (212) 221-7500 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ITEM 3. BANKRUPTCY OR RECEIVERSHIP On December 29, 1998, Salant Corporation ("Salant") filed a voluntary petition for relief under chapter 11, title 11, of the United States Code with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Salant also filed its Disclosure Statement and Plan of Reorganization with the Bankruptcy Court on December 29, 1998. Also on December 29, 1998, the Bankruptcy Court approved, on an interim basis, Salant's authority to obtain additional loans and advances under an $85 million debtor-in-possession facility ("DIP Facility") provided by Salant's pre-petition working capital lender, The CIT Group/Commercial Services, Inc. ("CIT"), in an amount not to exceed the lesser of $15 million and the aggregate amount available under the DIP Facility. The foregoing summary does not purport to be complete and is qualified in its entirety by reference to (i) the Chapter 11 Plan of Reorganization for Salant Corporation, dated December 29, 1998, (ii) the Disclosure Statement for Chapter 11 Plan of Reorganization for Salant Corporation, dated December 29, 1998, (iii) the Ratification and Amendment Agreement, dated as of December 29, 1998, by and between Salant and CIT, (iv) the Order Authorizing Interim 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, dated December 29, 1998, and (v) the press release, dated December 29, 1998, filed as Exhibits 2.3, 2.4, 10.50, 99.1 and 99.2, respectively, to this Current Report on Form 8-K, which items are incorporated by reference herein. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibits. The following exhibits are filed as part of this report: Exhibit Number Description - ------- ----------- 2.3 Chapter 11 Plan of Reorganization for Salant Corporation, dated December 29, 1998. 2.4 Disclosure Statement for Chapter 11 Plan of Reorganization, dated December 29, 1998. 10.50 Ratification and Amendment Agreement, dated as of December 29, 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 99.1 Order Authorizing Interim 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, dated December 29, 1998. 99.2 Press Release, dated December 29, 1998. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SALANT CORPORATION Dated: January 5, 1999 By: /s/ Todd Kahn ------------------------- Chief Operating Officer and General Counsel EXHIBIT INDEX Exhibit Number Description - ------- ----------- 2.3 Chapter 11 Plan of Reorganization for Salant Corporation, dated December 29, 1998. 2.4 Disclosure Statement for Chapter 11 Plan of Reorganization, dated December 29, 1998. 10.50 Ratification and Amendment Agreement, dated as of December 29, 1998, by and between Salant Corporation and The CIT Group/Commercial Services, Inc. 99.1 Order Authorizing Interim 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, dated December 29, 1998. 99.2 Press Release, dated December 29, 1998. EX-2.3 2 EXHIBIT 2.3 APPENDIX I ---------- UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - -----------------------------------x : : In re: : : Chapter 11 SALANT CORPORATION, : Case No. 98-10107 (CB) : Debtor. : : - -----------------------------------x CHAPTER 11 PLAN OF REORGANIZATION FOR SALANT CORPORATION Dated: New York, New York December 29, 1998 FRIED, FRANK, HARRIS, SHRIVER & JACOBSON (A Partnership Including Professional Corporations) Attorneys for Salant Corporation Debtor and Debtor-In-Possession One New York Plaza New York, New York 10004 (212) 859-8000 TABLE OF CONTENTS ARTICLE ONE DEFINITIONS.................................................1 ARTICLE TWO PROVISIONS FOR TREATMENT OF ADMINISTRATIVE EXPENSES.........9 2.1. Administrative Expenses........................................9 ARTICLE THREE PROVISIONS FOR TREATMENT OF PRIORITY TAX CLAIMS.............9 3.1. Priority Tax Claims............................................9 ARTICLE FOUR CLASSIFICATION OF CLAIMS AND INTERESTS......................9 4.1. Claims........................................................10 4.2. Interests.....................................................10 ARTICLE FIVE IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND NOT IMPAIRED BY THIS PLAN..................10 5.1. Classes of Claims and Interests Impaired by this Plan and Entitled to Vote........................................10 5.2. Classes of Claims Not Impaired by this Plan and Conclusively Presumed to Accept this Plan...............11 5.3. Class of Interests Impaired by this Plan and Deemed Not to Have Accepted this Plan.................................11 ARTICLE SIX PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS..........11 6.1. Priority Claims (Class 1).....................................11 6.2. CIT Claim (Class 2)...........................................11 6.3. Senior Note Claims (Class 3)..................................12 6.4. Miscellaneous Secured Claims (Class 4)........................13 6.5. PBGC Claims (Class 5).........................................13 6.6. General Unsecured Claims (Class 6)............................13 6.7. Old Common Stock Interests (Class 7)..........................14 6.8. Other Interests (Class 8).....................................14 ARTICLE SEVEN ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF REJECTION BY ONE OR MORE IMPAIRED CLASSES OF CLAIMS OR INTERESTS............................................15 7.1. Impaired Class of Claims and Interests Entitled to Vote.......15 7.2. Acceptance by an Impaired Class of Creditors..................15 7.3. Acceptance by an Impaired Class of Interest Holders...........15 7.4. Classes of Claims Not Impaired by this Plan and Conclusively Presumed to Accept this Plan...............15 7.5. Class of Interests Deemed Not to Have Accepted this Plan......15 7.6. Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code....................................................16 ARTICLE EIGHT UNEXPIRED LEASES AND EXECUTORY CONTRACTS...................16 8.1. Assumption and Rejection of Executory Contracts and Unexpired Leases........................................16 8.2. Bar Date for Rejection Damages................................16 ARTICLE NINE IMPLEMENTATION OF THIS PLAN................................17 9.1. Vesting of Property...........................................17 9.2. Transactions on Business Days.................................17 9.3. Restated Certificate of Incorporation; Restated By-Laws.......17 9.4. Implementation................................................17 9.5. Issuance of New Securities....................................17 9.6. Cancellation of Existing Securities and Agreements............18 9.7. Board of Directors of Reorganized Salant......................18 9.8. Employee Benefit Plans........................................18 9.9. The Stock Award and Incentive Plan............................18 9.10. Survival of Indemnification Obligations......................19 9.11. Listing of New Common Stock; Registration of Securities......19 9.12. Retention and Enforcement of Causes of Action................20 ARTICLE TEN PROVISIONS COVERING DISTRIBUTIONS...........................20 10.1. Timing of Distributions Under this Plan......................20 10.2. Allocation of Consideration..................................21 10.3. Cash Payments................................................21 10.4. Payment of Statutory Fees....................................21 10.5. No Interest..................................................21 10.6. Fractional Securities........................................21 10.7. Withholding of Taxes.........................................22 10.8. Distribution Record Date.....................................22 10.9. Persons Deemed Holders of Registered Securities..............22 10.10. Surrender of Existing Securities............................22 10.11. Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments...................................23 10.13. Undeliverable or Unclaimed Distributions....................23 ARTICLE ELEVEN PROCEDURES FOR RESOLVING DISPUTED CLAIMS.................24 11.1. Objections to Claims.........................................24 11.2. Procedure....................................................24 11.3. Payments and Distributions With Respect to Disputed Claims...25 11.4. Timing of Payments and Distributions With Respect to Disputed Claims..............................25 11.5. Individual Holder Proofs of Interest.........................25 ARTICLE TWELVE DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS..................................................26 12.1. Discharge of All Claims and Interests and Releases...........26 12.2. Injunction...................................................27 12.3. Exculpation..................................................27 12.4. Guaranties and Claims of Subordination.......................28 ARTICLE THIRTEEN CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE..........................................29 13.1. Conditions Precedent to Entry of the Confirmation Order......29 13.2. Conditions Precedent to the Effective Date...................29 13.3. Waiver of Conditions.........................................29 13.4. Effect of Failure of Conditions..............................30 ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS...............................30 14.1. Bankruptcy Court to Retain Jurisdiction......................30 14.2. Binding Effect of this Plan..................................31 14.3. Nonvoting Stock..............................................31 14.4. Authorization of Corporate Action............................31 14.5. Retiree Benefits.............................................32 14.6. Withdrawal of this Plan......................................32 14.7. Captions.....................................................32 14.8. Method of Notice.............................................32 14.9. Dissolution of Committees....................................33 14.10. Fees, Costs and Expenses of Indenture Trustee...............33 14.11. Amendments and Modifications to Plan........................34 14.12. Section 1125(e) of the Bankruptcy Code......................34 Exhibit A - PEI Licenses Exhibit B - Registration Rights Agreement Exhibit C - Reorganized Salant's 1999 Stock Award and Incentive Plan SALANT CORPORATION, the above-captioned Debtor and Debtor-in-Possession, hereby proposes the following chapter 11 plan of reorganization pursuant to section 1121(a) of the Bankruptcy Code. ARTICLE ONE ----------- DEFINITIONS ----------- Whenever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Unless the context requires otherwise, the following words and phrases shall have the meanings set forth below when used in initially-capitalized form in this Plan: Administrative Expense: (a) Any cost or expense of administration of the Chapter 11 Case (including, without limitation, professional fees and expenses) asserted or arising under sections 503(b) or 507(b) of the Bankruptcy Code, (b) a Claim given the status of an Administrative Expense by Final Order of the Bankruptcy Court, and (c) all fees or charges assessed against the Debtor's estate under title 28, United States Code, Section 1930. Affiliate: As defined in section 101(2) of the Bankruptcy Code. Allowed: With respect to Claims and Interests, (a) any Claim against, or Interest in, the Debtor, proof of which is timely filed or by order of the Bankruptcy Court is not or will not be required to be filed, (b) any Claim or Interest that has been or is hereafter listed in the Schedules as neither disputed, contingent or unliquidated, and for which no timely proof of claim has been filed, (c) any Interest registered in the stock register maintained by or on behalf of the Debtor as of the Record Date, or (d) any Claim allowed pursuant to this Plan and, in each such case in (a), (b), and (c) above, as to which either (i) no objection to the allowance thereof has been interposed within the applicable period of time fixed by this Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court or (ii) such an objection is so interposed and the Claim or Interest shall have been allowed by a Final Order (but only to the extent so allowed). Apollo: Apollo Apparel Partners, L.P., a Delaware limited partnership, in its capacity as the beneficial owner of 5,924,352 shares of the Old Common Stock. Bankruptcy Code: Title 11 of the United States Code, as amended from time to time. Bankruptcy Court: The United States Bankruptcy Court for the Southern District of New York, or any other court having jurisdiction over this Chapter 11 Case. Bankruptcy Rules: The Federal Rules of Bankruptcy Procedure, as amended, promulgated under Section 2075 of title 28 of the United States Code and the Local Rules of the Bankruptcy Court, as applicable from time to time during the Chapter 11 Case. Board: The Board of Directors of the Debtor or Reorganized Salant, as applicable. Business Day: Any day other than a Saturday, Sunday or "legal holiday" as such term is defined in Bankruptcy Rule 9006(a). By-Laws: The By-Laws, as amended, of the Debtor. Canceled Security: A security, note or other instrument evidencing a Claim or Interest outstanding immediately prior to the Effective Date, which security, note or other instrument represents a Claim or Interest that is Impaired under this Plan. Cash: Currency, a certified check, a cashier's check or a wire transfer of good funds from any source, or a check drawn on a domestic bank from the Debtor, Reorganized Salant or other Entity making any distribution under this Plan. Cause of Action: Any and all actions, causes of action, suits, accounts, controversies, agreements, promises, rights to legal remedies, rights to equitable remedies, rights to payment, and claims, whether known or unknown, reduced to judgment, not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured and whether asserted or assertable directly or derivatively, in law, equity or otherwise. Certificate of Incorporation: The Amended and Restated Certificate of Incorporation of Salant. Chapter 11 Case: The case under chapter 11 of the Bankruptcy Code concerning the Debtor which was commenced on the Filing Date. CIT: The CIT Group/Commercial Services, Inc., a New York corporation. CIT Claim: Any and all Claims in respect of all or any portion of the aggregate outstanding and unpaid amount of principal and interest due and owing under, and subject to the terms and provisions of, the Credit Agreement and all other Financing Agreements (as defined in the Credit Agreement), including, without limitation, any and all interest, costs, attorney's fees and other expenses owed by the Debtor or for which the Debtor may be liable in connection therewith. Claim: Any right to (a) payment from the Debtor, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (b) an equitable remedy for breach of performance if such breach gives rise to a right to payment from the Debtor, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. Class: A class of Claims or Interests designated pursuant to this Plan. Commission: The Securities and Exchange Commission. Confirmation Date: The date on which the Confirmation Order shall be entered on the docket maintained by the Clerk of the Bankruptcy Court with respect to the Chapter 11 Case. Confirmation Hearing: The hearing held by the Bankruptcy Court pursuant to section 1128(a) of the Bankruptcy Code regarding the confirmation of this Plan pursuant to section 1129 of the Bankruptcy Code. Confirmation Order: The order of the Bankruptcy Court confirming this Plan pursuant to section 1129 of the Bankruptcy Code. Credit Agreement: The Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended, modified or supplemented from time to time, between Salant and CIT, and as ratified and amended pursuant to that certain Ratification and Amendment Agreement, dated as of December 29, 1998. Creditors' Committee: Any official committee of unsecured creditors appointed in the Chapter 11 Case pursuant to section 1102(a) of the Bankruptcy Code, as the same may be constituted from time to time. Debtor: Salant Corporation, as debtor and debtor-in-possession in the Chapter 11 Case. Disclosure Statement: The Disclosure Statement that relates to this Plan and that has been approved by the Bankruptcy Court as containing adequate information as required by section 1125 of the Bankruptcy Code. Disputed: With respect to Claims, any Claim that is not Allowed. Distribution Record Date: The date or dates fixed by the Bankruptcy Court for determining the Holders of Senior Notes and Old Common Stock, respectively, who are entitled to receive distributions under this Plan, or if the Bankruptcy Court does not fix such date or dates, the Record Date. Effective Date: The date which is 11 days after the Confirmation Date, or, if such date is not a Business Day, the next succeeding Business Day, or such earlier date after the Confirmation Date as agreed to in writing between the Debtor and Magten so long as no stay of the Confirmation Order is in effect on such date; provided, however, that if, on or prior to such date, all conditions to the Effective Date set forth in Article Thirteen of this Plan have not been satisfied, or waived, then the Effective Date shall be the first Business Day following the day on which all such conditions to the Effective Date have been satisfied or waived. Entity: Any individual, corporation, limited or general partnership, limited liability company, joint venture, association, joint stock company, estate, entity, trust, trustee, United States trustee, unincorporated organization, government, governmental unit (as defined in the Bankruptcy Code), agency or political subdivision thereof. Exchange Act: The Securities Exchange Act of 1934, as amended. Filing Date: December 29, 1998, which was the date on which the Debtor filed its voluntary petition for relief commencing the Chapter 11 Case. Final Decree: A final decree closing the Chapter 11 Case as described in Bankruptcy Rule 3022. Final Order: An order, ruling or judgment that: (i) is in full force and effect; (ii) is not stayed; and (iii) is no longer subject to review, reversal, modification or amendment, by appeal or writ of certiorari. General Unsecured Claim: Any Claim against the Debtor (other than the CIT Claim, a Miscellaneous Secured Claim, a Senior Note Claim, a Priority Claim, a Priority Tax Claim, an Administrative Expense, or any Claim subordinated under section 510(b) of the Bankruptcy Code). Holder: Any Entity that holds a Claim or Interest. Where the identity of the Holder of a Claim or Interest is set forth on a register or other record maintained by or at the direction of the Debtor, the Holder of such Claim or Interest shall be deemed to be the Holder as identified on such register or record, unless the Debtor is otherwise notified in a writing authorized by such Holder. Impaired: Any Class of Claims or Interests that is impaired within the meaning of section 1124 of the Bankruptcy Code. Indenture: The Indenture, dated September 20, 1993, as amended, between Salant and Bankers Trust Company, as Indenture Trustee, pursuant to which the Senior Notes were issued. Indenture Trustee: Bankers Trust Company, as trustee under the Indenture, or its duly appointed successor (if any). Instrument: Any share of stock, security, promissory note or other "Instrument" within the meaning of that term, as defined in Section 9-105(1)(i) of the UCC. Interests: The equity interests in the Debtor, including, but not limited to, shares of common stock and shares of preferred stock of the Debtor and any rights, options, warrants, calls, subscriptions or other similar rights or agreements, commitments or outstanding securities obligating the Debtor to issue, transfer or sell any shares of capital stock of the Debtor. Magten: Magten Asset Management Corp., a New York corporation, in its capacity as the beneficial owner, or the investment manager on behalf of the beneficial owners, of a substantial portion of the outstanding Senior Notes. Management Employment Agreements: The Management Employment Agreements between Reorganized Salant and Michael Setola and Todd Kahn, substantially in the form of the exhibit to the Plan to be filed with the Bankruptcy Court prior to the Disclosure Statement Hearing. Market Rate: The rate of interest per annum (rounded upward, if necessary, to the nearest whole 1/100 of 1%) equal to the yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of one-year United States Treasury bills settled at least fifteen days prior to the Effective Date. Miscellaneous Secured Claim: Any Claim, other than the CIT Claim, a Senior Note Claim, or an Administrative Expense, that is a secured claim within the meaning of, and to the extent allowable as a secured claim under, section 506 of the Bankruptcy Code. New Common Stock: The shares of common stock of Reorganized Salant, par value $1.00 per share, to be issued by Reorganized Salant on and after the Effective Date pursuant to this Plan. New PIK Senior Notes: Collectively, the pay-in-kind notes, substantially in the form to be attached to the New PIK Senior Note Indenture, to be issued to the holders of Allowed Class 3 Claims on the Effective Date by Reorganized Salant pursuant to the New PIK Senior Note Indenture, if the PEI Event does not occur on or prior to the Effective Date, in the aggregate principal amount of $92 million and with a maturity date on the eighth anniversary of the Effective Date and bearing interest payable semi-annually in arrears, at the rate of (i) 15% per annum payable in the form of additional New PIK Senior Notes or (ii) at the sole option of Reorganized Salant, 12% per annum payable in Cash. New PIK Senior Note Indenture: The indenture to be dated as of the Effective Date, substantially in the form of the exhibit to this Plan to be filed with the Bankruptcy Court prior to the Confirmation Hearing. Noteholders: The holders of the Senior Notes. NYSE: The New York Stock Exchange, Inc. Old Common Stock: The common stock of the Debtor, par value $1.00 per share, issued and outstanding as of the Filing Date. Old Common Stock Interest: Any Interest evidenced by Old Common Stock or any Claim, if any, relating to Old Common Stock that is subordinated under section 510(b) of the Bankruptcy Code. Other Interest: Any Interest other than an Old Common Stock Interest. PBGC: The Pension Benefit Guaranty Corporation. PBGC Agreement: The agreement to be entered into between the PBGC and Reorganized Salant on or prior to the Effective Date with respect to any and all PBGC Claims. PBGC Claims: Any and all Claims of the PBGC. PEI. Perry Ellis International, Inc. PEI Event: Either (i) the issuance of a Final Order of the Bankruptcy Court approving the assumption of the PEI Licenses by the Debtor and/or Reorganized Salant, as the case may be, and determining that the Debtor's reorganization under the Plan with the treatment provided to Senior Note Claims (Class 3) under Section 6.3(a)(i) of the Plan and the treatment provided to Old Common Stock Interests (Class 7) under Section 6.7(a)(i) of the Plan, and the confirmation and consummation of the Plan (including, but not limited to, the provisions providing such treatment), does not and will not give rise to any rights of PEI under the PEI Licenses based on any "change of control" provision in the PEI Licenses (as that term is defined in the PEI Licenses) or any similar provision, and does not and will not for any reason result in any forfeiture, termination or modification of any rights of Salant existing under the PEI Licenses immediately prior to the Filing Date, or (ii) the execution of an agreement or stipulation by and between PEI and the Debtor and/or Reorganized Salant, as the case may be, to the same effect. PEI Licenses: Collectively, all licensing agreements by and between Salant and PEI that are in effect immediately prior to the Filing Date including, without limitation, those listed on the annexed Exhibit A. Plan: This Chapter 11 plan of reorganization of the Debtor, together with all exhibits hereto, as the same may be amended and modified from time to time in accordance with the terms hereof. Priority Claim: Any Claim, other than a Priority Tax Claim or an Administrative Expense, which is entitled to priority of payment under section 507(a) of the Bankruptcy Code. Priority Tax Claim: Any Claim which is entitled to priority of payment under section 507(a)(8) of the Bankruptcy Code. Pro Rata Share: A proportionate share, so that the ratio of the amount of property distributed on account of an Allowed Claim or Allowed Interest, as the case may be, in a class is the same as the ratio such Claim or Interest bears to the total amount of all Claims or Interests (including Disputed Claims or Disputed Interests until disallowed) in such class. Record Date: _____ __, 1998. Registration Rights Agreement: A registration rights agreement, in substantially the form annexed hereto as Exhibit B, to be entered into on the Effective Date by and among Reorganized Salant and certain holders of the New Common Stock as of the Effective Date. Related Documents: This Plan and all documents necessary to consummate the transactions contemplated by this Plan. Reorganized Salant: The Debtor from and after the effectiveness of this Plan on the Effective Date. Reorganized Salant By-Laws: The by-laws of Reorganized Salant, as amended and restated pursuant to this Plan, to be filed with the Bankruptcy Court prior to the Confirmation Hearing. Reorganized Salant Certificate of Incorporation: The certificate of incorporation of Reorganized Salant, as amended and restated pursuant to this Plan, in substantially the form to be filed with the Bankruptcy Court prior to the Confirmation Hearing. Restricted Stock Plan: Reorganized Salant Restricted Stock Plan, substantially in the form of the exhibit to this Plan to be filed with the Bankruptcy Court prior to the Confirmation Hearing. Salant: Salant Corporation, a Delaware corporation. Schedules: The schedule of assets and liabilities filed by the Debtor with the Bankruptcy Court in accordance with section 521(1) of the Bankruptcy Code, and any supplements and amendments thereto. Securities Act: The Securities Act of 1933, as amended. Senior Notes: The 10-1/2% Senior Secured Notes due December 31, 1998 issued by Salant pursuant to the Indenture. Senior Note Claims: Any and all Claims in respect of all or any portion of the aggregate outstanding and unpaid amount of principal and interest due and owing under, and subject to the terms and provisions of, the Senior Notes, and any other indebtedness of the Debtor due and owing under the Indenture or the Senior Notes (including, without limitation, any and all interest, costs, attorneys' fees and other expenses owed by the Debtor or for which the Debtor may be liable in connection therewith) and all other Claims against the Debtor, if any, directly or indirectly related to or arising out of the transactions, agreements or instruments upon which the Senior Notes are based. Stock Award and Incentive Plan: Reorganized Salant's 1999 Stock Award and Incentive Plan, in substantially the form annexed hereto as Exhibit C. UCC: The Uniform Commercial Code, from time to time in effect in the State of New York. Unimpaired: Any Class of Claims or Interests that is not Impaired. ARTICLE TWO ----------- PROVISIONS FOR TREATMENT OF ADMINISTRATIVE EXPENSES --------------------------------------------------- 2.1. Administrative Expenses. Each allowed Administrative Expense shall be paid in full in Cash on the later of (i) the Effective Date and (ii) the date on which the Bankruptcy Court enters an order allowing such Administrative Expense; provided, however, that allowed Administrative Expenses representing obligations incurred in the ordinary course of business, consistent with past practice, or assumed by the Debtor shall be paid in full or performed by the Debtor or Reorganized Salant in the ordinary course of business, consistent with past practice; provided further, however, that allowed Administrative Expenses incurred by the Debtor or Reorganized Salant after the Confirmation Date, including (without limitation) claims for professionals' fees and expenses, shall not be subject to application and may be paid by the Debtor or Reorganized Salant, as the case may be, in the ordinary course of business and without further Bankruptcy Court approval. ARTICLE THREE ------------- PROVISIONS FOR TREATMENT OF PRIORITY TAX CLAIMS ----------------------------------------------- 3.1. Priority Tax Claims. With respect to each Allowed Priority Tax Claim, at the sole option of the Debtor, the Holder of an Allowed Priority Tax Claim shall be entitled to receive from Reorganized Salant on account of such Claim: (a) Cash payments made in equal annual installments beginning on or before the first anniversary following the Effective Date with the final installment being payable no later than the sixth anniversary of the date of the assessment of such Allowed Priority Tax Claim, together with interest on the unpaid balance of such Allowed Priority Tax Claim from the Effective Date calculated at the Market Rate; or (b) Such other treatment agreed to by the Holder of such Allowed Priority Tax Claim and the Debtor or Reorganized Salant, as the case may be. ARTICLE FOUR ------------ CLASSIFICATION OF CLAIMS AND INTERESTS -------------------------------------- Pursuant to sections 1122 and 1123(a)(1) of the Bankruptcy Code, set forth below is a designation of classes of Claims and Interests. Administrative Expenses and Priority Tax Claims of the kinds specified in sections 507(a)(1) and 507(a)(8) of the Bankruptcy Code (set forth in Articles Two and Three above) have not been classified and are excluded from the following classes in accordance with section 1123(a)(l) of the Bankruptcy Code. 4.1. Claims ------ Class 1. Class 1 consists of all Priority Claims. Class 2. Class 2 consists of the CIT Claim. Class 3. Class 3 consists of all Senior Note Claims. Class 4. Class 4 consists of all Miscellaneous Secured Claims. Class 5. Class 5 consists of all PBGC Claims. Class 6. Class 6 consists of all General Unsecured Claims. 4.2. Interests --------- Class 7. Class 7 consists of all Old Common Stock Interests. Class 8. Class 8 consists of all Other Interests. ARTICLE FIVE ------------ IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND NOT IMPAIRED BY THIS PLAN ------------------------------------------------ 5.1. Classes of Claims and Interests Impaired by this Plan and Entitled to Vote. Senior Note Claims (Class 3), PBGC Claims (Class 5) and Old Common Stock Interests (Class 7) are Impaired by this Plan and the Holders of Allowed Claims and Interests in such Classes are entitled to vote to accept or reject this Plan. 5.2. Classes of Claims Not Impaired by this Plan and Conclusively Presumed to Accept this Plan. Priority Claims (Class 1), the CIT Claim (Class 2), Miscellaneous Secured Claims (Class 4) and General Unsecured Claims (Class 6) are not Impaired by this Plan. Under section 1126(f) of the Bankruptcy Code, the Holders of such Claims and Interests are conclusively presumed to accept this Plan, and the acceptances of such Holders will not be solicited. 5.3. Class of Interests Impaired by this Plan and Deemed Not to Have Accepted this Plan. Other Interests (Class 8) are Impaired by this Plan and do not receive or retain any property under this Plan. Under section 1126(g) of the Bankruptcy Code, the Holders of Other Interests are deemed not to have accepted this Plan, and the acceptance of such Holders will not be solicited. ARTICLE SIX ----------- PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS -------------------- 6.1. Priority Claims (Class 1). --------------- (a) Treatment. On the latest of (a) the Effective Date, (b) the date on which such Priority Claim becomes an Allowed Claim, and (c) the date on which the Debtor and the Holder of such Allowed Priority Claim otherwise agree, each Holder of an Allowed Priority Claim shall be entitled to receive Cash in an amount sufficient to render such Allowed Priority Claim Unimpaired under section 1124 of the Bankruptcy Code. (b) Full Settlement. The distribution provided for in this Section 6.1 is in full settlement, release and discharge of each Holder's Priority Claim. Class 1 is not Impaired. 6.2. CIT Claim (Class 2). --------- (a) Treatment. At the election of the Debtor prior to the Effective Date, on the Effective Date or as soon as practicable thereafter, CIT shall be entitled to receive on account of the Allowed CIT Claim one of the following treatments: (i) CIT shall be entitled to receive Cash in an amount sufficient to render such Allowed CIT Claim Unimpaired under section 1124 of the Bankruptcy Code, (ii) the Allowed CIT Claim shall be otherwise rendered Unimpaired in accordance with section 1124 of the Bankruptcy Code, or (iii) such other treatment as mutually agreed to by the Debtor and CIT. (b) Full Settlement. The distribution provided for in this Section 6.2 is in full settlement, release and discharge of the Holder's CIT Claim. Class 2 is not Impaired. 6.3. Senior Note Claims (Class 3). ------------------ (a) Treatment. (i) If the PEI Event occurs on or prior to the Effective Date, then on the Effective Date or as soon as practicable thereafter, each Holder of an Allowed Senior Note Claim shall be entitled to receive on account of such Holder's Allowed Senior Note Claim such Holder's Pro Rata Share of 9,500,000 shares of New Common Stock (or 90.5805738 shares of New Common Stock for each $1,000 principal amount of Senior Notes held by such Holder), which in the aggregate shall represent 95% of the issued and outstanding shares of New Common Stock of Reorganized Salant as of the Effective Date, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan. (ii) If the PEI Event does not occur on or prior to the Effective Date, then on the Effective Date or as soon as practicable thereafter, each Holder of an Allowed Senior Note Claim shall be entitled to receive on account of such Holder's Allowed Senior Note Claim such Holder's Pro Rata Share of (A) 4,000,000 shares of New Common Stock (or 38.1391890 shares of New Common Stock for each $1,000 principal amount of Senior Notes held by such Holder), which in the aggregate shall represent 40% of the issued and outstanding shares of New Common Stock of Reorganized Salant as of the Effective Date, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan, and (B) the New PIK Senior Notes (or $877.20 aggregate principal amount of New PIK Senior Notes for each $1,000 principal amount of Senior Notes held by such Holder). (b) Full Settlement. The distribution provided for in this Section 6.3 is in full settlement, release and discharge of each Holder's Senior Note Claim. (c) Allowance of Senior Note Claims. The aggregate Senior Note Claims in Class 3 shall be deemed Allowed in the aggregate amount of $119,190,277, plus interest in the amount of $30,590 for each day after December 18, 1998, until and including the Filing Date. The Senior Note Claims are not disputed, contingent or unliquidated, and no Holder of a Senior Note Claim or the Indenture Trustee shall be required to file a proof of claim in order for such Claims to be Allowed pursuant to this Plan. Any Claims filed with respect to the Senior Note Claims shall be disallowed as duplicative of the Claim deemed filed and Allowed as provided in this Section 6.3(c). The reasonable fees, costs and expenses of the Indenture Trustee as provided for pursuant to the Indenture shall be paid in Cash in accordance with Section 14.10 of this Plan. Class 3 is Impaired. 6.4. Miscellaneous Secured Claims (Class 4). ---------------------------- (a) Treatment. At the election of the Debtor prior to the Effective Date, on the Effective Date or as soon as practicable thereafter, each Holder of an Allowed Miscellaneous Secured Claim shall be entitled to receive on account of such Holder's Allowed Miscellaneous Secured Claim one of the following treatments: (i) the legal, equitable and contractual rights to which such Allowed Miscellaneous Secured Claim entitles such Holder shall remain unaltered, (ii) such Holder's Allowed Miscellaneous Secured Claim shall be reinstated and rendered Unimpaired in accordance with section 1124(2) of the Bankruptcy Code, or (iii) such other treatment as mutually agreed to by the Debtor and such Holder. (b) Full Settlement. The distribution provided for in this Section 6.4 is in full settlement, release and discharge of each Holder's Miscellaneous Secured Claim. Class 4 is not Impaired. 6.5. PBGC Claims (Class 5). ----------- (a) Treatment. On the Effective Date, the Holder of the Allowed PBGC Claims shall be entitled to receive on account of the Allowed PBGC Claims the treatment provided for in the PBGC Agreement. (b) Full Settlement. The distribution provided for in this Section 6.5 is in full settlement, release and discharge of the Holder's PBGC Claims. Class 5 is Impaired. 6.6. General Unsecured Claims (Class 6). ------------------------ (a) Treatment. At the election of the Debtor prior to the Effective Date, on the Effective Date or as soon as practicable thereafter, each Holder of an Allowed General Unsecured Claim shall be entitled to receive on account of such Holder's Allowed General Unsecured Claim one of the following treatments: (i) the legal, equitable and contractual rights to which such Allowed General Unsecured Claim entitles such Holder shall remain unaltered; (ii) such Holder's Allowed General Unsecured Claim shall be reinstated and rendered Unimpaired in accordance with section 1124(2) of the Bankruptcy Code; or (iii) such other treatment as mutually agreed to by the Debtor and such Holder. (b) Full Settlement. The distribution provided for in this Section 6.6 is in full settlement, release and discharge of each Holder's General Unsecured Claim. Class 6 is not Impaired. 6.7. Old Common Stock Interests (Class 7). -------------------------- (a) Treatment. (i) If the PEI Event occurs on or prior to the Effective Date, then on the Effective Date or as soon as practicable thereafter, each Holder of an Allowed Old Common Stock Interest shall be entitled to receive on account of such Holder's Allowed Old Common Stock Interest such Holder's Pro Rata Share of 500,000 shares of New Common Stock, which in the aggregate shall represent 5% of the issued and outstanding shares of New Common Stock of Reorganized Salant as of the Effective Date, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan. (ii) If the PEI Event does not occur on or prior to the Effective Date, then on the Effective Date or as soon as practicable thereafter, each Holder of an Allowed Old Common Stock Interest shall be entitled to receive on account of such Holder's Allowed Old Common Stock Interest such Holder's Pro Rata share of 6,000,000 shares of New Common Stock, which in the aggregate shall represent 60% of the issued and outstanding shares of New Common Stock of Reorganized Salant as of the Effective Date, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan. (b) Full Settlement. The distribution provided for in this Section 6.7 is in full settlement, release and discharge of each Holder's Old Common Stock Interest. Class 7 is Impaired. 6.8. Other Interests (Class 8). On the Effective Date, all Other Interests will be extinguished and no distributions will be made in respect of such Other Interests. Class 8 is Impaired. ARTICLE SEVEN ------------- ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF REJECTION BY ONE OR MORE IMPAIRED CLASSES OF CLAIMS OR INTERESTS ------------------------------ 7.1. Impaired Class of Claims and Interests Entitled to Vote. The Holders of Allowed Claims in each Impaired Class of Claims (Class 3 - Senior Note Claims; Class 5 - PBGC Claims) and Interests (Class 7 - Old Common Stock Interests) are entitled to vote to accept or reject this Plan. 7.2. Acceptance by an Impaired Class of Creditors. Consistent with section 1126(c) of the Bankruptcy Code and except as provided in section 1126(e) of the Bankruptcy Code, an Impaired Class of Claims shall have accepted this Plan if this Plan is accepted by Holders of at least two-thirds in dollar amount and more than one-half in number of the Allowed Claims in such Class that have timely and properly voted to accept or reject this Plan. 7.3. Acceptance by an Impaired Class of Interest Holders. Consistent with section 1126(d) of the Bankruptcy Code and except as provided in section 1126(e) of the Bankruptcy Code, Class 7 (Old Common Stock Interests) shall have accepted this Plan if this Plan is accepted by Holders of at least two-thirds in amount of the Allowed Interests in Class 7 that have timely and properly voted to accept or reject this Plan. 7.4. Classes of Claims Not Impaired by this Plan and Conclusively Presumed to Accept this Plan. Priority Claims (Class 1), the CIT Claim (Class 2), Miscellaneous Secured Claims (Class 4), and General Unsecured Claims (Class 6) are not Impaired by this Plan. Under section 1126(f) of the Bankruptcy Code, the Holders of such Claims are conclusively presumed to accept this Plan, and the acceptances of such Holders will not be solicited. 7.5. Class of Interests Deemed Not to Have Accepted this Plan. Other Interests (Class 8) are Impaired by this Plan and do not receive or retain any property under this Plan. Under section 1126(g) of the Bankruptcy Code, the Holders of such Other Interests are deemed not to have accepted this Plan, and the acceptance of such Holders will not be solicited. 7.6. Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code. With respect to Class 8 and any Impaired Class that does not accept this Plan, the Debtor intends to request that the Bankruptcy Court confirm this Plan in accordance with section 1129(b) of the Bankruptcy Code. ARTICLE EIGHT ------------- UNEXPIRED LEASES AND EXECUTORY CONTRACTS ---------------------------------------- 8.1. Assumption and Rejection of Executory Contracts and Unexpired Leases. Each executory contract or unexpired lease that has not been expressly assumed or rejected with approval by order of the Bankruptcy Court on or prior to the Confirmation Date shall, as of the Confirmation Date (subject to the occurrence of the Effective Date), be deemed to have been assumed by the Debtor unless there is then pending before the Bankruptcy Court a motion to reject such unexpired lease or executory contract. Entry of the Confirmation Order by the clerk of the Bankruptcy Court shall constitute an order approving such assumptions and rejections, as the case may be, pursuant to section 365(a) of the Bankruptcy Code. 8.2. Bar Date for Rejection Damages. Unless otherwise provided by an order of the Bankruptcy Court entered prior to the Confirmation Date, a proof of claim with respect to any Claim against the Debtor arising from the rejection of any executory contract or unexpired lease pursuant to an order of the Bankruptcy Court must be filed with the Bankruptcy Court within the later of (a) the time period established by the Bankruptcy Court in an order of the Bankruptcy Court approving such rejection, or (b) if no such time period is or was established, thirty (30) days from the date of entry of such order of the Bankruptcy Court approving such rejection. Any Entity that fails to file a proof of claim with respect to its Claim arising from such a rejection within the period set forth above shall be forever barred from asserting a Claim against the Debtor, Reorganized Salant or the property or interests in property of the Debtor or Reorganized Salant. All Allowed Claims arising from the rejection of executory contracts or unexpired leases shall be classified as a General Unsecured Claim (Class 6) under this Plan. ARTICLE NINE ------------ IMPLEMENTATION OF THIS PLAN --------------------------- 9.1. Vesting of Property. Except as otherwise provided in this Plan, on the Effective Date, title to all property of the Debtor's estate shall pass to Reorganized Salant free and clear of all Claims, Interests, and liens (including, without limitation, all liens securing the Senior Note Claims). Confirmation of this Plan (subject to the occurrence of the Effective Date) shall be binding and the Debtor's debts shall, without in any way limiting Section 12.1 of this Plan, be discharged as provided in section 1141 of the Bankruptcy Code. 9.2. Transactions on Business Days. If the Effective Date or any other date on which a transaction may occur under this Plan shall occur on a day that is not a Business Day, the transactions contemplated by this Plan to occur on such day shall instead occur on the next succeeding Business Day. 9.3. Restated Certificate of Incorporation; Restated By-Laws. On the Effective Date or as soon thereafter as is practicable, Reorganized Salant shall file with the Secretary of State of the State of Delaware, in accordance with sections 103 and 303 of the Delaware General Corporation Law, the Reorganized Salant Certificate of Incorporation and such certificate shall be the certificate of incorporation for Reorganized Salant. On the Effective Date, the Reorganized Salant By-Laws shall become the by-laws of Reorganized Salant. 9.4. Implementation. The Debtor shall be authorized to take all necessary steps, and perform all necessary acts, to consummate the terms and conditions of this Plan. On or before the Effective Date, the Debtor may file with the Bankruptcy Court such agreements and other documents as may be necessary or appropriate to effectuate or further evidence the terms and conditions of this Plan and the other agreements referred to herein. The Debtor or Reorganized Salant, as the case may be, may, and shall, execute such documents and take such other actions as are necessary to effectuate the transactions provided for in this Plan. 9.5. Issuance of New Securities. The issuance and distribution of the New Common Stock by Reorganized Salant is hereby authorized and directed without the need for any further corporate action, under applicable law, regulation, order, rule or otherwise. 9.6. Cancellation of Existing Securities and Agreements. On the Effective Date, the Senior Notes, the Old Common Stock, and any rights, options, warrants, calls, subscriptions, or other similar rights or other agreements or commitments, contractual or otherwise, obligating the Debtor to issue, transfer, or sell any shares of Old Common Stock or any other capital stock of the Debtor shall be canceled. Except for purposes of effectuating the distributions under this Plan, on the Effective Date, the Indenture shall be canceled. 9.7. Board of Directors of Reorganized Salant. On the Effective Date, the operation of Reorganized Salant shall become the general responsibility of its Board, subject to, and in accordance with, the Reorganized Salant Certificate of Incorporation and the Reorganized Salant By-Laws. The Reorganized Salant Certificate of Incorporation will provide, among other things, for a classified board of directors with each class of directors serving for a three year term. The initial Board of Reorganized Salant shall consist of the individuals identified on the exhibit to this Plan to be filed with the Bankruptcy Court prior to the Disclosure Statement hearing. Such directors shall be deemed elected or appointed, as the case may be, pursuant to the Confirmation Order, but shall not take office and shall not be deemed to be elected or appointed until the occurrence of the Effective Date. Those directors and officers not continuing in office shall be deemed removed therefrom as of the Effective Date pursuant to the Confirmation Order. 9.8. Employee Benefit Plans. Subject to the occurrence of the Effective Date, all employee benefit plans, policies, and programs of the Debtor, and the Debtor's obligations thereunder, shall survive confirmation of this Plan, remain unaffected thereby, and not be discharged. Employee benefit plans, policies, and programs shall include, without limitation, all savings plans, retirement pension plans, health care plans, disability plans, severance benefit plans, life, accidental death, and dismemberment insurance plans (to the extent not executory contracts assumed under this Plan), but shall exclude all employee equity or equity-based incentive plans. 9.9. The Stock Award and Incentive Plan and Restricted Stock Plan. (a) The Stock Award and Incentive Plan shall remain in effect after the Effective Date; provided, that, if the Stock Award and Incentive Plan has not previously been approved by the stockholders of Salant, the Stock Award and Incentive Plan and any grants made thereunder shall be subject to the subsequent approval of the stockholders of Reorganized Salant. (b) The Restricted Stock Plan shall become effective as of the Effective Date. Grants under the Restricted Stock Plan shall not be effective until after the Effective Date. In accordance therewith, on the Effective Date, Reorganized Salant shall reserve 2% of the New Common Stock on a fully diluted basis (subject to dilution for shares issued under the Stock Award and Incentive Plan) for issuance to employees of Reorganized Salant that may be granted under the Restricted Stock Plan; provided, that, if the PEI Event does not occur on or prior to the Effective Date then the percentage of New Common Stock that is reserved for issuance under the Restricted Stock Plan shall be adjusted so that the amount reserved will equal 2% of the aggregate distribution to be made to Holders of Senior Note Claims (Class 3) under Section 6.3(a)(ii) of the Plan. 9.10. Survival of Indemnification and Contribution Obligations. Notwithstanding anything to the contrary contained in this Plan, the obligations of the Debtor to indemnify and/or provide contribution to its present or former directors, officers, agents, employees and representatives, pursuant to the Certificate of Incorporation, By-Laws, applicable statutes or contractual obligations, in respect of all past, present and future actions, suits and proceedings against any of such directors, officers, agents, employees and representatives, based upon any act or omission related to service with, for or on behalf of the Debtor, shall not be discharged or impaired by confirmation or consummation of this Plan but shall survive unaffected by the reorganization contemplated by this Plan and shall be treated as, and deemed to be, Allowed General Unsecured Claims that are Unimpaired pursuant to Section 6.5 of this Plan. 9.11. Listing of New Common Stock; Registration of Securities. Reorganized Salant shall use its reasonable best efforts to (i) maintain its status as a reporting company under the Exchange Act and cause, on the Effective Date, the shares of New Common Stock issued hereunder to be listed on the NYSE, or, if Reorganized Salant is unable to have the shares of New Common Stock listed on the NYSE, on another national securities exchange, or, as to the New Common Stock, quoted in the national market system of the National Association of Securities Dealers' Automated Quotation System, (ii) in accordance with the terms of the Registration Rights Agreement, file prior to the Effective Date and have declared effective as soon as possible thereafter a registration statement or registration statements under the Securities Act, for the offering on a continuous or delayed basis in the future of the shares of New Common Stock (the "Shelf Registration"), (iii) cause to be filed with the Commission on the Effective Date an appropriate registration statement under the Exchange Act with respect to the New Common Stock, (iv) keep the Shelf Registration effective for a three-year period, and (v) supplement or make amendments to the Shelf Registration, if required under the Securities Act or by the rules or regulations promulgated thereunder or in accordance with the terms of the Registration Rights Agreement, and have such supplements and amendments declared effective as soon as practicable after filing. In addition, on the Effective Date, Reorganized Salant shall enter into the Registration Rights Agreement in the form of Exhibit A hereto. 9.12. Retention and Enforcement of Causes of Action. Pursuant to section 1123(b)(3) of the Bankruptcy Code, Reorganized Salant shall retain and shall have the exclusive right, in its discretion, to enforce against any Entity any and all Causes of Action of the Debtor, including all Causes of Action of a trustee and debtor-in-possession under the Bankruptcy Code, other than those released or compromised as part of, or under, this Plan. 9.13. Management Employment Agreements. The Management Employment Agreements shall become effective as of the Effective Date. Such agreements supersede all employment, severance, retention, bonus and other agreements with respect to Messrs. Setola and Kahn in effect prior to the Effective Date. On the Effective Date, all Claims and Administrative Expenses of Messrs. Setola and Kahn against the Debtor under any employment, severance, retention, bonus and other agreements, if any, between such individual and the Debtor will be governed by, and completely satisfied in accordance with, the terms and conditions of each of their Management Employment Agreements. ARTICLE TEN ----------- PROVISIONS COVERING DISTRIBUTIONS --------------------------------- 10.1. Timing of Distributions Under this Plan. Except as otherwise provided in this Plan and without in any way limiting Sections 9.6, 10.6, 10.11, 11.3 and 12.1 of this Plan, payments and distributions in respect of Allowed Claims and Allowed Interests which are required by this Plan to be made on the Effective Date shall be made by the Debtor, Reorganized Salant or its designee or, in the case of the distributions to the Noteholders, by Reorganized Salant or its designee (with the assistance of the Indenture Trustee, if necessary) on, or as soon as practicable following, the Effective Date. Distributions of New Common Stock to the Noteholders shall be made at the addresses of the registered Holders of the Senior Notes last provided in writing to the Indenture Trustee. 10.2. Allocation of Consideration. The aggregate consideration to be distributed to the Holders of Allowed Claims in each Class under this Plan shall be treated as first satisfying an amount equal to the stated principal amount of the Allowed Claim for such Holders and any remaining consideration as satisfying accrued, but unpaid, interest, if any. 10.3. Cash Payments. Cash payments made pursuant to this Plan will be in U.S. dollars. Cash payments of $1,000,000 or more to be made pursuant to this Plan will, to the extent requested in writing no later than ten days after the Confirmation Date, be made by wire transfer from a domestic bank. Cash payments to foreign creditors may be made, at the option of the Debtor or Reorganized Salant, in such funds and by such means as are necessary or customary in a particular foreign jurisdiction. Cash payments made pursuant to this Plan in the form of checks issued by Reorganized Salant shall be null and void if not cashed within 120 days of the date of the issuance thereof. Requests for reissuance of any check shall be made directly to Reorganized Salant or its designee as set forth in Section 10.13 below. 10.4. Payment of Statutory Fees. All fees payable to the United States Trustee pursuant to 28 U.S.C. ss. 1930 as determined by the Bankruptcy Court at the Confirmation Hearing shall be paid by the Debtor on or before the Effective Date. 10.5. No Interest. Except with respect to holders of Unimpaired Claims entitled to interest under applicable non-bankruptcy law or as expressly provided herein, no Holder of an Allowed Claim or Interest shall receive interest on the distribution to which such Holder is entitled hereunder, regardless of whether such distribution is made on the Effective Date or thereafter. 10.6. Fractional Securities. Notwithstanding any other provision of this Plan, only whole numbers of shares of New Common Stock will be issued or transferred, as the case may be, pursuant to this Plan. Reorganized Salant will not distribute any fractional shares of New Common Stock. For purposes of distribution, fractional shares of New Common Stock shall be rounded up to the nearest share of New Common Stock. 10.7. Withholding of Taxes. Reorganized Salant shall withhold from any property distributed under this Plan any property which must be withheld for taxes payable by the Entity entitled to such property to the extent required by applicable law. As a condition to making any distribution under this Plan, Reorganized Salant or its designee, as the case may be, may request that the Holder of any Allowed Claim provide such Holder's taxpayer identification number and such other certification as may be deemed necessary to comply with applicable tax reporting and withholding laws. 10.8. Distribution Record Date. As of the close of business on the Distribution Record Date, the transfer registers for the Senior Notes and Old Common Stock maintained by the Debtor, or its respective agents, will be closed. Reorganized Salant, its designees and the Indenture Trustee will have no obligation to recognize the transfer of any Senior Notes or Old Common Stock occurring after the Distribution Record Date and will be entitled for all purposes relating to this Plan to recognize and deal only with those Holders of record as of the close of business on the Distribution Record Date. 10.9. Persons Deemed Holders of Registered Securities. Except as otherwise provided herein and subject to Sections 9.6 and 10.10, the Debtor, Reorganized Salant or its designee or, in the case of the Noteholders, the Indenture Trustee, shall be entitled to treat the record holder of a registered security as the Holder of the Claim or Interest in respect thereof for purposes of all notices, payments or other distributions under this Plan unless the Debtor, Reorganized Salant, its designee or the Indenture Trustee, as the case may be, shall have received written notice specifying the name and address of any new Holder thereof (and the nature and amount of the interest of such new Holder) at least ten (10) Business Days prior to the date of such notice, payment or other distribution. In the event of any dispute regarding the identity of any party entitled to any payment or distribution in respect of any Claim or Interest under this Plan, no payments or distributions will be made in respect of such Claim or Interest until the Bankruptcy Court resolves that dispute pursuant to a Final Order. 10.10. Surrender of Existing Securities. As a condition to receiving any distribution under this Plan, each Holder of a Senior Note, Old Common Stock Interest, or other instrument evidencing a Claim or equity Interest must surrender such Senior Note, Old Common Stock Interest, or other instrument to Reorganized Salant or its designee. Reorganized Salant appoints the Indenture Trustee under the Indenture as its designee to receive the Senior Notes. Any Holder of a Claim or Interest that fails to (a) surrender such instrument or (b) execute and deliver an affidavit of loss and/or indemnity reasonably satisfactory to Reorganized Salant before the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such Holder's Claim becomes an Allowed Claim, shall be deemed to have forfeited all rights, Claims, and/or Interests and may not participate in any distribution under this Plan. 10.11. Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments. In addition to any requirements under the Debtor's Certificate of Incorporation or By-laws, any Holder of a Claim or an Interest evidenced by an Instrument that has been lost, stolen, mutilated or destroyed shall be required to, in lieu of surrendering such Instrument, deliver to Reorganized Salant or its designee: (a) evidence satisfactory to Reorganized Salant or its designee, as the case may be, of the loss, theft, mutilation or destruction; and (b) such security or indemnity as may be required by Reorganized Salant or its designee, as the case may be, to hold Reorganized Salant and/or its designee, as applicable, harmless from any damages, liabilities or costs incurred in treating such individual as a Holder of an Instrument. Upon compliance with this Section 10.12, the Holder of a Claim or Interest evidenced by any such lost, stolen, mutilated or destroyed Instrument will, for all purposes under this Plan, be deemed to have surrendered such Instrument. 10.12. Undeliverable or Unclaimed Distributions. Any Entity that is entitled to receive a Cash distribution under this Plan but that fails to cash a check within 120 days of its issuance shall be entitled to receive a reissued check from Reorganized Salant for the amount of the original check, without any interest, if such Entity requests Reorganized Salant or its designee to reissue such check and provides Reorganized Salant or its designee, as the case may be, with such documentation as Reorganized Salant or its designee requests to verify that such Entity is entitled to such check, prior to the second anniversary of the Effective Date. If an Entity fails to cash a check within 120 days of its issuance and fails to request reissuance of such check prior to the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such Holder's Claim becomes an Allowed Claim, such Entity shall not be entitled to receive any distribution under this Plan. If the distribution to any Holder of an Allowed Claim or Allowed Interest is returned to Reorganized Salant or its designee as undeliverable, no further distributions will be made to such Holder unless and until Reorganized Salant or its designee is notified in writing of such Holder's then-current address. Undeliverable distributions will remain in the possession of Reorganized Salant or its designee pursuant to Section 10.1 of this Plan until such time as a distribution becomes deliverable. All claims for undeliverable distributions must be made on or before the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such Holder's Claim or Interest becomes an Allowed Claim or Allowed Interest. After such date, all unclaimed property shall revert to Reorganized Salant and the claim of any Holder or successor to such Holder with respect to such property shall be discharged and forever barred notwithstanding any federal or state escheat laws to the contrary. ARTICLE ELEVEN -------------- PROCEDURES FOR RESOLVING DISPUTED CLAIMS ---------------------------------------- 11.1. Objections to Claims. Only the Debtor and Reorganized Salant shall have the authority to file objections to Claims after the Effective Date. Subject to an order of the Bankruptcy Court providing otherwise, Reorganized Salant may object to a Claim by filing an objection with the Bankruptcy Court and serving such objection upon the Holder of such Claim not later than one hundred and twenty (120) days after the Effective Date or one hundred and twenty (120) days after the filing of the proof of such Claim, whichever is later, or such other date determined by the Bankruptcy Court upon motion to the Bankruptcy Court without further notice or hearing. Notwithstanding the foregoing, neither the Debtor nor Reorganized Salant shall object to the allowance of the Senior Note Claims as described in Section 6.3(c) of this Plan. 11.2. Procedure. Unless otherwise ordered by the Bankruptcy Court or agreed to by written stipulation of the Debtor or Reorganized Salant, or until an objection thereto by the Debtor or by Reorganized Salant is withdrawn, the Debtor or Reorganized Salant shall litigate the merits of each Disputed Claim until determined by a Final Order; provided, however, that, (a) prior to the Effective Date, the Debtor, subject to the approval of the Bankruptcy Court, and (b) after the Effective Date, Reorganized Salant, subject to the approval of the Bankruptcy Court, may compromise and settle any objection to any Claim. 11.3. Payments and Distributions With Respect to Disputed Claims. No payments or distributions shall be made in respect of a Disputed Claim until such Disputed Claim becomes an Allowed Claim. 11.4. Timing of Payments and Distributions With Respect to Disputed Claims. Subject to the provisions of this Plan, payments and distributions with respect to each Disputed Claim that becomes an Allowed Claim that would have otherwise been made had the Disputed Claim been an Allowed Claim on the Effective Date shall be made within thirty (30) days after the date that such Disputed Claim becomes an Allowed Claim. Holders of Disputed Claims that become Allowed Claims shall be bound, obligated and governed in all respects by the provisions of this Plan. 11.5. Individual Holder Proofs of Interest. Individual Holders of Allowed Old Common Stock Interests are not required to file proofs of such Interests unless they disagree with the number of shares set forth on the Debtor's stock register. ARTICLE TWELVE -------------- DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS --------------------------------------------------------- 12.1. Discharge of All Claims and Interests and Releases. -------------------------------------------------- (a) Except as otherwise specifically provided by this Plan, the confirmation of this Plan (subject to the occurrence of the Effective Date) shall discharge and release the Debtor, Reorganized Salant, their successors and assigns and their respective assets and properties from any debt, charge, Cause of Action, liability, encumbrances, security interest, Claim, Interest, or other cause of action of any kind, nature or description (including, but not limited to, any claim of successor liability) that arose before the Confirmation Date, and any debt of the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not a proof of Claim is filed or is deemed filed, whether or not such Claim is Allowed, and whether or not the Holder of such Claim has accepted this Plan. (b) Furthermore, but in no way limiting the generality of the foregoing, except as otherwise specifically provided by this Plan, the distributions and rights that are provided in this Plan to Class 3, Class 5 and Class 7 shall be in complete satisfaction, discharge and release, effective as of the Effective Date of (i) all Claims and Causes of Action against, liabilities of, liens on, charges, encumbrances, security interests, obligations of and Interests in the Debtor, Reorganized Salant, or the direct or indirect assets and properties of the Debtor or Reorganized Salant, whether known or unknown, and (ii) all Causes of Action, whether known or unknown, either directly or derivatively through the Debtor or Reorganized Salant, against successors and assigns of the Debtor, present and former Affiliates of the Debtor, and its partners, directors, officers, agents, attorneys, advisors, financial advisors, investment bankers, independent accountants, employees of the Debtor and its Affiliates and any Affiliate of any of the foregoing, and Magten, and its attorneys, advisors, and financial advisors, based on the same subject matter as any Claim or Interest, or based on any act or omission, transaction or other activity or security, instrument or other agreement of any kind or nature occurring, arising or existing prior to the Effective Date that was or could have been the subject of any Claim or Interest, in each case regardless of whether a proof of Claim or Interest was filed, whether or not Allowed and whether or not the Holder of the Claim or Interest has voted to accept or reject this Plan. (c) In addition, but in no way limiting the generality of the foregoing, except as otherwise specifically provided by this Plan, any Holder of a Claim in Class 3, Class 5 or Class 7 accepting any distribution pursuant to this Plan shall be presumed conclusively to have released the Debtor, Reorganized Salant, successors and assigns of the Debtor, the present and former Affiliates of the Debtor, directors, officers, agents, attorneys, independent accountants, advisors, financial advisors, investment bankers and employees of the Debtor and its Affiliates, and any Entity claimed to be liable derivatively through any of the foregoing, from any Cause of Action based on the same subject matter as the Claim on which the distribution is received. The release described in the preceding sentence shall be enforceable as a matter of contract against any Entity that accepts any distribution pursuant to this Plan. (d) Without in any way limiting Section 12.2 of this Plan, all injunctions or stays entered in the Chapter 11 Case and existing immediately prior to the Confirmation Date shall remain in full force and effect until the Effective Date. 12.2. Injunction. The satisfaction, release and discharge pursuant to Sections 12.1, 12.3 and 12.4 of this Plan, shall act as an injunction against any Entity commencing or continuing any action, employment of process, or act to collect, offset or recover any Claim or Cause of Action satisfied, released or discharged under this Plan. The injunction, discharge and releases described in Sections 12.1, 12.2, 12.3 and 12.4 of this Plan shall apply regardless of whether or not a proof of Claim or Interest based on any Claim, debt, liability or Interests is filed or whether or not a Claim or Interest based on such Claim, debt, liability or Interest is Allowed, or whether or not such Entity voted to accept or reject this Plan. 12.3. Exculpation. In consideration of the distributions under this Plan, upon the Effective Date, each Holder of a Claim or Interest will be deemed to have released the Debtor and its directors, officers, agents, attorneys, independent accountants, advisors, financial advisors, investment bankers and employees (as applicable) employed by the Debtor from and after the Filing Date and Magten and its attorneys, advisors, and financial advisors employed by Magten from and after the Filing Date, from any and all Causes of Action (other than the right to enforce the Debtor's obligations under this Plan and the right to pursue a Claim based on any willful misconduct) arising out of actions or omissions during the administration of the Debtor's estate. 12.4. Guaranties and Claims of Subordination. -------------------------------------- (a) Guaranties. The classification and the manner of satisfying all Claims under this Plan takes into consideration the possible existence of any alleged guaranties by the Debtor of obligations of any Entity or Entities, and that the Debtor may be a joint obligor with another Entity or Entities with respect to the same obligation. All Claims against the Debtor based upon any such guaranties shall be satisfied, discharged and released in the manner provided in this Plan and the Holders of Claims shall be entitled to only one distribution with respect to any given obligation of the Debtor. (b) Claims of Subordination. (i) Except as expressly provided for in this Plan, to the fullest extent permitted by applicable law, all Claims against and Interests in the Debtor, and all rights and Claims between or among Holders of Claims and Interests relating in any manner whatsoever to Claims against or Interests in the Debtor, based on any contractual, legal or equitable subordination rights, shall be terminated on the Effective Date and discharged in the manner provided in this Plan, and all such Claims, Interests and rights so based and all such contractual, legal and equitable subordination rights to which any Entity may be entitled shall be irrevocably waived by the acceptance by such Entity (or, unless the Confirmation Order provides otherwise, the Class of which such Entity is a member) of this Plan or of any distribution pursuant to this Plan. Except as otherwise provided in this Plan and to the fullest extent permitted by applicable law, the rights afforded and the distributions that are made in respect of any Claims or Interests hereunder shall not be subject to levy, garnishment, attachment or like legal process by any Holder of a Claim or Interest by reason of any contractual, legal or equitable subordination rights, so that, notwithstanding any such contractual, legal or equitable subordination, each Holder of a Claim or Interest shall have and receive the benefit of the rights and distributions set forth in this Plan. (ii) Pursuant to Bankruptcy Rule 9019 and any applicable state law and as consideration for the distributions and other benefits provided under this Plan, the provisions of this Section 12.4(b) shall constitute a good faith compromise and settlement of any Causes of Action relating to the matters described in this Section 12.4(b) which could be brought by any Holder of a Claim or Interest against or involving another Holder of a Claim or Interest, which compromise and settlement is in the best interests of Holders of Claims and Interests and is fair, equitable and reasonable. This settlement shall be approved by the Bankruptcy Court as a settlement of all such Causes of Action. Entry of the Confirmation Order shall constitute the Bankruptcy Court's approval of this settlement pursuant to Bankruptcy Rule 9019 and its finding that this is a good faith settlement pursuant to any applicable state law, including, without limitation, the laws of the States of New York and Delaware, given and made after due notice and opportunity for hearing, and shall bar any such Cause of Action by any Holder of a Claim or Interest against or involving another Holder of a Claim or Interest. ARTICLE THIRTEEN ---------------- CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE ------------------------ 13.1. Conditions Precedent to Entry of the Confirmation Order. The following conditions must occur and be satisfied or waived in accordance with Section 13.3 of this Plan on or before the Confirmation Date for this Plan to be confirmed on the Confirmation Date. (a) The Confirmation Order is in form and substance reasonably acceptable to the Debtor, Magten and Apollo. 13.2. Conditions Precedent to the Effective Date. The following conditions must occur and be satisfied or waived by the Debtor on or before the Effective Date for this Plan to become effective on the Effective Date. (a) Final Order. The Confirmation Order shall have become a Final Order; (b) Working Capital Facility. Reorganized Salant shall have executed an agreement for a working capital facility on terms reasonably satisfactory to Apollo and Magten; (c) Certificate of Incorporation. The Reorganized Salant Certificate of Incorporation shall have been filed with the Secretary of State of the State of Delaware, in accordance with sections 103 and 303 of the Delaware General Corporation Law; (d) PBGC Agreement. The PBGC and Reorganized Salant shall have entered into the PBGC Agreement and the PBGC Agreement shall have been approved by the Bankruptcy Court and consummated; and (e) Authorizations, Consents and Approvals. All authorizations, consents and regulatory approvals required, if any, in connection with this Plan's effectiveness shall have been obtained. 13.3. Waiver of Conditions. With the prior written consent (which consent shall not be unreasonably withheld) of Magten and Apollo, but not otherwise, the Debtor may waive one or more of the conditions precedent to the confirmation or effectiveness of this Plan set forth in Sections 13.1 and 13.2 of this Plan. 13.4. Effect of Failure of Conditions. If all the conditions to effectiveness and the occurrence of the Effective Date have not been satisfied or duly waived on or before the first Business Day that is more than 179 days after the date the Court enters an order confirming this Plan, or by such later date as is proposed and approved, after notice and a hearing, by the Court, then upon motion by the Debtor or any party in interest made before the time that all of the conditions have been satisfied or duly waived, the order confirming this Plan may be vacated by the Court; provided, however, that notwithstanding the filing of such a motion, the order confirming this Plan shall not be vacated if each of the conditions to consummation is either satisfied or duly waived before the Court enters an order granting the relief requested in such motion. If the order confirming this Plan is vacated pursuant to this section, this Plan shall be null and void in all respects, and nothing contained in this Plan shall (a) constitute a waiver or release of any claims against or equity interests in the Debtor or (b) prejudice in any manner the rights of the Holder of any claim or equity interest in the Debtor. ARTICLE FOURTEEN ---------------- MISCELLANEOUS PROVISIONS ------------------------ 14.1. Bankruptcy Court to Retain Jurisdiction. The business and assets of the Debtor shall remain subject to the jurisdiction of the Bankruptcy Court until the Effective Date. From and after the Effective Date, the Bankruptcy Court shall retain and have exclusive jurisdiction of all matters arising out of, and related to the Chapter 11 Case or this Plan pursuant to, and for purposes of, subsection 105(a) and section 1142 of the Bankruptcy Code and for, among other things, the following purposes: (a) to determine any and all disputes relating to Claims and Interests and the allowance and amount thereof; (b) to determine any and all disputes among creditors with respect to their Claims; (c) to consider and allow any and all applications for compensation for professional services rendered and disbursements incurred in connection therewith; (d) to determine any and all applications, motions, adversary proceedings and contested or litigated matters pending on the Effective Date and arising in or related to the Chapter 11 Case or this Plan; (e) to remedy any defect or omission or reconcile any inconsistency in the Confirmation Order; (f) to enforce the provisions of this Plan relating to the distributions to be made hereunder; (g) to issue such orders, consistent with section 1142 of the Bankruptcy Code, as may be necessary to effectuate the consummation and full and complete implementation of this Plan; (h) to enforce and interpret any provisions of this Plan; (i) to determine such other matters as may be set forth in the Confirmation Order or that may arise in connection with the implementation of this Plan; (j) to determine the amounts allowable as compensation or reimbursement of expenses pursuant to section 503(b) of the Bankruptcy Code; (k) to hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of this Plan and the Related Documents; (l) to hear and determine any issue for which this Plan or any Related Document requires a Final Order of the Bankruptcy Court; (m) to hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code; (n) to hear and determine any issue related to the composition of the initial Board of Reorganized Salant; (o) to hear any other matter not inconsistent with the Bankruptcy Code; and (p) to enter a Final Decree closing the Chapter 11 Case. 14.2. Binding Effect of this Plan. The provisions of this Plan shall be binding upon and inure to the benefit of the Debtor, Reorganized Salant, Magten, Apollo, any Holder of a Claim or Interest, their respective predecessors, successors, assigns, agents, officers, managers and directors and any other Entity affected by this Plan. 14.3. Nonvoting Stock. In accordance with section 1123(a)(6) of the Bankruptcy Code, the Reorganized Salant Certificate of Incorporation shall contain a provision prohibiting the issuance of nonvoting equity securities by Reorganized Salant for a period of one year following the Effective Date. 14.4. Authorization of Corporate Action. The entry of the Confirmation Order shall constitute a direction and authorization to and of the Debtor and Reorganized Salant to take or cause to be taken any action necessary or appropriate to consummate the provisions of this Plan and the Related Documents prior to and through the Effective Date (including, without limitation, the filing of the Reorganized Salant Certificate of Incorporation) and all such actions taken or caused to be taken shall be deemed to have been authorized and approved by the Bankruptcy Code. 14.5. Retiree Benefits. On and after the Effective Date, to the extent required by section 1129(a)(13) of the Bankruptcy Code, Reorganized Salant shall continue to pay all retiree benefits, if any, as the term "retiree benefits" is defined in section 1114(a) of the Bankruptcy Code, maintained or established by the Debtor prior to the Confirmation Date. 14.6. Withdrawal of this Plan. The Debtor reserves the right, at any time prior to the entry of the Confirmation Order, to revoke or withdraw this Plan. If the Debtor revokes or withdraws this Plan, if the Confirmation Date does not occur, or if the Effective Date does not occur then (i) this Plan will be deemed null and void and (ii) this Plan shall be of no effect and shall be deemed vacated, and the Chapter 11 Case shall continue as if this Plan had never been filed and, in such event, the rights of any Holder of a Claim or Interest shall not be affected nor shall such Holder be bound by, for purposes of illustration only, and not limitation, (a) this Plan, (b) any statement, admission, commitment, valuation or representation contained in this Plan, the Disclosure Statement, or the Related Documents or (c) the classification and proposed treatment (including any allowance) of any Claim in this Plan. 14.7. Captions. Article and Section captions used in this Plan are for convenience only and will not affect the construction of this Plan. 14.8. Method of Notice. All notices required to be given under this Plan, if any, shall be in writing and shall be sent by facsimile transmission (with hard copy to follow), by first class mail, postage prepaid, by hand delivery or by overnight courier to: If to the Debtor to: Salant Corporation 1114 Avenue of the Americas New York, New York 10036 Attn: Todd Kahn, Esq. Fax No.: (212) 354-3614 with copies to: Fried, Frank, Harris, Shriver & Jacobson (A Professional Partnership Including Professional Corporations) One New York Plaza New York, New York 10004 Attn: Brad Eric Scheler, Esq. Lawrence A. First, Esq. Fax No.: (212) 859-4000 Hebb & Gitlin, a Professional Corporation (Special Counsel to Magten Asset Management Corp.) One State Street Hartford, Connecticut 06103-3178 Attn: Evan D. Flaschen, Esq. Fax No.: (860) 240-2800 Apollo Apparel Partners, L.P. c/o Apollo Management L.P. 1301 Avenue of the Americas 38th Floor New York, New York 10019 Attn: Robert Katz Fax No.: (212) 261-4102 Any of the above may, from time to time, change its address for future notices and other communications hereunder by filing a notice of the change of address with the Bankruptcy Court. Any and all notices given under this Plan shall be effective when received. 14.9. Dissolution of Committees. On the Effective Date, any committees appointed in the Chapter 11 Case pursuant to section 1102 of the Bankruptcy Code shall cease to exist and its members and employees or agents (including, without limitation, attorneys, investment bankers, financial advisors, accountants and other professionals) shall be released and discharged from further duties, responsibilities and obligations relating to and arising from and in connection with this Chapter 11 Case. 14.10. Fees, Costs and Expenses of Indenture Trustee. Subject to applicable provisions of the Bankruptcy Code and Bankruptcy Court authorization and approval to the extent necessary, the Indenture Trustee shall be entitled to payment for its reasonable fees, costs and expenses as provided for pursuant to the Indenture; provided, however, that if the Debtor or Reorganized Salant decides, in its sole discretion, that the fees, costs and expenses of the Indenture Trustee are reasonable, the Debtor or Reorganized Salant may pay the same without application to or further order of the Bankruptcy Court unless the Confirmation Order provides otherwise. 14.11. Amendments and Modifications to Plan. This Plan may be altered, amended or modified by the Debtor, after consultation with Magten, before or after the Confirmation Date, as provided in section 1127 of the Bankruptcy Code. 14.12. Section 1125(e) of the Bankruptcy Code. (i) The Debtor has, and upon confirmation of this Plan shall be deemed to have, solicited acceptances of this Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code and (ii) the Debtor, Magten, Apollo, and each of the members of the Creditors' Committee, if any (and each of their respective affiliates, agents, directors, officers, employees, advisors, and attorneys) have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in the offer, issuance, sale, and purchase of the securities offered and sold under this Plan, and therefore are not, and on account of such offer, issuance, sale, solicitation, and/or purchase will not be, liable at any time for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of this Plan or the offer, issuance, sale, or purchase of the securities offered and sold under this Plan. Dated: New York, New York December 29, 1998 Respectfully submitted, SALANT CORPORATION Debtor and Debtor-In-Possession By:/s/ Todd Kahn ------------- FRIED, FRANK, HARRIS, SHRIVER & JACOBSON (A Partnership Including Professional Corporations) Attorneys for the Debtor and Debtor-in-Possession One New York Plaza New York, New York 10004 (212) 859-8000 By:/s/ Brad Eric Scheler --------------------- Brad Eric Scheler, Esq. EXHIBIT A PEI LICENSES ------------ (i) Agreement, by and between Salant and PEI, dated as of October 1, 1980, as amended. (ii) Agreement, by and between Salant and PEI, dated as of March 11, 1982, as amended. (iii) Agreement, by and between Salant and PEI, dated as of March 1, 1982, as amended. (iv) Agreement, by and between Salant and PEI, dated as of January 1, 1987, as amended. (v) Agreement, by and between Salant and PEI, dated as of March 11, 1982, as amended. (vi) Letter agreement, by and between Salant and PEI, dated July 21, 1986. (vii) Agreement, by and between Salant and PEI, dated as of January 1, 1997. EXHIBIT B FORM OF REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of ____ __, 199[ ], by and among SALANT CORPORATION, a Delaware corporation (the "Company"), and the other parties listed on the signature pages hereto (the "Initial Holders"). This Agreement is being entered into in connection with the restructuring of the Company pursuant to the terms and conditions of the Chapter 11 Plan of Reorganization for Salant Corporation, dated December __, 1998 (the "Plan"). The Plan provides for the issuance of Common Stock (as hereinafter defined). The parties hereto desire to provide certain registration rights to the Initial Holders with respect to the shares of Common Stock. Accordingly, the parties hereto agree as follows: 1. Definitions ----------- As used herein, unless the context otherwise requires, the following terms have the following respective meanings: "Account" means, with respect to a Holder or Other Holder who has been engaged to provide investment management services, each Person (including, without limitation, any other Holder or Other Holder) on behalf of whom such Holder or Other Holder provides such services. "Affiliate" means, at any time, a Person (other than a Subsidiary or a Holder): (a) that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company; or (b) that beneficially owns (calculated in accordance with Rule 13d-3 under the Exchange Act) or holds ten percent (10%) or more of any class of the Voting Stock of the Company. As used in this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" means any shares of Common Stock, par value $1.00 per share, of the Company now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Company which may be issued on or after the date hereof in respect of, or in exchange for, shares of Common Stock pursuant to a merger, consolidation, stock split, stock dividend, recapitalization of the Company or otherwise. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act shall include a reference to the comparable section, if any, of any such similar Federal statute. "Holder" means a registered holder of Registrable Common Stock. "Initial Holders" has the meaning assigned to it in the preamble hereof. "Material Disclosure Event" means any pending or imminent event relating to the Company which, based on (i) the good faith, reasonable opinion of the Board of Directors of the Company and (ii) the advice of competent outside counsel to the Board of Directors of the Company, (x) requires disclosure of material, non-public information relating to such event in the Shelf Registration so that such registration statement would not be materially misleading, (y) is otherwise not required to be publicly disclosed at that time (e.g., on Form 8-K or Form 10-Q) under applicable federal or state securities laws, and (z) if publicly disclosed at the time of such event, would have a material adverse effect on the business and financial condition of the Company. "Other Holder" means any person or entity to whom the Company has granted or does grant registration rights. "Other Holder Registrable Common Stock" means the shares of Common Stock held by any Other Holder. "Person" means a corporation, an association, a partnership, an organization, a business, a trust, an individual, or any other entity or organization, including a government or political subdivision or an instrumentality or agency thereof. "Registrable Common Stock" means (i) the shares of Common Stock issued to an Initial Holder pursuant to the Plan or (ii) any Common Stock issued with respect to the Common Stock referred to in clause (i) hereof by way of a stock dividend, stock split or reverse stock split or in connection with a combination of shares, recapitalization, merger, consolidation or otherwise. As to any particular Registrable Common Stock, such securities shall cease to be Registrable Common Stock when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (iii) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require the registration under the Securities Act, or (iv) they shall have ceased to be outstanding. "Registration Expenses" means all expenses incident to the registration and disposition of the Registrable Common Stock pursuant to Section 2 hereof, including, without limitation, all registration, filing and applicable national securities exchange fees; all fees and expenses of complying with state securities or blue sky laws (including fees and disbursements of counsel to the underwriters or the Holders in connection with 'blue sky" qualification of the Registrable Common Stock and determination of their eligibility for investment under the laws of the various jurisdictions); all duplicating and printing expenses; all messenger and delivery expenses; the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of "cold comfort" letters or, in connection with a registration pursuant to Section 2.3 only, any special audits required by, or incident to, such registration; all fees and disbursements of underwriters (other than underwriting discounts and commissions); all transfer taxes; and the reasonable fees and expenses of one counsel to the Holders; provided, however, that Registration Expenses shall exclude and the Holders shall pay underwriting discounts and commissions in respect of the Registrable Common Stock being registered. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar federal statute. "Subsidiary" means any corporation in which the Company or one or more Subsidiaries owns sufficient voting securities to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such corporation. "Voting Stock" means, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). 2. Shelf Registration; Registration Under Securities Act, Etc. ---------------------------------------------------------- 2.1 Shelf Registration ------------------ Within 35 days following the date hereof, the Company shall file with the Commission, at the Company's expense, a "shelf" registration statement on any appropriate form pursuant to Rule 415 under the Securities Act covering all Registrable Common Stock (the "Shelf Registration"). The Company shall use its reasonable commercial efforts to have the Shelf Registration declared effective as promptly as practicable after such filing (but not later than 100 days after the date hereof) and to keep the Shelf Registration continuously effective three years following the date on which the Shelf Registration is declared effective (subject to Suspension Periods (as hereinafter defined) and extensions coincident with the length of such Suspension Periods) (the "Shelf Registration Period"); provided, however, that if a registration statement on Form S-3 (or such successor form as is prescribed by the Commission) is available to the Company on the third anniversary of the date on which the Shelf Registration is declared effective, the Company shall use its reasonable commercial efforts to keep the Shelf Registration continuously effective for two additional years. The Company shall, to the extent necessary, supplement or amend the Shelf Registration (in each case, at the Company's expense) to keep the Shelf Registration effective during the Shelf Registration Period. The Company further agrees to supplement or amend any Shelf Registration, as required by the registration form utilized by the Company, by the instructions applicable to such registration form or by the Securities Act or the rules and regulations thereunder or as reasonably requested by any Holder. The Company shall furnish to the Holders copies, in substantially the form proposed to be used and/or filed, of the registration statement and any such supplement or amendment at least 30 days prior to its being used and/or filed with the Commission. The Company hereby consents to the use (in compliance with applicable law) of the prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Common Stock in connection with the offering and sale of the Registrable Common Stock covered by the prospectus or any amendment or supplement thereto. The Company shall pay all Registration Expenses incurred in connection with the Shelf Registration, whether or not it becomes effective. In no event shall the Shelf Registration include securities other than Registrable Common Stock, unless the Holders of all Registrable Common Stock consent to such inclusion. Nothing herein shall obligate the Company to incur or pay for fees and disbursements of underwriters in connection with a distribution under the Shelf Registration. For purposes hereof, "Suspension Period' shall mean a period of time commencing on the date on which the Company provides notice that the Shelf Registration is no longer effective, that the prospectus included in the Shelf Registration no longer complies with the requirements therefor prescribed by Section 10(a) of the Securities Act, or there is a Material Disclosure Event and the Board of Directors of the Company has elected (in its good faith reasonable judgment) to require the suspension of the sale by the Holder of Registrable Common Stock pursuant to the Shelf Registration, and shall end on the date when the Holder either receives copies of the supplemented or amended prospectus contemplated by Section 2.4(g) or such earlier time that the Holder is otherwise advised in writing by the Company that use of the prospectus may be resumed. The Holder agrees that it will not sell any Registrable Common Stock pursuant to the Shelf Registration during any Suspension Period. The Company agrees (i) that the Company will use its best efforts to ensure that there is not more than one Suspension Period in any 12-month period, (ii) to cause each Suspension Period to end as soon as reasonably practicable and (iii) that no Suspension Period shall exceed 30 consecutive days. The Company further agrees that no other holder of any shares of the Company's capital stock will be permitted to sell any such shares of the Company's capital stock pursuant to a registration statement during a Suspension Period. If one or more Suspension Periods occur, the Shelf Registration Period shall be extended by such number of days coincident with the aggregate number of days included in all Suspension Periods. 2.2 Registration on Request ----------------------- (a) Request ------- Subject to the provisions of Section 2.2(h) below, (i) if the Shelf Registration remains continuously effective during the Shelf Registration Period in accordance with the terms hereof, at any time or from time to time after the expiration of the Shelf Registration Period, or (ii) if for any reason the Shelf Registration does not become effective within 65 days after the date hereof or ceases to be effective at any time prior to the expiration of the Shelf Registration Period, at any time or from time to time after the date which is 65 days from the date hereof (if the Shelf Registration fails to become effective) or the date on which the Shelf Registration ceases to be effective, as the case may be, the Holders, individually and jointly, of more than 10% of issued and outstanding shares of Common Stock (the "Initiating Holders") shall have the right to require the Company to effect the registration under the Securities Act of all or part of the Registrable Common Stock held by such Initiating Holders, by delivering a written request therefor to the Company specifying the number of shares of Registrable Common Stock and the intended method of distribution. The Company shall promptly give written notice of such requested registration to all other Holders, and thereupon the Company shall, as expeditiously as possible, use its best efforts to (A) effect the registration under the Securities Act (including by means of a shelf registration pursuant to Rule 415 under the Securities Act if so requested in such request and if the Company is then eligible to use such a registration) of the Registrable Common Stock which the Company has been so requested to register by the Initiating Holders, and all other Registrable Common Stock which the Company has been requested to register by any other Holder (together with the Initiating Holders, the "Selling Holders") by written request given to the Company within 10 days after giving of written notice by the Company, all to the extent necessary to permit distribution in accordance with the intended method of distribution set forth in the written request or requests delivered by the Selling Holders, and (B) if requested by the Selling Holders, obtain acceleration of the effective date of the registration statement relating to such registration. (b) Registration of Other Securities -------------------------------- Whenever the Company shall effect a registration pursuant to this Section 2.2, no securities (other than Registrable Common Stock) shall be included among the securities covered by such registration (i) if, in connection with an underwritten offering by any Selling Holders of Registrable Common Stock, the managing underwriter of such offering shall have advised the Company and the Selling Holders in writing that the inclusion of such other securities would adversely affect such offering or (ii), if such offering is not an underwritten offering, unless the Selling Holders of not less than 50% of the Registrable Common Stock to be covered by such registration shall have consented (which consent shall not be unreasonably withheld or delayed) in writing to the inclusion of such other securities. (c) Registration Statement Form --------------------------- Registrations under this Section 2.2 shall be on such appropriate registration form of the Commission as shall be selected by the Company and as shall be reasonably acceptable to the Selling Holders. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the Selling Holders, counsel to the underwriters, if any, and counsel to the Company, is required to be included. (d) Expenses -------- The Company shall pay all Registration Expenses in connection with any registration requested pursuant to this Section 2.2. (e) Effective Registration Statement -------------------------------- A registration requested pursuant to this Section 2.2 shall not be deemed to have been effected (including for purposes of paragraph (h) of this Section 2.2) (i) unless a registration statement with respect thereto has become effective and has been kept continuously effective for a period of at least 120 days (or such shorter period which shall terminate when all the Registrable Common Stock covered by such registration statement have been sold pursuant thereto), (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Selling Holders and has not thereafter become effective, or (iii) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied for any reason not attributable to the Selling Holders or waived. (f) Selection of Underwriters ------------------------- The underwriters of each underwritten offering of the Registrable Common Stock to be registered shall be selected by the Selling Holders and shall be reasonably satisfactory to the Company. (g) Priority in Requested Registration ---------------------------------- If the managing underwriter of any underwritten offering shall advise the Company in writing (with a copy to each Selling Holder) that, in its opinion, the number of shares of Registrable Common Stock requested to be included in such registration exceeds the number of shares which can be sold in such offering within a price range acceptable to the Selling Holders of Registrable Common Stock, the Company will include in such registration that number of shares of Registrable Common Stock which the Company is so advised can be sold in such offering. The Registrable Common Stock requested to be included in such registration shall be reduced pro rata among the Selling Holders requesting such registration of Registrable Common Stock on the basis of the percentage of Registrable Common Stock of such Selling Holders requesting such registration. In connection with any such registration to which this Section 2.2(g) is applicable, no securities other than Registrable Common Stock shall be covered by such registration. (h) Limitations on Registration on Request -------------------------------------- Notwithstanding anything to the contrary contained herein, the registration rights granted to the Holders in Section 2.2(a) are subject to the following limitations: (i) the Holders shall be entitled to require the Company to, and the Company shall be required to, effect no more than three registrations pursuant to Section 2.2(a)(i) hereof and no more than four registrations pursuant to Section 2.2(a)(ii) hereof, (ii) the Company shall not be required to effect a registration pursuant to Section 2.2(a) if, with respect thereto, the managing underwriter, the Commission, the Securities Act or the rules and regulations thereunder, or the form on which the registration statement is to be filed, would require the conduct of an audit other than the regular audit conducted by the Company at the end of its fiscal year, but rather the filing may be delayed until the completion of such regular audit (unless the Holders agree to pay the expenses of the Company in connection with such an audit other than the regular audit) and (iii) the Holders shall not be entitled to require the Company to, and the Company shall not be required to, effect a registration pursuant to Section 2.2(a) within three (3) months following the effective date of another registration pursuant to Section 2.2(a). (i) Postponement ------------ The Company shall be entitled once in any 12-month period to postpone for a reasonable period of time (but not exceeding 30 days) (the "Postponement Period") the filing of any registration statement required to be prepared and filed by it pursuant to this Section 2.2 if the Company determines, in its reasonable judgment, that such registration and offering would materially interfere with any material financing, corporate reorganization or other material transaction involving the Company or any subsidiary, or would require premature disclosure thereof, and promptly gives the Selling Holders written notice of such determination, containing a general statement of the reasons for such postponement and an approximation of the anticipated delay. If the Company shall so postpone the filing of a registration statement, the Selling Holders of not less than 50% of the shares of Registrable Common Stock to be registered shall have the right to withdraw the request for registration in respect of the Registrable Common Stock by giving written notice to the Company at any time and, in the event of any such withdrawal, such request shall not be counted for purposes of the requests for registration to which the Holders are entitled pursuant to this Section 2.2. 2.3 Incidental Registration ----------------------- (a) Right to Include Registrable Common Stock ----------------------------------------- If the Company at any time prior to the expiration of the Holders' right to request the registration of Registrable Common Stock pursuant to Section 2.2(a) hereof proposes to register any of its securities under the Securities Act by registration on Form S-1, S-2 or S-3 or any successor or similar form(s) (except registrations on such Form or similar form(s) solely for registration of securities in connection with an employee stock option, stock purchase, stock bonus or similar plan, pursuant to a dividend reinvestment plan, pursuant to a merger, exchange, offer or transaction of the type specified in Rule 145(a) under the Securities Act or pursuant to a "shelf" registration), whether or not for sale for its own account, it will each such time give prompt written notice to the Holders of its intention to do so and of the Holders' rights under this Section 2.3 and the Holders shall be entitled to include, subject to the provisions of this Agreement, Registrable Common Stock on the same terms and conditions (if any) as apply to other comparable securities of the Company sold in connection with such registration. Upon the written request of any Holder (a "Requesting Holder"), specifying the maximum number of shares of Registrable Common Stock intended to be disposed of by such Requesting Holder, made as promptly as practicable and in any event within 15 days after the receipt of any such notice, the Company shall use its best efforts to effect the registration under the Securities Act of all Registrable Common Stock which the Company has been so requested to register by the Requesting Holders; provided, however, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company shall give written notice of such determination and its reasons therefor to the Holders and (i) in the case of a determination not to register, shall be relieved of its obligation under this Section 2.3 to register any Registrable Common Stock in connection with such registration (but not from any obligation of the Company to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of the Holders to request that such registration be effected as a registration under Section 2.2, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Common Stock, for the same period as the delay in registering such other securities. No registration effected under this Section 2.3 shall relieve the Company of its obligation to effect any registration upon request under Section 2.2. The Company will pay all Registration Expenses in connection with any registration of Registrable Common Stock requested pursuant to this Section 2.3. (b) Right to Withdraw ----------------- Any Requesting Holder shall have the right to withdraw its request for inclusion of Registrable Common Stock in any registration statement pursuant to this Section 2.3 at any time by giving written notice to the Company of its request to withdraw. (c) Priority in Incidental Registrations ------------------------------------ If the managing underwriter of any underwritten offering shall inform the Company by letter of its opinion that the number of shares of Registrable Common Stock and Other Holder Registrable Common Stock when added to the number of other securities to be offered in such registration, would materially adversely affect such offering, then the Company shall include in such registration that number of shares of Registrable Common Stock and Other Holder Registrable Common Stock which the Company is so advised by the managing underwriter can be sold in (or during the time of) such offering without materially adversely affecting such offering in the following order of priority: First: the holder or holders of securities (including the Company in the case of a primary offering) originally requesting such registration shall be entitled to participate in accordance with the relative priorities, if any, that shall exist among them; and then Second: the holder or holders of Registrable Common Stock shall be entitled to participate in such offering, pro rata among themselves in accordance with the number of shares of Registrable Common Stock which each such holder shall have requested be registered; and then Third: all other holders (including the Company, if such registration shall have been originally requested by a person other than the Company) of securities having the right to include shares of Common Stock in such registration shall be entitled to participate pro rata in accordance with the number of shares proposed to be registered by them. (d) Plan of Distribution -------------------- Any participation by the Holders in a registration by the Company shall be in accordance with the Company's plan of distribution. 2.4 Registration Procedures ----------------------- If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Common Stock under the Securities Act as provided in Sections 2.1, 2.2 and 2.3 hereof, the Company shall as expeditiously as possible: (a) prepare and file with the Commission as soon as practicable the requisite registration statement to effect such registration (and shall include all financial statements required by the Commission to be filed therewith) and thereafter use its best efforts to cause such registration statement to become effective; provided, however, that before filing such registration statement (including all exhibits) or any amendment or supplement thereto or comparable statements under securities or blue sky laws of any jurisdiction, the Company shall furnish such documents to each Holder selling Registrable Common Stock covered by such registration statement and each underwriter, if any, participating in the offering of the Registrable Common Stock and their respective counsel, which documents will be subject to the review and comments of each such Holder, each underwriter and their respective counsel; and provided further, that (i) as to registration pursuant to Section 2.1 or 2.2 hereof, the Company may discontinue any registration of its securities which are not Registrable Common Stock and (ii) as to registration pursuant to Section 2.3 hereof, the Company may discontinue any registration of its securities, in each case, at any time prior to the effective date of the registration statement relating thereto; (b) notify each Holder selling Registrable Common Stock covered by such registration statement of the Commission's requests for amending or supplementing the registration statement and the prospectus, and prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Common Stock covered by such registration statement for such period as shall be required for the disposition of all of such Registrable Common Stock in accordance with the intended method of distribution thereof; provided that, except with respect to the Shelf Registration and any other such registration statement filed pursuant to Rule 415 under the Securities Act, such period need not exceed 120 days; (c) furnish, without charge, to each Holder selling Registrable Common Stock covered by such registration statement and each underwriter such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such Holders and such underwriters may reasonably request; (d) use its best efforts (i) to register or qualify all Registrable Common Stock and other securities covered by such registration statement under such securities or blue sky laws of such States of the United States of America where an exemption is not available and as any Holder or Holders selling Registrable Common Stock covered by such registration statement or any managing underwriter shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect, and (iii) to take any other action which may be reasonably necessary or advisable to enable the Holders to consummate the disposition in such jurisdictions of the securities to be sold by such Holder or Holders; provided, however, that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified; (e) use its best efforts to cause all Registrable Common Stock covered by such registration statement to be registered with or approved by such other Federal or state governmental agencies or authorities as may be necessary in the opinion of counsel to the Company, counsel to any underwriter, or counsel to any Holder or Holders selling Registrable Common Stock covered by such registration statement to consummate the disposition of such Registrable Common Stock; (f) furnish to each Holder selling Registrable Common Stock covered by such registration statement and each underwriter, if any, participating in the offering of the securities covered by such registration statement, a signed counterpart of (i) an opinion of counsel for the Company, and (ii) a "comfort" letter signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' comfort letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' comfort letters delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated) and, in the case of the legal opinion, such other legal matters, and, in the case of the accountants' comfort letter, such other financial matters, as such Holder or Holders, or the underwriters, may reasonably request; (g) immediately notify the Holders selling Registrable Common Stock covered by such registration statement and each managing underwriter, if any, participating in the offering of the securities covered by such registration statement (i) when such registration statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to such registration statement has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission for amendments or supplements to such registration statement or the prospectus related thereto or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Common Stock for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) at any time when a prospectus relating thereto is required to be delivered under the Securities Act or, in the case of the Shelf Registration, at any time during the Shelf Registration Period, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and in the case of this clause (v), at the request of any Holder or Holders selling Registrable Common Stock covered by such registration statement promptly prepare and furnish to such Holder or Holders and each underwriter, if any, participating in the offering of the Registrable Common Stock, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (h) otherwise comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder, and promptly furnish to the Holders a copy of any amendment or supplement to such registration statement or prospectus; (i) cause to be maintained a transfer agent and registrar (which, in each case, may be the Company) for the Common Stock from and after the date of such registration; (j) use its commercially reasonable efforts to cause all Registrable Common Stock covered by such registration statement to be (i) listed for trading on the New York Stock Exchange, Inc. ("NYSE"), provided that, if the Company is unable to have the Registrable Common Stock listed for trading on the NYSE, the Company will use its best efforts to cause all Registrable Common Stock to be quoted on the National Market System ("National Market System") of the NASDAQ Stock Market ("NASDAQ") within the meaning of Rule 11Aa2-1 of the Commission if the quoting of such Registrable Common Stock is then permitted under NASDAQ rules; or (ii) if no similar securities of the Company are then so quoted, use its best efforts to (x) secure designation of all such Registrable Common Stock as a NASDAQ National Market System security or (y) failing that, cause all such Registrable Common Stock to be listed on another national securities exchange or (z) failing that, to secure NASDAQ authorization for such shares and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such shares with the National Association of Securities Dealers, Inc.; (k) deliver promptly to counsel to the Holders selling Registrable Common Stock covered by such registration statement and each underwriter, if any, participating in the offering of the Registrable Common Stock, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to such registration statement; (1) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement; (m) provide a CUSIP number for all Registrable Common Stock, no later than the effective date of the registration statement; (n) make available its employees and personnel and otherwise provide reasonable assistance to the underwriters (taking into account the needs of the Company's businesses) in their marketing of Registrable Common Stock; and (o) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Section 2.4(g)(v) hereof, use its best efforts to prepare a supplement or post-effective amendment to the registration statement or the related prospectus or any document incorporated therein by reference or file any other required documents so that, thereafter, such prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company may require the Holders selling Registrable Common Stock covered by such registration statement to furnish the Company such information regarding the Holders and the distribution of the Registrable Common Stock as the Company may from time to time reasonably request in writing. In the event of a registration effected pursuant to Section 2.1, 2.2(a) or 2.3(a) hereof, if a Holder fails to provide such information and the failure by such Holder to furnish such information would prevent or unreasonably delay the registration statement relating to such registration from being declared effective by the Commission, the Company may exclude such Holder's Registrable Common Stock from such registration, which right of the Company shall, in the case of a registration effected pursuant to Section 2.1 or 2.2(a) hereof, be subject to the consent of the Holders of not less than 50% of the shares of Registrable Common Stock to be included in such registration (other than such Holder's Registrable Common Stock). The Holders agree that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (g)(iii) or (v) of this Section 2.4, each of the Holders will discontinue its disposition of Registrable Common Stock pursuant to the registration statement relating to such Registrable Common Stock until, in the case of paragraph (g)(v) of this Section 2.4, its receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (g)(v) of this Section 2.4 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in its possession, of the prospectus relating to such Registrable Common Stock current at the time of receipt of such notice. If the disposition by the Holders of their securities is discontinued pursuant to the foregoing sentence, the Company shall extend the period of effectiveness of the registration statement by the number of days during the period from and including the date of the giving of notice to and including the date when the Holders shall have received copies of the supplemented or amended prospectus contemplated by paragraph (g)(v) of this Section 2.4; and, if the Company shall not so extend such period, the Holders' request pursuant to which such registration statement was filed shall not be counted for purposes of the requests for registration to which the Holders are entitled pursuant to Section 2.2 hereof. 2.5 Underwritten Offerings ---------------------- (a) Requested Underwritten Offerings -------------------------------- If requested by the underwriters for any underwritten offering by the Selling Holders pursuant to a registration requested under Section 2.1 or 2.2, the Company shall enter into a customary underwriting agreement with such underwriter or underwriters. Such underwriting agreement shall be reasonably satisfactory in form and substance to the Selling Holders and shall contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of that type, including, without limitation, such customary provisions relating to indemnification and contribution by the Company. The Selling Holders shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of the Selling Holders and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of the Selling Holders. No Selling Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Selling Holder, its ownership of and title to the Registrable Common Stock, and its intended method of distribution; any liability of any Selling Holder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from misstatements in or omissions from its representations and warranties and shall be limited to an amount equal to the net proceeds that it derives from such registration; and no Selling Holder shall be required to indemnify any underwriter, or contribute to any payments required to be made by any underwriter in lieu thereof, to any greater extent than such Selling Holder has agreed in Section 2.7. (b) Incidental Underwritten Offerings --------------------------------- In the case of a registration pursuant to Section 2.3 hereof, if the Company shall have determined to enter into any underwriting agreements in connection therewith, all of the Requesting Holders' Registrable Common Stock to be included in such registration shall be subject to such underwriting agreements. The Requesting Holders may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of the Requesting Holders and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of the Requesting Holders. No Requesting Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Requesting Holder, its ownership of and title to the Registrable Common Stock, and its intended method of distribution; and any liability of any Requesting Holder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from misstatements in or omissions from its representations and warranties and shall be limited to an amount equal to the net proceeds that it derives from such registration. 2.6 Preparation; Reasonable Investigation ------------------------------------- In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the participating Holders, their underwriters, if any, and their respective counsel, accountants and other representatives and agents the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and, to the extent practicable, each amendment thereof or supplement thereto, and give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and employees and the independent public accountants who have certified its financial statements, and supply all other information reasonably requested by each of them, as shall be necessary or appropriate, in the opinion of the participating Holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.7 Indemnification --------------- (a) Indemnification by the Company ------------------------------ The Company agrees that in the event of any registration of any securities of the Company under the Securities Act, the Company shall, and hereby does, indemnify and hold harmless each Holder, its respective directors, officers, partners, agents and affiliates and each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages, or liabilities, joint or several, to which such Holder or any such director, officer, partner, agent or affiliate or underwriter or controlling Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities, joint or several (or actions or proceedings, whether commenced or threatened, in respect thereof), arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company shall reimburse such Holder and each such director, officer, partner, agent or affiliate, underwriter and controlling Person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable in any such case or to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by or on behalf of the Holders or underwriter, as the case may be, specifically stating that it is for use in the preparation thereof; and provided, further, that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Common Stock or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Common Stock to such Person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force regardless of any investigation made by or on behalf of either Holder or any such director, officer, partner, agent or affiliate or controlling Person and shall survive the transfer of such securities by such Holder. (b) Indemnification by the Holders ------------------------------ As a condition to including any Registrable Common Stock in any registration statement, the Company shall have received an undertaking reasonably satisfactory to it from each Holder so including any Registrable Common Stock to indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this Section 2.7) the Company, and each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, and, to the extent requested, each underwriter, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, but only to the extent such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Holder specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; provided, however, that the liability of such indemnifying party under this Section 2.7(b) shall be limited to the amount of net proceeds received by such indemnifying party in the offering giving rise to such liability. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such Holder; and provided, further, that such Holder shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Common Stock or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to any other Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Common Stock to such other Person if such statement or omission was corrected by such Holder in such final prospectus. (c) Indemnification for Controlling Person Liability. ------------------------------------------------ In addition to the indemnification provided for in Section 2.7(a), the Company shall indemnify, to the fullest extent permitted by law, each Holder, its officers, directors, partners and agents, if any, and each Person, if any, who controls such Holder within the meaning of Section 15 of the Securities Act, against all losses, claims, damages, liabilities (or proceedings in respect thereof) and expenses, joint or several, in each case, under the Securities Act or common law or otherwise, resulting from: (i) any violation by the Company of the provisions of the Securities Act; (ii) any untrue statement or alleged untrue statement of a material fact contained in any registration statement or amendment thereto or prospectus (and as amended or supplemented if amended or supplemented) or any preliminary prospectus or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, whether or not, in each such case, the registration statement or amendment thereto or prospectus (or amendment or supplement thereto) or preliminary prospectus related or relates to any offering or sale of Registrable Common Stock by a Holder; and (iii) any other untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact necessary to make the statements in any document issued or delivered to any purchaser or potential purchaser or filed with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act (in light of the circumstances under which they were made) not misleading, in each case, in connection with any offering or sale of securities of the Company by any Person, whether or not such securities offered or sold are or were registered or required to be registered under the Securities Act; in each such case, to the extent that such losses, claims, damages, liabilities (or proceedings in respect thereto) and expenses, joint or several, are alleged to result from or exist by virtue of the fact that any Holder controls or is alleged to control (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company or any Subsidiary or Affiliate of the Company, whether such claim or allegation arises under Section 15 of the Securities Act or Section 20 of the Exchange Act or otherwise; provided, however, that such indemnification shall not extend to losses, claims, damages, liabilities (or proceedings in respect thereof) or expenses caused by any untrue statement or alleged untrue statement contained in or by any omission or alleged omission from information furnished in writing to the Company by such Holder expressly for use therein, or from any such information provided by an underwriter selected by the Holders or any of them. (d) Notices of Claims, Etc. ---------------------- Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subsections of this Section 2.7, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action or proceeding; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section 2.7, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice, and shall not relieve the indemnifying party from any liability which it may have to the indemnified party otherwise than under this Section 2.7. In case any such action or proceeding is brought against an indemnified party, the indemnifying party shall be entitled to participate therein and, unless in the opinion of outside counsel to the indemnified party a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action or proceeding include both the indemnified party and the indemnifying party and if in the opinion of outside counsel to the indemnified party there may be legal defenses available to such indemnified party and/or other indemnified parties which are different from or in addition to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to defend such action or proceeding on behalf of such indemnified party or parties and the indemnifying party shall be obligated to pay the fees and expenses of such separate counsel or counsels. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by the indemnified party of such counsel, the indemnifying party shall not be liable to such indemnified party for any legal expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation (unless the proviso in the preceding sentence shall be applicable). No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent which shall not be unreasonably withheld. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (e) Contribution ------------ If the indemnification provided for in this Section 2.7 shall for any reason be held by a court to be unavailable to an indemnified party under subsection (a) or (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under subsection (a) or (b) hereof, the indemnified party and the indemnifying party under subsection (a) or (b) hereof shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (i) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and the indemnified party on the other, which resulted in such loss, claim, damage or liability, or action in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the allocation provided in this clause (ii) provides a greater amount to the indemnified party than clause (i) above, in such proportion as shall be appropriate to reflect not only the relative fault but also the relative benefits received by the indemnifying party and the indemnified party from the offering of the securities covered by such registration statement as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 2.7(e) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the preceding sentence of this Section 2.7(e). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute as provided in this subsection (e) are several and not joint and shall be in proportion to the relative value of their respective Registrable Common Stock covered by such registration statement. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. Notwithstanding anything in this subsection (e) to the contrary, no indemnifying party (other than the Company) shall be required to contribute any amount in excess of the net proceeds received by such party from the sale of the Registrable Common Stock in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate. (f) Other Indemnification --------------------- Indemnification and contribution similar to that specified in the preceding subsections of this Section 2.7 (with appropriate modifications) shall be given by the Company and the Holders with respect to any required registration or other qualification of securities under any federal, state or blue sky law or regulation of any governmental authority other than the Securities Act. The indemnification agreements contained in this Section 2.7 shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified party and shall survive the transfer of any of the Registrable Common Stock by any of the Holders. (g) Indemnification Payments ------------------------ The indemnification and contribution required by this Section 2.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred; provided, however, that such periodic payments shall only be made upon delivery to the indemnifying party of an agreement by the indemnified party to repay the amounts advanced to the extent it is ultimately determined that the indemnified party is not entitled to indemnification pursuant to this Section 2.7 or otherwise. The parties hereto agree that for each of them such agreement shall be deemed to be contained herein. Without limiting the generality of the foregoing, each indemnifying party, as an interim measure during the pendency of any claim, action, investigation, inquiry or proceeding arising out of or based upon any matter or subject for which indemnity (or contribution in lieu thereof) would be available to any indemnified party under any provision of this Section 2.7, the Company will promptly reimburse each indemnified party, as often an invoiced therefor (but in no event more often than monthly), for all reasonable legal or other expenses incurred in connection with the investigation or defense of any such claim, action, investigation, inquiry or proceeding, notwithstanding the absence of any judicial determination as to the propriety or enforceability of the indemnifying party's obligation to reimburse the indemnified party for such expenses and notwithstanding the possibility that the obligations to pay such expenses might later have been held to be improper by a court of competent jurisdiction. To the extent that any such interim reimbursement is held to be improper, the indemnified party agrees to promptly return the amount so advanced to the indemnifying party, together with interest, compounded monthly, at the prime rate (or other commercial lending rate for borrowers of the highest credit standing) listed from time to time in The Wall Street Journal which represents the base rate on corporate loans posted by a substantial majority of the nation's thirty (30) largest banks. Any such interim reimbursement payments which are not made to the indemnified party within thirty (30) days of a request therefor shall bear interest at such prime rate from the date of such request to the extent such reimbursement payments are ultimately determined to be proper obligations of the indemnifying party. 2.8 Limitation on Sale of Securities -------------------------------- If any registration of Registrable Common Stock or Other Holder Registrable Common Stock shall be in connection with an underwritten public offering, each of the Holders or the Other Holders, as the case may be, and the Company agrees (except, in the case of any Holder or Other Holder, to the extent that such Holder or Other Holder is prohibited by applicable law or the exercise of its fiduciary duties from agreeing to withhold Registrable Common Stock or Other Holder Registrable Common Stock, as the case may be, from sale) (x) not to effect any public sale or distribution of any issue of the same class or series as the Registrable Common Stock or Other Holder Registrable Common Stock being registered in an underwritten public offering (other than pursuant to an employee stock option, stock purchase or similar plan, pursuant to a dividend reinvestment plan, pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act), any securities of the Company similar to any such issue or any securities of the Company or of any security convertible into or exchangeable or exercisable for any such issue of the Company during the 15 days prior to, and during the 45 day period (or such longer period, not in excess of 90 days, as may be reasonably requested by the underwriter of such offering) beginning on the effective date of such registration statement (except as part of such registration) and (y) that any agreement entered into after the date of this Agreement pursuant to which the Company issues or agrees to issue any privately placed securities shall contain a provision under which holders of such securities agree not to effect any public sale or distribution of any such securities during the period referred to in the foregoing clause (x), including any sale pursuant to Rule 144 under the Securities Act (except as part of such registration, if permitted). Without limiting the scope of the term "fiduciary," a Holder or Other Holder shall be deemed to be acting as a fiduciary if its actions or the Registrable Common Stock or Other Holder Registrable Common Stock proposed to be sold is subject to the Employee Retirement Income Security Act of 1974, as amended, the Investment Advisers Act of 1940, as amended or the Investment Company Act of 1940, as amended, or if such Registrable Common Stock or Other Holder Registrable Common Stock is held in a separate account under applicable insurance law or regulation. Notwithstanding the foregoing, no Holder or Other Holder who has been on behalf of an Account shall be required to hold back Registrable Common Stock or Other Holder Registrable Common Stock attributable to such Account if such Account directs such Holder or Other Holder to dispose of some or all of such Registrable Common Stock or Other Holder Registrable Common Stock, attributable to such Account unless (1) such Holder or Other Holder shall have directly or indirectly induced such Account to make such sale or (2) such Account terminates the authority of the Holder or Other Holder of Registrable Common Stock or Other Holder Registrable Common Stock to dispose of such securities; provided, however, that any holdback agreement relating to such underwritten sale shall continue to apply to Registrable Common Stock or Other Holder Registrable Common Stock attributable to such Account which such Account has not directed such Holder or Other Holder to sell. 2.9 No Required Sale ---------------- Nothing in this Agreement shall be deemed to create an independent obligation on the part of any of the Holders to sell any Registrable Common Stock pursuant to any effective registration statement. 3. Rule 144 -------- The Company shall take all actions reasonably necessary to enable holders of Registrable Common Stock to sell such securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144, or (b) any similar rule or regulation hereafter adopted by the Commission including, without limiting the generality of the foregoing, filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of any Holder, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. 4. Amendments and Waivers ---------------------- This Agreement may not be modified or amended, or any of the provisions hereof waived, temporarily or permanently, except pursuant to the written consent of the Holders of not less than 50% of the shares of Registrable Common Stock and the Company. 5. Adjustments ----------- In the event of any change in the capitalization of the Company as a result of any stock split, stock dividend, reverse split, combination, recapitalization, merger, consolidation, or otherwise, the provisions of this Agreement shall be appropriately adjusted. 6. Notice ------ All notices and other communications hereunder shall be in writing and, unless otherwise provided herein, shall be deemed to have been given when received by the party to whom such notice is to be given at its address set forth below, or such other address for the party as shall be specified by notice given pursuant hereto: (a) If to any Holder, the address of such Holder set forth on Annex A attached hereto; (b) If to the Company, to it at: Salant Corporation 1114 Avenue of the Americas New York, New York 10036 Attn: Todd Kahn, Esq. 7. Assignment ---------- This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by the Company. Any Holder may, at its election, at any time or from time to time, assign its rights under this Agreement, in whole or in part, to any transferee of Registrable Common Stock. 8. Remedies -------- The parties hereto agree that money damages or any other remedy at law would not be sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that, in addition to all other remedies available to them, each of them shall be entitled to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including, without limitation, specific performance, without bond or other security being required. In any action or proceeding brought to enforce any provision of this Agreement (including the indemnification provisions thereof), the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 9. No Inconsistent Agreements -------------------------- The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, other than any customary lock-up agreement with the underwriters in connection with any registration and offering by the Company of its securities to the public (an "Offering") effected hereunder, pursuant to which the Company shall agree not to register for sale, and the Company shall agree not to sell or otherwise dispose of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, as applicable, for a specified period following such Offering. The Company hereby represents and warrants that the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with any other agreements to which the Company is a party or by which it is bound. The Company further agrees that if any other registration rights agreement entered into after the date of this Agreement with respect to any of its securities contains terms which are more favorable to, or less restrictive on, the other party thereto than the terms and conditions contained in this Agreement are (insofar as they are applicable) to the Holders, then the terms and conditions of this Agreement shall immediately be deemed to have been amended without further action by the Company or the Holders so that the Holders shall be entitled to the benefit of any such more favorable or less restrictive terms or conditions. 10. Headings -------- Headings of the sections and paragraphs of this Agreement are for convenience only and shall be given no substantive or interpretive effect whatsoever. 11. Governing Law; Jurisdiction --------------------------- (a) This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York, without giving effect to the conflicts of law principles thereof. (b) Each of the parties hereto irrevocably and unconditionally consents to the jurisdiction of the federal courts and courts of the state of New York situated in New York County, New York in respect of the interpretation and enforcement of the provisions of this Agreement, and hereby agrees that service of process in any such action, suit or proceeding against the other party with respect to this Agreement may be made upon it in any manner permitted by the laws of New York or the federal laws of the United States. 12. Counterparts ------------ This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 13. Invalidity of Provision ----------------------- The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. If any restriction or provision of this Agreement is held unreasonable, unlawful or unenforceable in any respect, such restriction or provision shall be interpreted, revised or applied in a manner that renders it lawful and enforceable to the fullest extent possible under law. 14. Further Assurances ------------------ Each party hereto shall do and perform or cause to be done and performed all further acts and things and shall execute and deliver all other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 15. Entire Agreement; Effectiveness ------------------------------- This Agreement and the other writings referred to herein or delivered in connection herewith contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. IN WITNESS WHEREOF, the undersigned have Executed this Agreement as of the date first above written: SALANT CORPORATION By: ------------------------------------------- Name: Title: SALANT CORPORATION, as attorney in fact for the Holders of Registrable Common Stock By: ------------------------------------------- Name: Title: MAGTEN ASSET MANAGEMENT CORP., as agent on behalf of those investment advisory clients listed on Schedule I hereto By: ------------------------------------------- Name: Title: EXHIBIT C SALANT CORPORATION 1999 STOCK AWARD AND INCENTIVE PLAN SALANT CORPORATION 1999 STOCK AWARD INCENTIVE PLAN 1. Purpose. ------- The purpose of this Plan is to strengthen Salant Corporation, a Delaware corporation (the "Company"), by providing an incentive to its employees, officers and directors and thereby encouraging them to devote their abilities and industry to the success of the Company's business enterprise. It is intended that this purpose be achieved by extending to employees, officers and directors of the Company and its Subsidiaries an added long-term incentive for high levels of performance and unusual efforts through the grant of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Dividend Equivalent Rights, Performance Awards and Restricted Stock (as each term is herein defined). 2. Definitions. ----------- For purposes of the Plan: 2.1 "Adjusted Fair Market Value" means, in the event of a Change in Control, the greater of (i) the highest price per Share paid to holders of the Shares in any transaction (or series of transactions) constituting or resulting in a Change in Control or (ii) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of a Change in Control. 2.2 "Affiliate" means any entity, directly or indirectly, controlled by, controlling or under common control with the Company or any corporation or other entity acquiring, directly or indirectly, all or substantially all the assets and business of the Company, whether by operation of law or otherwise. 2.3 "Agreement" means the written agreement between the Company and an Optionee or Grantee evidencing the grant of an Option or Award and setting forth the terms and conditions thereof. 2.4 "Award" means a grant of Restricted Stock, a Stock Appreciation Right, a Performance Award, a Dividend Equivalent Right or any or all of them. 2.5 "Board" means the Board of Directors of the Company. 2.6 "Cause" means, unless otherwise provided in an Agreement: (a) in the case of an Optionee or Grantee whose employment with the Company or a Subsidiary is subject to the terms of an employment agreement between such Optionee or Grantee and the Company or Subsidiary, which employment agreement includes a definition of "Cause", the term "Cause" as used in this Plan or any Agreement shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; (b) for purposes of Section 6.4, the commission of an act of fraud or intentional misrepresentation or an act of embezzlement, misappropriation or conversion of assets or opportunities of the Company or any of its Subsidiaries; and (c) in all other cases, (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) involvement in a transaction in connection with the performance of duties to the Company or any of its Subsidiaries which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit or (iv) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses). 2.7 "Change in Capitalization" means any increase or reduction in the number of Shares, or any change (including, but not limited to, in the case of a spin-off, dividend or other distribution in respect of Shares, a change in value) in the Shares or exchange of Shares for a different number or kind of shares or other securities of the Company or another corporation, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise. 2.8 A "Change in Control" shall mean the occurrence during the term of the Plan of: (a) An acquisition (other than directly from the Company or pursuant to the Plan of Reorganization) of any voting securities of the Company (the "Voting Securities") by any "Person" (as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of the then outstanding Shares or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) Magten Asset Management Corp., in its capacity as the beneficial owner, or the investment manager on behalf of the beneficial owners, of the issued and outstanding Shares from and after the consummation of the Plan of Reorganization ("Magten"), (ii) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Subsidiary"), (iii) the Company or its Subsidiaries, (iv) a merger or other business combination between the Company and/or its Subsidiaries, on the one hand, and Perry Ellis International, Inc. and/or its subsidiaries on the other hand, or (v) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of the Effective Date are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the members of the Board; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (i) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued where: (A) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least a majority of the members of the board of directors of the Surviving Corporation, or a corporation beneficially directly or indirectly owning a majority of the Voting Securities of the Surviving Corporation, and (C) no Person other than (i) Magten, (ii) the Company, (iii) any Subsidiary, (iv) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Company or any Subsidiary, or (v) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of fifty percent (50%) or more of the then outstanding Voting Securities or Shares, has Beneficial Ownership of fifty percent (50%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock, other than as a result of the consummation of the transactions contemplated under the Plan of Reorganization. (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Company which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 2.9 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.10 "Committee" means a committee, as described in Section 3.1, appointed by the Board from time to time to administer the Plan and to perform the functions set forth herein. 2.11 "Company" means Salant Corporation. 2.12 "Consummation Date" means the date of consummation of the Plan of Reorganization. 2.13 "Director" means a director of the Company. 2.14 "Disability" means, unless otherwise provided in an Agreement: (a) in the case of an Optionee or Grantee whose employment with the Company or a Subsidiary is subject to the terms of an employment agreement between such Optionee or Grantee and the Company or Subsidiary, which employment agreement includes a definition of "Disability", the term "Disability" as used in this Plan or any Agreement shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; and (b) in all other cases, the term "Disability" as used in this Plan or any Agreement shall mean a physical or mental infirmity which impairs the Optionee's or Grantee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. 2.15 "Division" means any of the operating units or divisions of the Company designated as a Division by the Committee. 2.16 "Dividend Equivalent Right" means a right to receive all or some portion of the cash dividends that are or would be payable with respect to Shares. 2.17 "Effective Date" has the meaning given such term in Section 21.3 hereof. 2.18 "Eligible Director" means a director of the Company who is not an officer or employee of the Company or any Subsidiary. 2.19 "Eligible Individual" means any director (other than an Eligible Director), officer or employee of the Company or a Subsidiary, designated by the Committee as eligible to receive Options or Awards subject to the conditions set forth herein. 2.20 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. 2.21 "Fair Market Value" on any date means the average of the high and low sales prices of the Shares on such date on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if such Shares are not so listed or admitted to trading, the average of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Shares on such date, the Fair Market Value shall be the value established by the Board in good faith and, in the case of an Incentive Stock Option, in accordance with Section 422 of the Code. 2.22 "Formula Option" means an Option granted pursuant to Section 6. 2.23 "Grantee" means a person to whom an Award has been granted under the Plan. 2.24 "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee in an Agreement as an Incentive Stock Option. 2.25 "Nonemployee Director" means a Director who is a "nonemployee director" within the meaning of Rule 16b-3 promulgated under the Exchange Act. 2.26 "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. 2.27 "Option" means a Nonqualified Stock Option, an Incentive Stock Option and/or a Formula Option. 2.28 "Optionee" means a person to whom an Option has been granted under the Plan. 2.29 "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. 2.30 "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. 2.31 "Performance Awards" means Performance Units, Performance Shares or either or both of them. 2.32 "Performance Cycle" means the time period specified by the Committee at the time Performance Awards are granted during which the performance of the Company, a Subsidiary or a Division will be measured. 2.33 "Performance Objectives" has the meaning set forth in Section 11. 2.34 "Performance Shares" means Shares issued or transferred to an Eligible Individual under Section 11. 2.35 "Performance Units" means Performance Units granted to an Eligible Individual under Section 11. 2.36 "Plan" means the Salant Corporation 1998 Stock Award and Incentive Plan, as amended and restated from time to time. 2.37 "Plan of Reorganization" means the Chapter 11 Plan of Reorganization for Salant Corporation, dated December __, 1998. 2.38 "Pooling Transaction" means an acquisition of the Company in a transaction which is intended to be treated as a "pooling of interests" under generally accepted accounting principles. 2.39 "Restricted Stock" means Shares issued or transferred to an Eligible Individual pursuant to Section 10. 2.40 "Shares" means the shares of New Common Stock, as defined in the Plan of Reorganization, par value $1.00 per share, of the Company.* - ----------------------- * Gives effect to the consummation of the Plan of Reorganization. 2.41 "Stock Appreciation Right" means a right to receive all or some portion of the increase in the value of the Shares as provided in Section 8 hereof. 2.42 "Subsidiary" means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) with respect to the Company. 2.43 "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies. 2.44 "Ten-Percent Stockholder" means an Eligible Individual, who, at the time an Incentive Stock Option is to be granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a Parent or a Subsidiary. 3. Administration. -------------- 3.1 The Plan shall be administered by the Committee, which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A quorum shall consist of not fewer than two (2) members of the Committee and a majority of a quorum may authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members of the Committee shall be as fully effective as if made by a majority vote at a meeting duly called and held. The Committee shall consist of at least two (2) directors of the Company and may consist of the entire Board; provided, however, that (A) if the Committee consists of less than the entire Board, each member shall be a Nonemployee Director and (B) to the extent necessary for any Option or Award intended to qualify as performance-based compensation under Section 162(m) of the Code to so qualify, each member of the Committee, whether or not it consists of the entire Board, shall be an Outside Director. For purposes of the preceding sentence, if one or more members of the Committee is not a Nonemployee Director and an Outside Director but recuses himself or herself or abstains from voting with respect to a particular action taken by the Committee, then the Committee, with respect to that action, shall be deemed to consist only of the members of the Committee who have not recused themselves or abstained from voting. 3.2 No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to this Plan or any transaction hereunder. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiating for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any actions in administering this Plan or in authorizing or denying authorization to any transaction hereunder. 3.3 Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time to: (a) determine those Eligible Individuals to whom Options shall be granted under the Plan and the number of such Options to be granted and to prescribe the terms and conditions (which need not be identical) of each such Option, including the exercise price per Share subject to each Option, and make any amendment or modification to any Option Agreement consistent with the terms of the Plan; (b) select those Eligible Individuals to whom Awards shall be granted under the Plan and to determine the number of Stock Appreciation Rights, Performance Awards, Shares of Restricted Stock and/or Dividend Equivalent Rights to be granted pursuant to each Award, the terms and conditions (which need not be identical) of such Award, including the restrictions or Performance Objectives relating to Shares, the maximum value of each Performance Share and make any amendment or modification to any Award Agreement consistent with the terms of the Plan; (c) to construe and interpret the Plan and the Options and Awards granted hereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable, including so that the Plan complies with Rule 16b-3 under the Exchange Act, the Code, and other applicable law, and otherwise to make the Plan fully effective. All decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees and Grantees, and all other persons having any interest therein; (d) to determine the duration and purposes for leaves of absence which may be granted to an Optionee or Grantee on an individual basis without constituting a termination of employment or service for purposes of the Plan; (e) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and (f) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. Stock Subject to the Plan. ------------------------- 4.1 The maximum number of Shares that may be made the subject of Options and Awards granted under the Plan is [ ].* No Eligible Individual may be granted Options and Awards in the aggregate in respect of more than [ ]* Shares in any one calendar year period. The maximum dollar amount of cash or the Fair Market Value of Shares that any Eligible Individual may receive in any calendar year during the term of the Plan in respect of Performance Units denominated in dollars may not exceed [$ ]. Upon a Change in Capitalization, the maximum number of Shares referred to in the first two sentences of this Section 4.1 shall be adjusted in number and kind pursuant to Section 13. The Company shall reserve for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Board. - -------------------- * Such number gives effect to the consummation of the Plan of Reorganization. 4.2 Upon the granting of an Option or an Award, the number of Shares available under Section 4.1 for the granting of further Options and Awards shall be reduced as follows; provided, however, that if any Option is exercised by tendering Shares, either actually or by attestation, to the Company as full or partial payment of the exercise price, the maximum number of Shares available under Section 4.1 shall be increased by the number of Shares so tendered. (a) In connection with the granting of an Option or an Award (other than the granting of a Performance Unit denominated in dollars), the number of Shares shall be reduced by the number of Shares in respect of which the Option or Award is granted or denominated. (b) In connection with the granting of a Performance Unit denominated in dollars, the number of Shares shall be reduced by an amount equal to the quotient of (i) the dollar amount in which the Performance Unit is denominated, divided by (ii) the Fair Market Value of a Share on the date the Performance Unit is granted. 4.3 Whenever any outstanding Option or Award or portion thereof expires, is canceled or is otherwise terminated for any reason without having been exercised or payment having been made in respect of the entire Option or Award, the Shares allocable to the expired, canceled or otherwise terminated portion of the Option or Award may again be the subject of Options or Awards granted hereunder. 5. Option Grants for Eligible Individuals. -------------------------------------- 5.1 Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Individuals who will receive Options, and the terms and conditions of the grant to such Eligible Individuals shall be set forth in an Agreement. 5.2 Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Option shall be determined by the Committee and set forth in the Agreement; provided, however, that the purchase price per Share under each Option shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). 5.3 Maximum Duration. Options granted hereunder shall be for such term as the Committee shall determine and set forth in the Agreement, provided that an Incentive Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder) and a Nonqualified Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted; provided, however, that the Committee may provide that an Option (other than an Incentive Stock Option) may, upon the death of the Optionee, be exercised for up to one (1) year following the date of the Optionee's death even if such period extends beyond ten (10) years from the date the Option is granted. The Committee may, subsequent to the granting of any Option, extend the term thereof, but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. 5.4 Vesting. Subject to Section 7.4, each Option shall become exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Agreement. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time. 5.5 Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date of the grant) of Shares with respect to which Incentive Stock Options granted under the Plan and "incentive stock options" (within the meaning of Section 422 of the Code) granted under all other plans of the Company or its Subsidiaries (in either case determined without regard to this Section 5.6) are exercisable by an Optionee for the first time during any calendar year exceeds $100,000, such Incentive Stock Options shall be treated as Nonqualified Stock Options. In applying the limitation in the preceding sentence in the case of multiple grants of Options, Options which were intended to be Incentive Stock Options shall be treated as Nonqualified Stock Options according to the order in which they were granted such that the most recently granted Options are first treated as Nonqualified Stock Options. 6. Option Grants for Nonemployee Directors. --------------------------------------- 6.1 Grant. ----- (a) Each Eligible Director who is a Director on the Consummation Date shall be granted a Formula Option in respect of [ ]* Shares on the Consummation Date. - --------------------- * Such number gives effect to the consummation of the Plan of Reorganization. (b) Each Eligible Director who becomes a Director for the first time after the Consummation Date shall, upon becoming a Director, be granted a Formula Option in respect of [ ]* Shares. (c) Each Eligible Director shall be granted a Formula Option in respect of [ ]* Shares on the first business day after the annual meeting of the stockholders of the Company (other than any annual meeting pursuant to which such Eligible Director receives a grant pursuant to paragraph (a) or (b) of this Section 6.1) in each year that the Plan is in effect provided that the Eligible Director is a Director on such date. All Formula Options shall be evidenced by an Agreement containing such other terms and conditions not inconsistent with the provisions of this Plan as determined by the Board; provided, however, that such terms shall not vary the price, amount or timing of Formula Options provided under this Section 6, including provisions dealing with vesting, forfeiture and termination of such Formula Options. 6.2 Purchase Price. The purchase price for Shares under each Formula Option shall be equal to 100% of the Fair Market Value of such Shares on the date the Formula Option is granted. 6.3 Vesting. Subject to Sections 6.4 and 7.4, each Formula Option shall become fully vested and exercisable with respect to [ ]% of the Shares subject thereto on the date of grant and on each of the first through [ ] anniversaries of the date of grant; provided, that the Optionee continues to serve as a Director as of such date. If an Optionee ceases to serve as a Director for any reason, the Optionee shall have no rights with respect to any Formula Option (or portion thereof) which has not then vested pursuant to the preceding sentence and the Optionee shall automatically forfeit any Formula Option which remains unvested. 6.4 Duration. Subject to Section 7.4, each Formula Option (or portion thereof) shall terminate on the date which is the tenth anniversary of the date of grant (or if later, the first anniversary of the Director's death if such death occurs prior to such tenth anniversary), unless terminated earlier as follows: (a) If an Optionee's service as a Director terminates for any reason other than Disability, death or Cause, the Optionee may for a period of three (3) months after such termination exercise his or her Option to the extent, and only to the extent, that such Option or portion thereof was vested and exercisable as of the date the Optionee's service as a Director terminated, after which time the Option shall automatically terminate in full. (b) If an Optionee's service as a Director terminates by reason of the Optionee's resignation or removal from the Board due to Disability, the Optionee may, for a period of one (1) year after such termination, exercise his or her Option to the extent, and only to the extent, that such Option or portion thereof was vested and exercisable, as of the date the Optionee's service as Director terminated, after which time the Option shall automatically terminate in full. (c) If an Optionee's service as a Director terminates for Cause, the Option granted to the Optionee hereunder shall immediately terminate in full and no rights thereunder may be exercised. (d) If an Optionee dies while a Director or within three (3) months after termination of service as a Director as described in clause (a) of this Section 6.4 or within twelve (12) months after termination of service as a Director as described in clause (b) of this Section 6.4, the Option granted to the Optionee may be exercised at any time within twelve (12) months after the Optionee's death by the person or persons to whom such rights under the Option shall pass by will, or by the laws of descent or distribution, after which time the Option shall terminate in full; provided, however, that an Option may be exercised to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination of the Optionee's services as a Director. (e) The Formula Option (or portion thereof), to the extent not yet vested and exercisable as of the date the Director's service as a Director terminates for any reason shall terminate immediately upon such date. 7. Terms and Conditions Applicable to All Options. ---------------------------------------------- 7.1 Non-Transferability. No Option shall be transferable by the Optionee otherwise than by will or by the laws of descent and distribution or, in the case of an Option other than an Incentive Stock Option, pursuant to a domestic relations order (within the meaning of Rule 16a-12 promulgated under the Exchange Act), and an Option shall be exercisable during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may set forth in the Agreement evidencing an Option (other than an Incentive Stock Option) at the time of grant or thereafter, that the Option may be transferred to members of the Optionee's immediate family, to trusts solely for the benefit of such immediate family members and to partnerships in which such family members and/or trusts are the only partners, and for purposes of this Plan, a transferee of an Option shall be deemed to be the Optionee. For this purpose, immediate family means the Optionee's spouse, parents, children, stepchildren and grandchildren and the spouses of such parents, children, stepchildren and grandchildren. The terms of an Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. 7.2 Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted; provided, however, that Options may not be exercised by an Optionee for twelve months following a hardship distribution to the Optionee, to the extent such exercise is prohibited under Treasury Regulation ss. 1.401(k)-1(d)(2)(iv)(B)(4). The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid, as determined by the Committee in its discretion, in either of the following forms (or any combination thereof): (i) cash or (ii) the transfer, either actually or by attestation to the Company, of Shares that have been held by the Optionee for at least six (6) months (or such lesser period as may be permitted by the Committee), prior to the exercise of the Option, such transfer to be upon such terms and conditions as determined by the Committee. In addition, Options may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures which are, from time to time, deemed acceptable by the Committee. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. The Optionee shall deliver the Agreement evidencing the Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares. 7.3 Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares, subject to such terms and conditions as may be set forth in the applicable Agreement. 7.4 Effect of Change in Control. Upon the occurrence of a Change in Control, all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable. In addition, to the extent set forth in an Agreement evidencing the grant of an Option, an Optionee will be permitted to surrender to the Company for cancellation within sixty (60) days after such Change in Control any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any, of (x) (A) in the case of a Nonqualified Stock Option, the greater of (1) the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered or (2) the Adjusted Fair Market Value of the Shares subject to the Option or portion thereof surrendered or (B) in the case of an Incentive Stock Option, the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered, over (y) the aggregate purchase price for such Shares under the Option or portion thereof surrendered. 8. Stock Appreciation Rights. ------------------------- The Committee may in its discretion, either alone or in connection with the grant of an Option, grant Stock Appreciation Rights in accordance with the Plan, the terms and conditions of which shall be set forth in an Agreement. If granted in connection with an Option, a Stock Appreciation Right shall cover the same Shares covered by the Option (or such lesser number of Shares as the Committee may determine) and shall, except as provided in this Section 8, be subject to the same terms and conditions as the related Option. 8.1 Time of Grant. A Stock Appreciation Right may be granted (i) at any time if unrelated to an Option, or (ii) if related to an Option, either at the time of grant, or at any time thereafter during the term of the Option. 8.2 Stock Appreciation Right Related to an Option. --------------------------------------------- (a) Exercise. A Stock Appreciation Right granted in connection with an Option shall be exercisable at such time or times and only to the extent that the related Options are exercisable, and will not be transferable except to the extent the related Option may be transferable. A Stock Appreciation Right granted in connection with an Incentive Stock Option shall be exercisable only if the Fair Market Value of a Share on the date of exercise exceeds the purchase price specified in the related Incentive Stock Option Agreement. (b) Amount Payable. Upon the exercise of a Stock Appreciation Right related to an Option, the Grantee shall be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a Share on the date preceding the date of exercise of such Stock Appreciation Right over the per Share purchase price under the related Option, by (B) the number of Shares as to which such Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the Agreement evidencing the Stock Appreciation Right at the time it is granted. (c) Treatment of Related Options and Stock Appreciation Rights Upon Exercise. Upon the exercise of a Stock Appreciation Right granted in connection with an Option, the Option shall be canceled to the extent of the number of Shares as to which the Stock Appreciation Right is exercised, and upon the exercise of an Option granted in connection with a Stock Appreciation Right, the Stock Appreciation Right shall be canceled to the extent of the number of Shares as to which the Option is exercised or surrendered. 8.3 Stock Appreciation Right Unrelated to an Option. The Committee may grant to Eligible Individuals Stock Appreciation Rights unrelated to Options. Stock Appreciation Rights unrelated to Options shall contain such terms and conditions as to exercisability (subject to Section 8.7), vesting and duration as the Committee shall determine, but in no event shall they have a term of greater than ten (10) years. Upon exercise of a Stock Appreciation Right unrelated to an Option, the Grantee shall be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a Share on the date preceding the date of exercise of such Stock Appreciation Right over the Fair Market Value of a Share on the date the Stock Appreciation Right was granted, by (B) the number of Shares as to which the Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the Agreement evidencing the Stock Appreciation Right at the time it is granted. 8.4 Non-Transferability. No Stock Appreciation Right shall be transferable by the Grantee otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order (within the meaning of Rule 16a-12 promulgated under the Exchange Act), and such Stock Appreciation Right shall be exercisable during the lifetime of such Grantee only by the Grantee or his or her guardian or legal representative. The terms of such Stock Appreciation Right shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Grantee. 8.5 Method of Exercise. Stock Appreciation Rights shall be exercised by a Grantee only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares with respect to which the Stock Appreciation Right is being exercised. If requested by the Committee, the Grantee shall deliver the Agreement evidencing the Stock Appreciation Right being exercised and the Agreement evidencing any related Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Grantee. 8.6 Form of Payment. Payment of the amount determined under Sections 8.2(b) or 8.3 may be made in the discretion of the Committee solely in whole Shares in a number determined at their Fair Market Value on the date preceding the date of exercise of the Stock Appreciation Right, or solely in cash, or in a combination of cash and Shares. If the Committee decides to make full payment in Shares and the amount payable results in a fractional Share, payment for the fractional Share will be made in cash. 8.7 Effect of Change in Control. Upon the occurrence of a Change in Control, all Stock Appreciation Rights shall become immediately and fully exercisable. In addition, to the extent set forth in an Agreement evidencing the grant of a Stock Appreciation Right unrelated to an Option, a Grantee will be entitled to receive a payment from the Company in cash or stock, in either case, with a value equal to the excess, if any, of (A) the greater of (x) the Fair Market Value, on the date preceding the date of exercise, of the underlying Shares subject to the Stock Appreciation Right or portion thereof exercised and (y) the Adjusted Fair Market Value, on the date preceding the date of exercise, of the Shares over (B) the aggregate Fair Market Value, on the date the Stock Appreciation Right was granted, of the Shares subject to the Stock Appreciation Right or portion thereof exercised. 9. Dividend Equivalent Rights. -------------------------- Dividend Equivalent Rights may be granted to Eligible Individuals in tandem with an Option or Award or as a separate award. The terms and conditions applicable to each Dividend Equivalent Right shall be specified in the Agreement under which the Dividend Equivalent Right is granted. Amounts payable in respect of Dividend Equivalent Rights may be payable currently or deferred until the lapsing of restrictions on such Dividend Equivalent Rights or until the vesting, exercise, payment, settlement or other lapse of restrictions on the Option or Award to which the Dividend Equivalent Rights relate. In the event that the amount payable in respect of Dividend Equivalent Rights are to be deferred, the Committee shall determine whether such amounts are to be held in cash or reinvested in Shares or deemed (notionally) to be reinvested in Shares. If amounts payable in respect of Dividend Equivalent Rights are to be held in cash, there may be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Dividend Equivalent Rights may be settled in cash or Shares or a combination thereof, in a single installment or multiple installments. 10. Restricted Stock. ---------------- 10.1 Grant. The Committee may grant Awards to Eligible Individuals of Restricted Stock, which shall be evidenced by an Agreement between the Company and the Grantee. Each Agreement shall contain such restrictions, terms and conditions as the Committee may, in its discretion, determine and (without limiting the generality of the foregoing) such Agreements may require that an appropriate legend be placed on Share certificates. Awards of Restricted Stock shall be subject to the terms and provisions set forth below in this Section 10. 10.2 Rights of Grantee. Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted provided that the Grantee has executed an Agreement evidencing the Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require as a condition to the issuance of such Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted Stock Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require within the time period prescribed by the Committee at the time the Award is granted, the Award shall be null and void. At the discretion of the Committee, Shares issued in connection with a Restricted Stock Award shall be deposited together with the stock powers with an escrow agent (which may be the Company) designated by the Committee. Unless the Committee determines otherwise and as set forth in the Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall have all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares. 10.3 Non-transferability. Until all restrictions upon the Shares of Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth in Section 10.4, such Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated, nor shall they be delivered to the Grantee. 10.4 Lapse of Restrictions. --------------------- (a) Generally. Restrictions upon Shares of Restricted Stock awarded hereunder shall lapse at such time or times and on such terms and conditions as the Committee may determine. The Agreement evidencing the Award shall set forth any such restrictions. (b) Effect of Change in Control. Unless the Committee shall determine otherwise at the time of the grant of an Award of Restricted Stock, the restrictions upon Shares of Restricted Stock shall lapse upon a Change in Control. The Agreement evidencing the Award shall set forth any such provisions. 10.5 Treatment of Dividends. At the time an Award of Shares of Restricted Stock is granted, the Committee may, in its discretion, determine that the payment to the Grantee of dividends, or a specified portion thereof, declared or paid on such Shares by the Company shall be (i) deferred until the lapsing of the restrictions imposed upon such Shares and (ii) held by the Company for the account of the Grantee until such time. In the event that dividends are to be deferred, the Committee shall determine whether such dividends are to be reinvested in shares of Stock (which shall be held as additional Shares of Restricted Stock) or held in cash. If deferred dividends are to be held in cash, there may be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends in respect of Shares of Restricted Stock (whether held in cash or as additional Shares of Restricted Stock), together with interest accrued thereon, if any, shall be made upon the lapsing of restrictions imposed on the Shares in respect of which the deferred dividends were paid, and any dividends deferred (together with any interest accrued thereon) in respect of any Shares of Restricted Stock shall be forfeited upon the forfeiture of such Shares. 10.6 Delivery of Shares. Upon the lapse of the restrictions on Shares of Restricted Stock, the Committee shall cause a stock certificate to be delivered to the Grantee with respect to such Shares, free of all restrictions hereunder. 11. Performance Awards. ------------------ 11.1 Performance Units. The Committee, in its discretion, may grant Awards of Performance Units to Eligible Individuals, the terms and conditions of which shall be set forth in an Agreement between the Company and the Grantee. Performance Units may be denominated in Shares or a specified dollar amount and, contingent upon the attainment of specified Performance Objectives within the Performance Cycle, represent the right to receive payment as provided in Section 11.3(c) of (i) in the case of Share-denominated Performance Units, the Fair Market Value of a Share on the date the Performance Unit was granted, the date the Performance Unit became vested or any other date specified by the Committee, (ii) in the case of dollar-denominated Performance Units, the specified dollar amount or (iii) a percentage (which may be more than 100%) of the amount described in clause (i) or (ii) depending on the level of Performance Objective attainment; provided, however, that, the Committee may at the time a Performance Unit is granted specify a maximum amount payable in respect of a vested Performance Unit. Each Agreement shall specify the number of Performance Units to which it relates, the Performance Objectives which must be satisfied in order for the Performance Units to vest and the Performance Cycle within which such Performance Objectives must be satisfied. (a) Vesting and Forfeiture. Subject to Sections 11.3(c) and 11.4, a Grantee shall become vested with respect to the Performance Units to the extent that the Performance Objectives set forth in the Agreement are satisfied for the Performance Cycle. (b) Payment of Awards. Subject to Section 11.3(c), payment to Grantees in respect of vested Performance Units shall be made as soon as practicable after the last day of the Performance Cycle to which such Award relates unless the Agreement evidencing the Award provides for the deferral of payment, in which event the terms and conditions of the deferral shall be set forth in the Agreement. Subject to Section 11.4, such payments may be made entirely in Shares valued at their Fair Market Value as of the day preceding the date of payment or such other date specified by the Committee, entirely in cash, or in such combination of Shares and cash as the Committee in its discretion shall determine at any time prior to such payment; provided, however, that if the Committee in its discretion determines to make such payment entirely or partially in Shares of Restricted Stock, the Committee must determine the extent to which such payment will be in Shares of Restricted Stock and the terms of such Restricted Stock at the time the Award is granted. 11.2 Performance Shares. The Committee, in its discretion, may grant Awards of Performance Shares to Eligible Individuals, the terms and conditions of which shall be set forth in an Agreement between the Company and the Grantee. Each Agreement may require that an appropriate legend be placed on Share certificates. Awards of Performance Shares shall be subject to the following terms and provisions: (a) Rights of Grantee. The Committee shall provide at the time an Award of Performance Shares is made the time or times at which the actual Shares represented by such Award shall be issued in the name of the Grantee; provided, however, that no Performance Shares shall be issued until the Grantee has executed an Agreement evidencing the Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require as a condition to the issuance of such Performance Shares. If a Grantee shall fail to execute the Agreement evidencing an Award of Performance Shares, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require within the time period prescribed by the Committee at the time the Award is granted, the Award shall be null and void. At the discretion of the Committee, Shares issued in connection with an Award of Performance Shares shall be deposited together with the stock powers with an escrow agent (which may be the Company) designated by the Committee. Except as restricted by the terms of the Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall have, in the discretion of the Committee, all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares. (b) Non-transferability. Until any restrictions upon the Performance Shares awarded to a Grantee shall have lapsed in the manner set forth in Sections 11.2(c) or 11.4, such Performance Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated, nor shall they be delivered to the Grantee. The Committee may also impose such other restrictions and conditions on the Performance Shares, if any, as it deems appropriate. (c) Lapse of Restrictions. Subject to Sections 11.3(c) and 11.4, restrictions upon Performance Shares awarded hereunder shall lapse and such Performance Shares shall become vested at such time or times and on such terms, conditions and satisfaction of Performance Objectives as the Committee may, in its discretion, determine at the time an Award is granted. (d) Treatment of Dividends. At the time the Award of Performance Shares is granted, the Committee may, in its discretion, determine that the payment to the Grantee of dividends, or a specified portion thereof, declared or paid on Shares represented by such Award which have been issued by the Company to the Grantee shall be (i) deferred until the lapsing of the restrictions imposed upon such Performance Shares and (ii) held by the Company for the account of the Grantee until such time. In the event that dividends are to be deferred, the Committee shall determine whether such dividends are to be reinvested in shares of Stock (which shall be held as additional Performance Shares) or held in cash. If deferred dividends are to be held in cash, there may be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends in respect of Performance Shares (whether held in cash or in additional Performance Shares), together with interest accrued thereon, if any, shall be made upon the lapsing of restrictions imposed on the Performance Shares in respect of which the deferred dividends were paid, and any dividends deferred (together with any interest accrued thereon) in respect of any Performance Shares shall be forfeited upon the forfeiture of such Performance Shares. (e) Delivery of Shares. Upon the lapse of the restrictions on Performance Shares awarded hereunder, the Committee shall cause a stock certificate to be delivered to the Grantee with respect to such Shares, free of all restrictions hereunder. 11.3 Performance Objectives ---------------------- (a) Establishment. Performance Objectives for Performance Awards may be expressed in terms of (i) earnings per Share, (ii) Share price, (iii) pre-tax profits, (iv) net earnings, (v) return on equity or assets, or (vi) any combination of the foregoing. Performance Objectives may be in respect of the performance of the Company, any of its Subsidiaries, any of its Divisions or any combination thereof. Performance Objectives may be absolute or relative (to prior performance of the Company or to the performance of one or more other entities or external indices) and may be expressed in terms of a progression within a specified range. The Performance Objectives with respect to a Performance Cycle shall be established in writing by the Committee by the earlier of (x) the date on which a quarter of the Performance Cycle has elapsed or (y) the date which is ninety (90) days after the commencement of the Performance Cycle, and in any event while the performance relating to the Performance Objectives remain substantially uncertain. (b) Effect of Certain Events. At the time of the granting of a Performance Award, or at any time thereafter, in either case to the extent permitted under Section 162(m) of the Code and the regulations thereunder without adversely affecting the treatment of the Performance Award as Performance-Based Compensation, the Committee may provide for the manner in which performance will be measured against the Performance Objectives (or may adjust the Performance Objectives) to reflect the impact of specified corporate transactions, accounting or tax law changes and other extraordinary and nonrecurring events. (c) Determination of Performance. Prior to the vesting, payment, settlement or lapsing of any restrictions with respect to any Performance Award that is intended to constitute Performance-Based Compensation made to a Grantee who is subject to Section 162(m) of the Code, the Committee shall certify in writing that the applicable Performance Objectives have been satisfied. 11.4 Effect of Change in Control. In the event of a Change in Control: (a) With respect to Performance Units, the Grantee shall (i) become vested in all or a portion of the Performance Units as determined by the Committee at the time of the Award of such Performance Units and as set forth in the Agreement and (ii) be entitled to receive in respect of all Performance Units which become vested as a result of a Change in Control a cash payment within ten (10) days after such Change in Control in an amount as determined by the Committee at the time of the Award of such Performance Unit and as set forth in the Agreement. (b) With respect to Performance Shares, all or a portion of any unissued Performance Shares shall be issued and restrictions shall lapse immediately on all or a portion of the Performance Shares in each case as determined by the Committee at the time of the Award of such Performance Shares and as set forth in the Agreement. (c) The Agreements evidencing Performance Shares and Performance Units shall provide for the treatment of such Awards (or portions thereof) which do not become vested as the result of a Change in Control, including, but not limited to, provisions for the adjustment of applicable Performance Objectives. 11.5 Non-transferability. Until the vesting of Performance Units or the lapsing of any restrictions on Performance Shares, as the case may be, such Performance Units or Performance Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated. 12. Effect of a Termination of Employment. ------------------------------------- The Agreement evidencing the grant of each Option and each Award shall set forth the terms and conditions applicable to such Option or Award upon a termination or change in the status of the employment of the Optionee or Grantee by the Company, a Subsidiary or a Division (including a termination or change by reason of the sale of a Subsidiary or a Division), which shall be as the Committee may, in its discretion, determine at the time the Option or Award is granted or thereafter. 13. Adjustment Upon Changes in Capitalization. ----------------------------------------- (a) In the event of a Change in Capitalization, the Committee shall, in its sole discretion, determine the appropriate adjustments, if any, to (i) the maximum number and class of Shares or other stock or securities with respect to which Options or Awards may be granted under the Plan, (ii) the maximum number and class of Shares or other stock or securities with respect to which Options or Awards may be granted to any Eligible Individual during any calendar year, (iii) the number and class of Shares or other stock or securities which are subject to outstanding Options or Awards granted under the Plan and the purchase price therefor, if applicable, and (iv) the Performance Objectives. (b) Any such adjustment in the Shares or other stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. (c) If, by reason of a Change in Capitalization, a Grantee of an Award shall be entitled to, or an Optionee shall be entitled to exercise an Option with respect to, new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares subject to the Award or Option, as the case may be, prior to such Change in Capitalization. 14. Effect of Certain Transactions. ------------------------------ Subject to Sections 7.4, 8.7, 10.4(b) and 11.4 or as otherwise provided in an Agreement, in the event of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options and Awards issued hereunder shall continue in effect in accordance with their respective terms, except that following a Transaction each Optionee and Grantee shall be entitled to receive in respect of each Share subject to any outstanding Options or Awards, as the case may be, upon exercise of any Option or payment or transfer in respect of any Award, the same number and kind of stock, securities, cash, property or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share; provided, however, that such stock, securities, cash, property, or other consideration shall remain subject to all of the conditions, restrictions and performance criteria which were applicable to the Options and Awards prior to such Transaction. 15. Interpretation. -------------- Following the required registration of any equity security of the Company pursuant to Section 12 of the Exchange Act: (a) The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. (b) Unless otherwise expressly stated in the relevant Agreement, each Option, Stock Appreciation Right and Performance Award granted under the Plan is intended to be performance-based compensation within the meaning of Section 162(m)(4)(C) of the Code. The Committee shall not be entitled to exercise any discretion otherwise authorized hereunder with respect to such Options or Awards if the ability to exercise such discretion or the exercise of such discretion itself would cause the compensation attributable to such Options or Awards to fail to qualify as performance-based compensation. 16. Pooling Transactions. -------------------- Notwithstanding anything contained in the Plan or any Agreement to the contrary, in the event of a Change in Control which is also intended to constitute a Pooling Transaction, the Committee shall take such actions, if any, as are specifically recommended by an independent accounting firm retained by the Company to the extent reasonably necessary in order to assure that the Pooling Transaction will qualify as such, including but not limited to (i) deferring the vesting, exercise, payment, settlement or lapsing of restrictions with respect to any Option or Award, (ii) providing that the payment or settlement in respect of any Option or Award be made in the form of cash, Shares or securities of a successor or acquirer of the Company, or a combination of the foregoing, and (iii) providing for the extension of the term of any Option or Award to the extent necessary to accommodate the foregoing, but not beyond the maximum term permitted for any Option or Award. 17. Termination and Amendment of the Plan or Modification of Options and Awards. -------------------------------------------------------- 17.1 Plan Amendment or Termination. The Plan shall terminate on the day preceding the tenth anniversary of the date of its adoption by the Board and no Option or Award may be granted thereafter. The Board may sooner terminate the Plan and the Board may at any time and from time to time amend, modify or suspend the Plan; provided, however, that: (a) no such amendment, modification, suspension or termination shall impair or adversely alter any Options or Awards theretofore granted under the Plan, except with the consent of the Optionee or Grantee, nor shall any amendment, modification, suspension or termination deprive any Optionee or Grantee of any Shares which he or she may have acquired through or as a result of the Plan; and (b) to the extent necessary under any applicable law, regulation or exchange requirement, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law, regulation or exchange requirement. 17.2 Modification of Options and Awards. No modification of an Option or Award shall adversely alter or impair any rights or obligations under the Option or Award without the consent of the Optionee or Grantee, as the case may be. 18. Non-Exclusivity of the Plan. --------------------------- The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 19. Limitation of Liability. ----------------------- As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (i) give any person any right to be granted an Option or Award other than at the sole discretion of the Committee; (ii) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (iii) limit in any way the right of the Company or any Subsidiary to terminate the employment of any person at any time; or (iv) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 20. Regulations and Other Approvals; Governing Law. ---------------------------------------------- 20.1 Except as to matters of federal law, the Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles thereof. 20.2 The obligation of the Company to sell or deliver Shares with respect to Options and Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. 20.3 The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Individuals granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. 20.4 Each Option and Award is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or Award or the issuance of Shares, no Options or Awards shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. 20.5 Notwithstanding anything contained in the Plan or any Agreement to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to an Option or Award granted under the Plan, as a condition precedent to receipt of such Shares, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended to reflect their status as restricted securities as aforesaid. 21. Miscellaneous. ------------- 21.1 Multiple Agreements. The terms of each Option or Award may differ from other Options or Awards granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option or Award to a given Eligible Individual during the term of the Plan, either in addition to, or in substitution for, one or more Options or Awards previously granted to that Eligible Individual. 21.2 Withholding of Taxes. -------------------- (a) At such times as an Optionee or Grantee recognizes taxable income in connection with the receipt of Shares or cash hereunder (a "Taxable Event"), the Optionee or Grantee shall pay to the Company an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company in connection with the Taxable Event (the "Withholding Taxes") prior to the issuance, or release from escrow, of such Shares or the payment of such cash. The Company shall have the right to deduct from any payment of cash to an Optionee or Grantee an amount equal to the Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes. In satisfaction of the obligation to pay Withholding Taxes to the Company, the Optionee or Grantee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares then issuable to him or her having an aggregate Fair Market Value equal to the Withholding Taxes. (b) If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of the grant or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office. 21.3. Effective Date. The Plan shall be effective on the date on which the plan of reorganization of the Company is consummated (the "Effective Date"); provided, however, that any Awards granted under the Plan shall be subject to the requisite approval of the stockholders of the Company. EX-2.4 3 EXHIBIT 2.4 THIS IS NOT A SOLICITATION OF ACCEPTANCES OF THE CHAPTER 11 PLAN OF REORGANIZATION FOR SALANT CORP. ACCEPTANCES MAY NOT BE SOLICITED BY THE DEBTOR UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT IS BEING SUBMITTED FOR APPROVAL BUT HAS NOT YET BEEN APPROVED BY THE BANKRUPTCY COURT. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ------------------------------------------x : : In re: : : Chapter 11 SALANT CORPORATION : Case No. 98-10107 (CB) : : : Debtor. : - ------------------------------------------x - --------------------------------------------------------------------- DISCLOSURE STATEMENT FOR CHAPTER 11 PLAN OF REORGANIZATION FOR SALANT CORPORATION - --------------------------------------------------------------------- Dated: New York, New York December 29, 1998 FRIED, FRANK, HARRIS, SHRIVER & JACOBSON (A Partnership Including Professional Corporations) Attorneys for Salant Corporation Debtor and Debtor-In-Possession One New York Plaza New York, New York 10004 (212) 859-8000 TABLE OF CONTENTS I. INTRODUCTION AND SUMMARY................................................1 A. THE SOLICITATION................................................1 B. RECOMMENDATIONS.................................................2 C. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.......................................................3 D. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS.......................7 II. BACKGROUND............................................................10 A. BUSINESS AND PROPERTIES OF THE DEBTOR..........................10 1. Introduction...............................................10 2. Men's Apparel..............................................10 3. Children's Sleepwear and Underwear.........................11 4. Retail Outlet Stores.......................................11 5. Principal Product Lines....................................12 6. Trademarks Owned by the Company and Related Licensing Income...........................................14 7. Trademarks Licensed to the Company.........................14 8. Design and Manufacturing...................................15 9. Raw Materials..............................................16 10. Employees..................................................16 11. Competition................................................16 12. Environmental Regulations..................................17 B. EXECUTIVE OFFICES; FINANCIAL INFORMATION.......................17 C. CAPITAL STRUCTURE OF THE DEBTOR................................17 1. Equity.....................................................17 2. Debt.......................................................18 D. THE DEBTOR.....................................................19 E. BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING.............20 1. The March 2 Letter Agreement...............................23 2. The Plan Negotiations......................................24 3. The Waiver and Forbearance Under the CIT Credit Agreement and Commitment for New Credit Agreement..........26 4. The CIT DIP Facility.......................................26 5. The CIT Exit Facility......................................27 6. Sale of Non-Perry Ellis Divisions..........................28 III. EFFECT OF CONSUMMATION OF THE PLAN...................................30 A. DILUTION OF EQUITY INTERESTS...................................30 B. PROVISIONS FOR EMPLOYEES.......................................31 IV. THE CHAPTER 11 CASE...................................................32 A. TIMETABLE FOR THE CHAPTER 11 CASE..............................32 B. COMMITTEES.....................................................33 C. ACTIONS TAKEN UPON COMMENCEMENT OF CASE........................34 1. Applications to Retain Professionals.......................34 2. Motion to Extend Time to File Schedules and Statement of Financial Affairs.............................34 3. Motion to Maintain Prepetition Bank Accounts, Use Existing Business Forms, Stationary and Checks.............35 4. Motion for Authority to Pay Prepetition Employee Wages Commissions, Salaries, Reimbursable Employee Expenses, Worker's Compensation and Associated Benefits...................................................35 5. Chapter 11 Financing.......................................36 6. Motion Restraining and Enjoining Utilities from Discontinuing Service......................................36 7. Motion to Pay Custom Duties, Broker Charges, Shipping Charges and Related Possessory Liens..............36 8. Motion for Authority to Pay Sales and Use Taxes............36 9. Deadline for Filing Proofs of Claim........................37 V. SUMMARY OF THE PLAN....................................................37 A. BRIEF EXPLANATION OF CHAPTER 11................................37 B. GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS......................................................38 C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS...........39 1. Unclassified Claims........................................41 2. Classified Claims And Interests............................43 3. Employee Claims............................................48 D. SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN.........49 1. The New Common Stock.......................................49 2. Market And Trading Information.............................51 3. The New PIK Senior Notes...................................51 E. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS.....................51 F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.......................51 1. Generally..................................................51 2. Assumption and Rejection...................................52 3. Deadline for Filing Rejection Damage Claims................52 G. IMPLEMENTATION OF THIS PLAN....................................52 1. Vesting of Property........................................52 2. Transactions on Business Days..............................53 3. Restated Certificate of Incorporation; Restated By-Laws....................................................53 4. Implementation.............................................53 5. Issuance of New Securities.................................53 6. Cancellation of Existing Securities and Agreements.........53 7. Board of Directors of Reorganized Salant...................54 8. Employee Benefit Plans.....................................54 9. The Stock Award and Incentive Plan.........................54 10. The Restricted Stock Plan..................................55 11. Survival of Indemnification and Contribution Obligations................................................55 12. Listing of New Common Stock; Registration of Securities.................................................55 13. The Management Employment Agreements.......................56 14. Retention and Enforcement of Causes of Action..............56 H. PROVISIONS COVERING DISTRIBUTIONS..............................56 1. Timing of Distributions Under the Plan.....................56 2. Allocation of Consideration................................57 3. Cash Payments..............................................57 4. Payment of Statutory Fees..................................57 5. No Interest................................................57 6. Fractional Securities......................................58 7. Withholding of Taxes.......................................58 8. Distribution Record Date...................................58 9. Persons Deemed Holders of Registered Securities............58 10. Surrender of Existing Securities...........................59 11. Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments......................................59 12. Undeliverable or Unclaimed Distributions...................59 I. PROCEDURES FOR RESOLVING DISPUTED CLAIMS.......................60 1. Objections to Claims.......................................60 2. Procedure..................................................60 3. Payments and Distributions With Respect to Disputed Claims.....................................................61 4. Timing of Payments and Distributions With Respect to Disputed Claims.........................................61 5. Individual Holder Proofs of Interest.......................61 J. DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS.........................................................61 1. Discharge of All Claims and Interests and Releases.........61 2. Injunction.................................................63 3. Exculpation................................................63 4. Guaranties and Claims of Subordination.....................63 K. CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE.................................................64 1. Conditions Precedent to Entry of the Confirmation Order......................................................64 2. Conditions Precedent to the Effective Date.................65 3. Waiver of Conditions.......................................65 4. Effect of Failure of Conditions............................65 L. MISCELLANEOUS PROVISIONS.......................................66 1. Bankruptcy Court to Retain Jurisdiction....................66 2. Binding Effect of this Plan................................67 3. Nonvoting Stock............................................67 4. Authorization of Corporate Action..........................67 5. Retiree Benefits...........................................67 6. Withdrawal of the Plan.....................................67 7. Dissolution of Committees..................................68 8. Fees, Costs and Expenses of Indenture Trustee..............68 9. Amendments and Modifications to the Plan...................68 10. Section 1125(e) of the Bankruptcy Code.....................68 VI. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT...........................69 VII. DESCRIPTION OF STOCK AWARD AND INCENTIVE PLAN.........................69 A. PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN..................70 B. ELIGIBILITY....................................................70 C. PLAN ADMINISTRATION AND SHARES SUBJECT TO THE STOCK AWARD AND INCENTIVE PLAN.......................................70 D. AWARDS.........................................................71 E. CHANGE IN CONTROL..............................................73 F. TRANSFERABILITY................................................73 G. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS......................73 H. TREATMENT OF OLD OPTIONS.......................................75 VIII. CHANGES IN MANAGEMENT................................................73 A. EMPLOYMENT OF MICHAEL SETOLA...................................77 B. EMPLOYMENT OF TODD KAHN........................................77 C. EXISTING EMPLOYMENT AGREEMENTS WITH JERALD POLITZER AND PHILIP FRANZEL.................................................78 IX. RISK FACTORS..........................................................81 A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING.........81 B. CERTAIN RISKS OF NON-CONFIRMATION..............................81 C. CERTAIN BANKRUPTCY CONSIDERATIONS..............................83 1. Failure To Consummate Plan.................................83 2. Effect On Operations.......................................84 3. Nonconsensual Confirmation.................................84 D. BUSINESS RISK FACTORS..........................................85 1. Results of Operations Subject to Variable Influences; Intense Competition............................85 2. Dilution...................................................85 3. Limitation on Use of Net Operating Losses..................85 4. Volatility; Lack of Trading Market and Potential De-Listing of the New Common Stock.........................86 5. Possible Volatility of Stock Price.........................86 6. Concentrated Ownership of New Common Stock.................86 7. Absence of and/or Restrictions on Dividends................87 8. History of Losses; Effect of Transaction...................87 9. Cash Flow From Operations..................................87 10. Declines in Net Sales and Gross Profits....................88 11. Retail Environment.........................................89 12. Apparel Industry Cycles and Other Economic Factors.........90 13. Seasonality and Fashion Risk...............................90 14. Dependence on Certain Customers and Licensees; Effect of Plan on Licenses.................................90 15. Foreign Operations and Sourcing; Import Restrictions.......92 16. Dependence on Contract Manufacturing.......................93 17. Information Systems and Control Procedures.................94 18. Leverage and Debt Service..................................94 19. Need for Sustained Trade Support...........................94 X. APPLICATION OF SECURITIES ACT..........................................95 A. ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE PLAN...........95 XI. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED............................96 XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN..................96 A. FEDERAL INCOME TAX CONSEQUENCES TO REORGANIZED SALANT..........97 1. Cancellation Of Indebtedness Income........................97 2. Limitation On Net Operating Loss Carryovers................97 3. Limitation on Interest Deductions..........................99 B. FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS.................99 1. General....................................................99 2. Market Discount...........................................101 3. Application of Original Issue Discount Rules to New PIK Senior Notes..........................................101 4. Disposition of New Common Stock and New PIK Senior Notes.....................................................104 C. FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS...............104 1. General...................................................104 2. Disposition...............................................104 XIII. REQUIREMENTS FOR CONFIRMATION OF PLAN..............................105 A. CONFIRMATION HEARING..........................................105 B. FEASIBILITY OF THE PLAN.......................................107 C. BEST INTERESTS TEST...........................................107 D. LIQUIDATION ANALYSIS..........................................110 D. NONCONSENSUAL CONFIRMATION....................................112 1. No Unfair Discrimination..................................112 2. Fair and Equitable Test...................................112 XIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN..........113 A. CONTINUATION OF THE CHAPTER 11 CASE...........................114 B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11.....................114 XV. VOTING AND CONFIRMATION OF THE PLAN..................................115 A. VOTING DEADLINE...............................................115 B. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE.......116 C. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS.......................116 D. VOTING PROCEDURES.............................................116 Holders of Class 3 Senior Note Claims and Class 7 Old Common Stock Interests....................................117 XVI. CONCLUSION AND RECOMMENDATION.......................................120 Appendix I - Plan Salant Corporation, a Delaware corporation ("Salant"), as debtor and debtor-in-possession (the "Debtor") under Chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"), hereby proposes and files this Disclosure Statement (the "Disclosure Statement") for the Chapter 11 Plan of Reorganization for Salant Corporation, dated _________, 1998 (the "Plan"). THE DEBTOR STRONGLY URGES ALL HOLDERS OF CLAIMS AND INTERESTS IN IMPAIRED CLASSES RECEIVING BALLOTS TO ACCEPT THE PLAN. NONE OF THE SUBSIDIARIES OF THE DEBTOR ARE PARTIES TO THE PLAN, AND WILL THEREFORE CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS DURING THE DEBTOR'S CHAPTER 11 CASE. AS SUCH, THE PLAN DOES NOT AFFECT THE CONTINUING AND TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PLAN PROVIDES FOR ALL HOLDERS OF GENERAL UNSECURED CLAIMS AGAINST THE DEBTOR, INCLUDING, WITHOUT LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH THEIR TERMS, AND SUCH CREDITORS WILL NOT, THEREFORE, BE IMPAIRED BY, AND WILL BE DEEMED TO ACCEPT, THE PLAN, AND THEIR VOTE ON THE PLAN WILL NOT BE SOUGHT. THIS DISCLOSURE STATEMENT IS DESIGNED TO SOLICIT YOUR ACCEPTANCE OF THE ATTACHED PLAN AND CONTAINS INFORMATION RELEVANT TO YOUR DECISION. PLEASE READ THIS DISCLOSURE STATEMENT, THE PLAN AND THE OTHER MATERIALS COMPLETELY AND CAREFULLY. THE DEBTOR BELIEVES THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF ITS CREDITORS AND EQUITY HOLDERS. THE PLAN IS ATTACHED AS APPENDIX I TO THIS DISCLOSURE STATEMENT. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN, OTHER APPENDICES ANNEXED HERETO AND OTHER DOCUMENTS REFERENCED AS FILED WITH THE COURT BEFORE OR CONCURRENTLY WITH THE FILING OF THIS DISCLOSURE STATEMENT. FURTHERMORE, THE PROJECTED FINANCIAL INFORMATION CONTAINED HEREIN HAS NOT BEEN THE SUBJECT OF AN AUDIT. SUBSEQUENT TO THE DATE HEREOF, THERE CAN BE NO ASSURANCE THAT: (A) THE INFORMATION AND REPRESENTATIONS CONTAINED HEREIN WILL CONTINUE TO BE MATERIALLY ACCURATE; OR (B) THE DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION. THE ONLY CLASSES OF CLAIMS AND INTERESTS IMPAIRED (AS DEFINED IN THE BANKRUPTCY CODE) UNDER THE PLAN AND ENTITLED TO VOTE ON THE PLAN, ARE CLASS 3 SENIOR NOTE CLAIMS, CLASS 5 PBGC CLAIMS AND CLASS 7 OLD COMMON STOCK INTERESTS. CLASS 1 PRIORITY CLAIMS, CLASS 2 CIT CLAIMS, CLASS 4 MISCELLANEOUS SECURED CLAIMS AND CLASS 6 GENERAL UNSECURED CLAIMS ARE UNIMPAIRED, AND HOLDERS OF CLAIMS IN SUCH CLASSES ARE CONCLUSIVELY PRESUMED TO HAVE ACCEPTED THE PLAN PURSUANT TO SECTION 1126(f) OF THE BANKRUPTCY CODE. CLASS 8 OTHER INTERESTS IS IMPAIRED AND WILL NOT RECEIVE OR RETAIN ANY PROPERTY UNDER THE PLAN AND HOLDERS OF INTERESTS IN CLASS 8 ARE DEEMED NOT TO HAVE ACCEPTED THE PLAN PURSUANT TO SECTION 1126(g) OF THE BANKRUPTCY CODE. HOLDERS OF IMPAIRED CLASS 3 SENIOR NOTE CLAIMS, CLASS 5 PBGC CLAIMS AND CLASS 7 OLD COMMON STOCK INTERESTS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT, INCLUDING THOSE UNDER "RISK FACTORS," PRIOR TO SUBMITTING BALLOTS OR MASTER BALLOTS VOTING ON THE PLAN. IN MAKING A DECISION TO ACCEPT OR REJECT THE PLAN, EACH HOLDER OF A CLASS 3 SENIOR NOTE CLAIM, CLASS 5 PBGC CLAIM OR CLASS 7 OLD COMMON STOCK INTEREST MUST RELY ON ITS OWN EXAMINATION OF THE DEBTOR AS DESCRIBED IN THIS DISCLOSURE STATEMENT AND THE TERMS OF THE PLAN, INCLUDING THE MERITS AND RISKS INVOLVED. IN ADDITION, CONFIRMATION AND CONSUMMATION OF THE PLAN ARE SUBJECT TO CONDITIONS PRECEDENT THAT COULD LEAD TO DELAYS IN CONSUMMATION OF THE PLAN. THERE CAN BE NO ASSURANCE THAT EACH OF THESE CONDITIONS WILL BE SATISFIED OR WAIVED (AS PROVIDED IN THE PLAN) OR THAT THE PLAN WILL BE CONSUMMATED. EVEN AFTER THE EFFECTIVE DATE, DISTRIBUTIONS UNDER THE PLAN MAY BE SUBJECT TO SUBSTANTIAL DELAYS FOR HOLDERS OF CLAIMS AND INTERESTS THAT ARE DISPUTED. CLASS 3 (SENIOR NOTE CLAIMS) WILL BE DEEMED TO HAVE ACCEPTED THE PLAN IF THE HOLDERS OF SENIOR NOTE CLAIMS (OTHER THAN ANY HOLDER DESIGNATED UNDER SUBSECTION 1126(E) OF THE BANKRUPTCY CODE) WHO CAST VOTES IN FAVOR OF THE PLAN HOLD AT LEAST TWO-THIRDS IN DOLLAR AMOUNT AND MORE THAN ONE-HALF IN NUMBER OF THE ALLOWED CLAIMS ACTUALLY VOTING IN SUCH CLASS. CLASS 7 (OLD COMMON STOCK INTERESTS) WILL BE DEEMED TO HAVE ACCEPTED THE PLAN IF THE HOLDERS OF OLD COMMON STOCK INTERESTS (OTHER THAN ANY HOLDER DESIGNATED UNDER SUBSECTION 1126(E) OF THE BANKRUPTCY CODE) WHO CAST VOTES IN FAVOR OF THE PLAN HOLD AT LEAST TWO-THIRDS IN AMOUNT OF ALLOWED INTERESTS ACTUALLY VOTING IN SUCH CLASS. THE DEBTOR WILL REQUEST THAT THE BANKRUPTCY COURT CONFIRM THE PLAN UNDER BANKRUPTCY CODE SECTION 1129(B). SECTION 1129(B) PERMITS CONFIRMATION OF THE PLAN DESPITE REJECTION BY ONE OR MORE CLASSES IF THE BANKRUPTCY COURT FINDS THAT THE PLAN "DOES NOT DISCRIMINATE UNFAIRLY" AND IS "FAIR AND EQUITABLE" AS TO THE CLASS OR CLASSES THAT DO NOT ACCEPT THE PLAN. BECAUSE CLASS 8 IS DEEMED NOT TO HAVE ACCEPTED THE PLAN, THE DEBTOR WILL REQUEST THAT THE BANKRUPTCY COURT FIND THAT THE PLAN IS FAIR AND EQUITABLE AND DOES NOT DISCRIMINATE UNFAIRLY AS TO CLASS 8 (AND ANY OTHER CLASS THAT FAILS TO ACCEPT THE PLAN). FOR A MORE DETAILED DESCRIPTION OF THE REQUIREMENTS FOR ACCEPTANCE OF THE PLAN AND OF THE CRITERIA FOR CONFIRMATION, SEE SECTION XIII HEREIN, ENTITLED "REQUIREMENTS FOR CONFIRMATION OF PLAN." THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION OF A KIND AND IN SUFFICIENT DETAIL TO ENABLE HOLDERS OF CLAIMS AND INTERESTS TO MAKE AN INFORMED JUDGMENT WITH RESPECT TO VOTING TO ACCEPT OR REJECT THE PLAN. HOWEVER, THE BANKRUPTCY COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE A RECOMMENDATION OR DETERMINATION BY THE BANKRUPTCY COURT WITH RESPECT TO THE MERITS OF THE PLAN. NO PARTY IS AUTHORIZED BY THE DEBTOR TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS WITH RESPECT TO THE PLAN OR THE NEW COMMON STOCK OTHER THAN THAT WHICH IS CONTAINED IN THIS DISCLOSURE STATEMENT. NO REPRESENTATIONS OR INFORMATION CONCERNING THE DEBTOR, ITS FUTURE BUSINESS OPERATIONS OR THE VALUE OF ITS PROPERTIES HAVE BEEN AUTHORIZED BY THE DEBTOR OTHER THAN AS SET FORTH HEREIN. THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE NONBANKRUPTCY LAWS. ENTITIES HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS AGAINST, INTERESTS IN OR SECURITIES OF, THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE STATEMENT ONLY IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED. IF THE REQUISITE ACCEPTANCES OF THE PLAN ARE RECEIVED, THE PLAN IS CONFIRMED BY THE BANKRUPTCY COURT AND THE EFFECTIVE DATE OCCURS, ALL HOLDERS OF ALLOWED SENIOR NOTE CLAIMS (AS DEFINED IN THE PLAN), HOLDERS OF ALLOWED PBGC CLAIMS (AS DEFINED IN THE PLAN) AND HOLDERS OF ALLOWED OLD COMMON STOCK INTERESTS (AS DEFINED IN THE PLAN) (INCLUDING THOSE WHO DO NOT SUBMIT BALLOTS OR MASTER BALLOTS TO ACCEPT OR TO REJECT THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY) WILL BE BOUND BY THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL OR REGULATORY AUTHORITY, AND NEITHER SUCH COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR ANY DISTRIBUTION OF PROPERTY HEREUNDER PURSUANT TO THE PLAN WILL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE DEBTOR SINCE THE DATE HEREOF. EACH CREDITOR AND EQUITY SECURITY HOLDER OF THE DEBTOR SHOULD CONSULT WITH SUCH CREDITOR'S OR EQUITY SECURITY HOLDER'S LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION OF VOTES TO ACCEPT OR REJECT THE PLAN, THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY. I. INTRODUCTION AND SUMMARY This Disclosure Statement is being furnished by the Debtor, pursuant to section 1125 of the Bankruptcy Code, in connection with the solicitation of votes to accept or reject the Plan (as it may be altered, amended, modified or supplemented as described herein) from Holders of (i) Senior Notes Claims, (ii) PBGC Claims, and (iii) Old Common Stock Interests. All capitalized terms used in this Disclosure Statement have the meanings ascribed to such terms in the Plan, a copy of which is annexed hereto as Appendix I, except as otherwise indicated. The following introduction and summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this Disclosure Statement. A. THE SOLICITATION On December 29, 1998 (the "Filing Date"), the Debtor filed its Plan with the Bankruptcy Court. Simultaneously therewith, the Debtor filed this Disclosure Statement with the Bankruptcy Court pursuant to section 1125 of the Bankruptcy Code and in connection with the solicitation of votes to accept or reject the Plan (the "Solicitation"). On __________, 1998, the Bankruptcy Court determined that this Disclosure Statement contains "adequate information" in accordance with section 1125 of the Bankruptcy Code. Pursuant to section 1125(a)(1) of the Bankruptcy Code, "adequate information" is defined as "information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan . . ." 11 U.S.C. ss. 1125(a)(1). THE BANKRUPTCY COURT HAS SCHEDULED A HEARING TO CONSIDER CONFIRMATION OF THE PLAN FOR ____________, 1998 BEFORE THE HONORABLE __________________, UNITED STATES BANKRUPTCY JUDGE FOR THE SOUTHERN DISTRICT OF NEW YORK, ALEXANDER HAMILTON CUSTOMS HOUSE, ONE BOWLING GREEN, NEW YORK, NEW YORK 10004, AT _____ A.M. NEW YORK CITY TIME. THE HEARING MAY BE ADJOURNED FROM TIME TO TIME WITHOUT FURTHER NOTICE OTHER THAN BY ANNOUNCEMENT IN THE BANKRUPTCY COURT ON THE SCHEDULED DATE OF SUCH HEARING. ANY OBJECTIONS TO CONFIRMATION OF THE PLAN MUST BE IN WRITING AND MUST BE FILED WITH THE CLERK OF THE BANKRUPTCY COURT AND SERVED ON THE COUNSEL LISTED BELOW TO ENSURE RECEIPT BY THEM ON OR BEFORE _____________, 1998 AT 5:00 P.M. NEW YORK CITY TIME. COUNSEL ON WHOM OBJECTIONS MUST BE SERVED ARE: FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ONE NEW YORK PLAZA NEW YORK, NEW YORK 10004 ATTN: BRAD ERIC SCHELER, ESQ. COUNSEL FOR THE DEBTOR LAWRENCE A. FIRST, ESQ. AND DEBTOR-IN-POSSESSION UNITED STATES TRUSTEE FOR THE SOUTHERN DISTRICT OF NEW YORK 33 WHITEHALL STREET 21ST FLOOR NEW YORK, NEW YORK 10004 ATTN: CAROLYN SCHWARTZ, ESQ. UNITED STATES TRUSTEE B. RECOMMENDATIONS THE DEBTOR RECOMMENDS THAT EACH ENTITY ENTITLED TO VOTE ON THE PLAN VOTE TO ACCEPT THE PLAN. The Debtor believes that: 1. the Plan provides the best possible result for the Holders of Claims and Interests; 2. with respect to each Impaired Class of Claims or Interests entitled to vote on the Plan, the distributions under the Plan are not less than the amounts that would be received if the Debtor was liquidated under Chapter 7 of the Bankruptcy Code; and 3. acceptance of the Plan is in the best interests of Holders of Claims and Interests. C. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS The Plan categorizes into eight Classes the Claims against, and Interests in, the Debtor which will exist on the Filing Date. The Plan also (i) provides that allowed Administrative Expenses incurred by the Debtor during the Chapter 11 Case will be paid in full in Cash on the later of (a) the Effective Date and (b) the date on which the Bankruptcy Court enters an order allowing such Administrative Expense; provided, however, that allowed Administrative Expenses representing obligations incurred in the ordinary course of business, consistent with past practice, or assumed by the Debtor will be paid in full or performed by the Debtor or Reorganized Salant in the ordinary course of business, consistent with past practice; provided further, however, that allowed Administrative Expenses incurred by the Debtor or Reorganized Salant after the Confirmation Date, including (without limitation) claims for professionals' fees and expenses, will not be subject to application and may be paid by the Debtor or Reorganized Salant, as the case may be, in the ordinary course of business and without further Bankruptcy Court approval; (ii) provides that Allowed Priority Tax Claims will receive (a) Cash payments made in equal annual installments beginning on or before the first anniversary following the Effective Date with the final installment being payable no later than the sixth anniversary of the date of the assessment of such Allowed Priority Tax Claim together with interest on the unpaid balance of such Allowed Priority Tax Claim from the Effective Date calculated at the Market Rate, or (b) such other treatment agreed to by the Holder of such Allowed Priority Tax Claim and the Debtor or Reorganized Salant, as the case may be; and (iii) specifies the manner in which the Claims and Interests in each Class are to be treated. The table below provides a summary of the classification and treatment of, and distributions in respect of Claims and Interests in each Class under the Plan. For a more precise explanation, please refer to the discussion in Section V herein, entitled "SUMMARY OF THE PLAN" and to the Plan itself. - ------------------------------------------------------------------------------- TYPE OF CLAIM CLASS OR EQUITY INTEREST DISTRIBUTION - ------------------------------------------------------------------------------- 1 PRIORITY CLAIMS ON THE LATEST OF (I) THE EFFECTIVE (UNIMPAIRED) DATE, (II) THE DATE ON WHICH SUCH PRIORITY CLAIM BECOMES AN ALLOWED CLAIM, OR (III) THE DATE ON WHICH THE DEBTOR AND THE HOLDER OF SUCH ALLOWED PRIORITY CLAIM OTHERWISE AGREE, EACH HOLDER OF AN ALLOWED PRIORITY CLAIM WILL BE ENTITLED TO RECEIVE CASH IN AN AMOUNT SUFFICIENT TO RENDER SUCH ALLOWED PRIORITY CLAIM UNIMPAIRED UNDER SECTION 1124 OF THE BANKRUPTCY CODE. - ------------------------------------------------------------------------------- 2 CIT CLAIM (UNIMPAIRED) AT THE ELECTION OF THE DEBTOR PRIOR TO THE EFFECTIVE DATE, ON THE EFFECTIVE DATE OR AS SOON AS PRACTICABLE THEREAFTER, CIT WILL BE ENTITLED TO RECEIVE ON ACCOUNT OF THE ALLOWED CIT CLAIM ONE OF THE FOLLOWING TREATMENTS: (I) CASH IN AN AMOUNT SUFFICIENT TO RENDER SUCH ALLOWED CIT CLAIM UNIMPAIRED UNDER SECTION 1124 OF THE BANKRUPTCY CODE, (II) THE ALLOWED CIT CLAIM WILL BE OTHERWISE RENDERED UNIMPAIRED IN ACCORDANCE WITH SECTION 1124 OF THE BANKRUPTCY CODE, OR (III) SUCH OTHER TREATMENT AS MUTUALLY AGREED TO BY THE DEBTOR AND CIT. - ------------------------------------------------------------------------------- 3 SENIOR NOTE CLAIMS IF THE PEI EVENT OCCURS ON OR PRIOR TO (IMPAIRED) THE EFFECTIVE DATE, THEN ON THE EFFECTIVE DATE OR AS SOON AS PRACTICABLE THEREAFTER, EACH HOLDER OF AN ALLOWED SENIOR NOTE CLAIM WILL BE ENTITLED TO RECEIVE ON ACCOUNT OF SUCH HOLDER'S ALLOWED SENIOR NOTE CLAIM SUCH HOLDER'S PRO RATA SHARE OF 9,500,000 SHARES OF NEW COMMON STOCK (OR 90.5805738 SHARES OF NEW COMMON STOCK FOR EACH $1,000 PRINCIPAL FACE AMOUNT OF SENIOR NOTES HELD BY SUCH HOLDER). IF THE PEI EVENT DOES NOT OCCUR ON OR PRIOR TO THE EFFECTIVE DATE, THEN ON THE EFFECTIVE DATE OR AS SOON AS PRACTICABLE THEREAFTER, EACH HOLDER OF AN ALLOWED SENIOR NOTE CLAIM SHALL BE ENTITLED TO RECEIVE ON ACCOUNT OF SUCH HOLDER'S ALLOWED SENIOR NOTE CLAIM SUCH HOLDER'S PRO RATA SHARE OF (A) 4,000,000 SHARES OF NEW COMMON STOCK (OR 38.1391890 SHARES OF NEW COMMON STOCK FOR EACH $1,000 PRINCIPAL AMOUNT OF SENIOR NOTES HELD BY SUCH HOLDER), AND (B) THE NEW PIK SENIOR NOTES (OR $877.20 AGGREGATE PRINCIPAL AMOUNT OF NEW PIK SENIOR NOTES FOR EACH $1,000 PRINCIPAL AMOUNT OF SENIOR NOTES HELD BY SUCH HOLDER). - ------------------------------------------------------------------------------- 4 MISCELLANEOUS SECURED AT THE ELECTION OF THE DEBTOR PRIOR TO CLAIMS (UNIMPAIRED) THE EFFECTIVE DATE, ON THE EFFECTIVE DATE OR AS SOON AS PRACTICABLE THEREAFTER, EACH HOLDER OF AN ALLOWED MISCELLANEOUS SECURED CLAIM WILL BE ENTITLED TO RECEIVE ON ACCOUNT OF SUCH HOLDER'S ALLOWED MISCELLANEOUS SECURED CLAIM ONE OF THE FOLLOWING TREATMENTS: (I) THE LEGAL, EQUITABLE AND CONTRACTUAL RIGHTS TO WHICH SUCH ALLOWED MISCELLANEOUS SECURED CLAIM ENTITLES SUCH HOLDER SHALL REMAIN UNALTERED, (II) SUCH HOLDER'S ALLOWED MISCELLANEOUS SECURED CLAIM SHALL BE REINSTATED AND RENDERED UNIMPAIRED IN ACCORDANCE WITH SECTION 1124 OF THE BANKRUPTCY CODE, OR (III) SUCH OTHER TREATMENT AS MUTUALLY AGREED TO BY THE DEBTOR AND SUCH HOLDER. - ------------------------------------------------------------------------------- 5 PBGC CLAIMS (IMPAIRED) ON THE EFFECTIVE DATE, THE HOLDER OF THE ALLOWED PBGC CLAIMS WILL BE ENTITLED TO RECEIVE ON ACCOUNT OF THE ALLOWED PBGC CLAIMS THE TREATMENT PROVIDED FOR IN THE PBGC AGREEMENT. - ------------------------------------------------------------------------------- 6 GENERAL UNSECURED CLAIMS AT THE ELECTION OF THE DEBTOR PRIOR TO (UNIMPAIRED) THE EFFECTIVE DATE, ON THE EFFECTIVE DATE OR AS SOON AS PRACTICABLE THEREAFTER, EACH HOLDER OF AN ALLOWED GENERAL UNSECURED CLAIM THAT HAS NOT BEEN FULLY PAID OR SATISFIED PRIOR TO THE EFFECTIVE DATE WILL BE ENTITLED TO RECEIVE ON ACCOUNT OF SUCH HOLDER'S ALLOWED GENERAL UNSECURED CLAIM ONE OF THE FOLLOWING TREATMENTS: (I) THE LEGAL, EQUITABLE AND CONTRACTUAL RIGHTS TO WHICH SUCH ALLOWED GENERAL UNSECURED CLAIM ENTITLES SUCH HOLDER SHALL REMAIN UNALTERED, (II) SUCH HOLDER'S ALLOWED GENERAL UNSECURED CLAIM WILL BE REINSTATED AND RENDERED UNIMPAIRED UNDER SECTION 1124 OF THE BANKRUPTCY CODE, OR (III) SUCH OTHER TREATMENT AS MUTUALLY AGREED TO BY THE DEBTOR AND SUCH HOLDER. - ------------------------------------------------------------------------------- 7 OLD COMMON STOCK IF THE PEI EVENT DOES NOT OCCUR ON OR INTERESTS (IMPAIRED) PRIOR TO THE EFFECTIVE DATE, THEN ON THE EFFECTIVE DATE OR AS SOON AS PRACTICABLE THEREAFTER, EACH HOLDER OF AN ALLOWED OLD COMMON STOCK INTEREST WILL BE ENTITLED TO RECEIVE ON ACCOUNT OF SUCH HOLDER'S ALLOWED OLD COMMON STOCK INTEREST SUCH HOLDER'S PRO RATA SHARE OF 500,000 SHARES OF NEW COMMON STOCK. IF THE PEI EVENT DOES NOT OCCUR ON OR PRIOR TO THE EFFECTIVE DATE, THEN ON THE EFFECTIVE DATE OR AS SOON AS PRACTICABLE THEREAFTER, EACH HOLDER OF AN ALLOWED OLD COMMON STOCK INTEREST SHALL BE ENTITLED TO RECEIVE ON ACCOUNT OF SUCH HOLDER'S ALLOWED OLD COMMON STOCK INTEREST SUCH HOLDER'S PRO RATA SHARE OF 6,000,000 SHARES OF NEW COMMON STOCK. - ------------------------------------------------------------------------------- 8 OTHER INTERESTS (IMPAIRED) ON THE EFFECTIVE DATE, OTHER INTERESTS WILL BE EXTINGUISHED AND NO DISTRIBUTIONS WILL BE MADE IN RESPECT OF SUCH OTHER INTERESTS. - ------------------------------------------------------------------------------- For projected financial information and valuation estimates, see Section XI herein, entitled "FINANCIAL PROJECTIONS AND ASSUMPTIONS USED." For a more detailed description of the foregoing Classes of Claims and Interests, see Section V herein, entitled "SUMMARY OF THE PLAN." D. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS The Plan provides for, among other things: (i) the issuance and distribution of New Common Stock to Noteholders; and (ii) the issuance and distribution of New Common Stock to Stockholders. In consideration of such distributions, the Senior Notes held by the Noteholders and the Old Common Stock held by the Stockholders will be canceled. NONE OF THE SUBSIDIARIES OF THE DEBTOR ARE PARTIES TO THE PLAN, AND WILL THEREFORE CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS DURING THE DEBTOR'S CHAPTER 11 CASE. AS SUCH, THE PLAN DOES NOT AFFECT THE CONTINUING AND TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PLAN PROVIDES FOR ALL HOLDERS OF GENERAL UNSECURED CLAIMS AGAINST THE DEBTOR, INCLUDING, WITHOUT LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH THEIR TERMS, AND SUCH CREDITORS WILL NOT, THEREFORE, BE IMPAIRED BY, AND WILL BE DEEMED TO ACCEPT, THE PLAN, AND THEIR VOTE ON THE PLAN WILL NOT BE SOUGHT. Noteholders and Stockholders should read this Disclosure Statement, together with the Plan, the form of Ballot and/or Master Ballot, as applicable, and the applicable Voting Instructions (collectively, the "Solicitation Materials"), in their entirety before voting on the Plan. Pursuant to the provisions of the Bankruptcy Code, only Impaired Classes of Claims and Interests are entitled to vote to accept or reject the Plan. The only Classes of Claims impaired under the Plan consists of the Holders of Class 3 Senior Note Claims and the Holder of the Class 5 PBGC Claims. The only Classes of Interests impaired under the Plan consist of the Holders of Class 7 Old Common Stock Interests and Class 8 Other Interests. See Section V herein, entitled "SUMMARY OF THE PLAN" for a description of these Classes. The Debtor is seeking acceptance of the Plan from Holders of Class 3 Senior Note Claims, the Holder of Class 5 PBGC Claims and Holders of Class 7 Old Common Stock Interests. CLASS 1 PRIORITY CLAIMS, CLASS 2 CIT CLAIMS, CLASS 4 MISCELLANEOUS SECURED CLAIMS AND CLASS 6 GENERAL UNSECURED CLAIMS ARE UNIMPAIRED, AND HOLDERS OF CLAIMS IN SUCH CLASSES ARE CONCLUSIVELY PRESUMED TO HAVE ACCEPTED THE PLAN PURSUANT TO SECTION 1126(f) OF THE BANKRUPTCY CODE. CLASS 8 OTHER INTERESTS ARE IMPAIRED AND DO NOT RECEIVE OR RETAIN ANY PROPERTY UNDER THE PLAN AND HOLDERS OF INTERESTS IN CLASS 8 ARE DEEMED NOT TO HAVE ACCEPTED THE PLAN PURSUANT TO SECTION 1126(g) OF THE BANKRUPTCY CODE. UNLESS OTHERWISE DIRECTED BY THE BANKRUPTCY COURT, ONLY VOTES CAST BY OR AT THE DIRECTION OF BENEFICIAL INTEREST HOLDERS OF SENIOR NOTES AND OLD COMMON STOCK IN ACCORDANCE WITH THE VOTING INSTRUCTIONS WILL BE COUNTED FOR PURPOSES OF VOTING ON THE PLAN. SEE SECTION XV HEREIN, ENTITLED "VOTING AND CONFIRMATION OF THE PLAN." The Solicitation will expire at 5:00 p.m., New York City time on ________, 1998 (the "Voting Deadline"), unless the Voting Deadline is extended or waived by the Debtor. After carefully reviewing this Disclosure Statement, the Plan and the other applicable Solicitation Materials, each Holder of a Senior Note Claim, the Holder of a PBGC Claim and each Holder of an Old Common Stock Interest should vote to accept or reject the Plan in accordance with the Voting Instructions, and return the appropriate Ballot(s) or Master Ballot(s) in accordance with the instructions set forth therein so they are received prior to the Expiration Date. For further information, see Section XV herein, entitled "VOTING AND CONFIRMATION OF THE PLAN." This Disclosure Statement is being transmitted only to holders of Impaired Claims against and Impaired Interests in the Debtor who are entitled to vote to accept or reject the Plan. WHEN CONFIRMED BY THE BANKRUPTCY COURT, THE PLAN WILL BIND ALL HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTOR, WHETHER OR NOT THEY ARE ENTITLED TO VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY RECEIVE OR RETAIN ANY DISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, ALL HOLDERS OF IMPAIRED CLAIMS AGAINST AND IMPAIRED INTERESTS IN THE DEBTOR ARE ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND ITS EXHIBITS CAREFULLY AND IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR TO REJECT THE PLAN. THIS DISCLOSURE STATEMENT CONTAINS IMPORTANT INFORMATION ABOUT THE PLAN, CONSIDERATIONS PERTINENT TO ACCEPTANCE OR REJECTION OF THE PLAN, AND DEVELOPMENTS CONCERNING THE CHAPTER 11 CASE. CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY ITS NATURE FORWARD LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS, AND PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL FUTURE RESULTS. Except with respect to the projections referenced in Section XI herein, entitled "FINANCIAL PROJECTIONS AND ASSUMPTIONS USED" (the "Projections") and except as otherwise specifically and expressly stated herein, this Disclosure Statement does not reflect any events that may occur subsequent to the date hereof. Such events may have a material impact on the information contained in this Disclosure Statement. The Debtor and Reorganized Salant do not intend to update the Projections. Thus, the Projections will not reflect the impact of any subsequent events not already accounted for in the assumptions underlying the Projections. Further, the Debtor does not anticipate that any amendments or supplements to this Disclosure Statement will be distributed to reflect such occurrences. Accordingly, the delivery of this Disclosure Statement shall not under any circumstances imply that the information herein is correct or complete as of any time subsequent to the date hereof. EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED HEREIN HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT AND HAS NOT BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. If you did not receive a Ballot in your package of Solicitation Materials and believe that you should have, please contact the Information Agent named below at the address or telephone number set forth in Section XV of this Disclosure Statement entitled "VOTING AND CONFIRMATION OF THE PLAN." II. BACKGROUND A. BUSINESS AND PROPERTIES OF THE DEBTOR 1. Introduction ------------ Salant is a designer, manufacturer, importer and marketer of a broad line of men's apparel, neckwear and belts and children's sleepwear and underwear. None of the subsidiaries of Salant are debtors under the Bankruptcy Code and, absent a specific order of the Bankruptcy Court, are not subject to the jurisdiction of the Bankruptcy Court. Salant, which was incorporated in Delaware in 1987, is the successor to a business founded in 1893 and incorporated in New York in 1919. Salant, together with its wholly-owned subsidiaries (collectively, the "Company"), designs, manufactures, imports and markets to retailers throughout the United States brand name and private label apparel products primarily in three product categories: (i) menswear; (ii) children's sleepwear and underwear; and (iii) retail outlet stores, as described below. The Company sells its products to department and specialty stores, national chains, major discounters and mass volume retailers throughout the United States. 2. Men's Apparel ------------- The men's apparel business is comprised of the Perry Ellis division and Salant Menswear Group. The Perry Ellis division markets dress shirts, slacks and sportswear under the Perry Ellis, Portfolio By Perry Ellis and Perry Ellis America trademarks. Salant Menswear Group is comprised of the Accessories division, the Bottoms division and all dress shirt businesses other than those selling products bearing the Perry Ellis trademarks. The Accessories division markets neckwear, belts and suspenders under a number of different trademarks, including Portfolio By Perry Ellis, John Henry, Save The Children and Peanuts. The Bottoms division primarily manufactures men's and boys' jeans, principally under the Sears, Roebuck & Co. ("Sears") Canyon River Blues trademark, and men's casual slacks under Sears' Canyon River Blues Khakis trademark. The Salant Menswear Group also markets dress shirts, primarily under the John Henry and Manhattan trademarks. In order to effectuate the consummation of the Plan, the Debtor intends to sell or otherwise dispose of all of its businesses, other than its Perry Ellis business, during the Chapter 11 Case and, following the Effective Date, intends to operate as a stand-alone Perry Ellis business. As a result, the Debtor intends to sell or otherwise dispose of the Salant Menswear Group during the Chapter 11 Case. See "BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING - Sale of Non-Perry Ellis Divisions." 3. Children's Sleepwear and Underwear ---------------------------------- The children's sleepwear and underwear business is conducted by the Salant Children's Apparel Group (the "Children's Group"). The Children's Group markets blanket sleepers primarily using a number of well-known licensed cartoon characters created by, among others, Disney and Warner Bros. The Children's Group also markets pajamas under the Oshkosh B'gosh trademark, and sleepwear and underwear under the Joe Boxer trademark. At the end of the first quarter of 1998, the Company determined not to continue with its Joe Boxer sportswear line for Fall 1998. Instead, consistent with the approach that the Joe Boxer Corporation (the Company's licensor of the Joe Boxer trademark) has taken, the Company focused on its core business of underwear and sleepwear. As noted above, in order to effectuate the consummation of the Plan, the Debtor intends to sell or otherwise dispose of all of its businesses other than its Perry Ellis businesses, during the Chapter 11 Case and, following the Effective Date, intends to operate as a stand-alone Perry Ellis business. As a result, the Debtor intends to sell or otherwise dispose of the Children's Group during the Chapter 11 Case. See "BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING - Sale of Non-Perry Ellis Divisions." 4. Retail Outlet Stores -------------------- The retail outlet stores business of the Company consists of a chain of factory outlet stores (the "Stores division"), through which it sells products manufactured by the Company and other apparel manufacturers. In December 1997, the Company announced the restructuring of the Stores division, pursuant to which the Company closed all stores other than its Perry Ellis outlet stores. This resulted in the closing of 42 outlet stores. At the end of Fiscal 1997, the Company operated 17 Perry Ellis outlet stores. Commencing with the 1998 fiscal year, as a result of the restructuring of this division, the retail outlet stores were reported as part of the men's apparel segment of the Company. 5. Principal Product Lines ----------------------- The following table sets forth, for fiscal years 1995 through 1997, the percentage of the Company's total net sales contributed by each category of product: Fiscal Year ----------- 1995 1996 1997 ---- ---- ---- Men's Apparel 86% 83% 82% Children's Sleepwear and Underwear 8% 11% 12% Retail Outlet Stores 6% 6% 6% In Fiscal 1997, approximately 17% of the Company's net sales were made to Sears, approximately 11% of the Company's net sales were made to Federated Department Stores, Inc. ("Federated") and approximately 10% of the Company's net sales were made to TJX Corporation ("TJX"). In 1996, approximately 13% of the Company's net sales were made to Sears. In 1996 and 1995, net sales to Federated represented approximately 11% and 12% of the Company's net sales, respectively. In 1995, approximately 11% of the Company's net sales were made to TJX. In 1995, approximately 13% of the Children's Group's net sales were made to Dayton Hudson Corporation. No other customer accounted for more than 10% of the net sales of the Company or any of its business segments during 1995, 1996 or 1997. The markets in which the Company operates are highly competitive. The Company competes primarily on the basis of brand recognition, quality, fashion, price, customer service and merchandising expertise. A significant factor in the marketing of the Company's products is the consumer perception of the trademark or brand name under which those products are marketed. Approximately 76% of the Company's net sales for Fiscal 1997 was attributable to products sold under Company owned or licensed designer trademarks and other internationally recognized brand names and the balance was attributable to products sold under retailers' private labels, including Sears' Canyon River Blues. The following table lists the principal owned or licensed trademarks under which the Company's products were sold in Fiscal 1997 and the product lines associated with those trademarks. Trademarks used under license are indicated with an asterisk; all other listed trademarks are owned by the Company. Trademark Product Lines - --------- ------------- - ------------------------------------------------------------------------------ Disney characters * Children's sleepwear and underwear - ------------------------------------------------------------------------------ Dr. Denton Children's sleepwear and underwear - ------------------------------------------------------------------------------ Gant * Men's dress shirts, neckwear, belts and suspenders - ------------------------------------------------------------------------------ Joe Boxer * Children's sleepwear, underwear and sportswear; men's neckwear - ------------------------------------------------------------------------------ John Henry Men's dress shirts, neckwear, belts, suspenders and jeans - ------------------------------------------------------------------------------ Looney Tunes characters * Children's sleepwear - ------------------------------------------------------------------------------ Manhattan Men's dress shirts - ------------------------------------------------------------------------------ Oshkosh B'gosh * Children's sleepwear - ------------------------------------------------------------------------------ Peanuts * Men's dress shirts and neckwear - ------------------------------------------------------------------------------ Perry Ellis * Men's sportswear, dress shirts, neckwear, belts and suspenders - ------------------------------------------------------------------------------ Perry Ellis America * Men's casual sportswear and jeans - ------------------------------------------------------------------------------ Portfolio By Perry Ellis * Men's dress slacks, dress shirts, neckwear, belts and suspenders - ------------------------------------------------------------------------------ Save The Children * Men's neckwear and suspenders - ------------------------------------------------------------------------------ Thomson Men's casual and dress slacks - ------------------------------------------------------------------------------ Unicef * Men's neckwear - ------------------------------------------------------------------------------ During Fiscal 1997, 44% of the Company's net sales was attributable to products sold under the Perry Ellis, Portfolio By Perry Ellis and Perry Ellis America trademarks; these products are sold through leading department and specialty stores. Products sold to Sears under its exclusive brand Canyon River Blues accounted for 14% of the Company's net sales during Fiscal 1997. No other line of products accounted for more than 10% of the Company's net sales during Fiscal 1997. 6. Trademarks Owned by the Company and Related Licensing Income ------------------------------------------- Denton Mills, Inc. ("Denton Mills"), a wholly-owned subsidiary of Salant, owns the Dr. Denton Trademark. Frost Bros. Enterprises, Inc. ("Frost Bros."), also a wholly-owned subsidiary of Salant, owns the John Henry trademark. Salant owns the Lady Manhattan, Manhattan and Thomson trademarks. All of the significant brand names owned by the Company have been registered or are pending registration with the United States Patent and Trademark Office. The Company has sought to capitalize on the consumer recognition of and interest in its trademarks by licensing various of those trademarks to others. As of the end of Fiscal 1997, licenses were outstanding to approximately 18 licensees to make or sell apparel products and accessories in the United States and to 34 licensees in 30 other countries under the Manhattan, Lady Manhattan, John Henry, and Vera trademarks, which produced royalty income of approximately $5.6 million in Fiscal 1997. Products under license include men's belts, dress shirts, leather accessories, neckwear, optical frames, outerwear, pajamas, robes, scarves, shorts, slacks, socks, sportcoats, sunglasses, suspenders and underwear, and women's blouses and tops, gloves, intimate apparel, lingerie, optical frames, scarves and shirts. 7. Trademarks Licensed to the Company ---------------------------------- The name Perry Ellis and related trademarks are licensed to Salant under a series of license agreements with Perry Ellis International, Inc. ("PEI"). The license agreements contain renewal options, which, subject to compliance with certain conditions contained therein, permit the Company to extend the terms of such license agreements. Assuming the exercise by the Company of all available renewal options, the license agreements covering men's apparel and accessories will expire on December 31, 2015. The Company also has rights of first refusal worldwide for certain new licenses granted by PEI for men's apparel and accessories. The Company is also a licensee of various trademarks, including certain Disney characters (including Disney Babies, Mickey For Kids, Winnie The Pooh and The Lion King-Simba's Pride), Gant, Joe Boxer, Oshkosh B'gosh, Peanuts, Save The Children, Unicef and certain Warner Bros. characters (including certain Looney Tunes characters, such as Bugs Bunny, Daffy Duck and Porky Pig), for various categories of products under license agreements expiring between 1998 and 2002. The agreements under which the Company is licensed to use trademarks owned by others typically provide for royalties at varying percentages of net sales under the licensed trademark, subject to a minimum annual royalty payable irrespective of the level of net sales. The Company anticipates that it should be able to extend, if it so desires, the term of any material licenses when they expire. For a further discussion of the effect of the Chapter 11 Case upon the PEI licensing agreements with Salant, see "Background and Events Leading to Chapter 11 Filing - The December Agreement" and "Certain Bankruptcy Considerations - Dependency on Certain Customers and Licensees; Effect of Plan on Licenses." 8. Design and Manufacturing ------------------------ Products sold by the Company's various divisions are manufactured to the designs and specifications (including fabric selections) of designers employed by those divisions. In limited cases, the Company's designers may receive input from one or more of the Company's licensors on general themes or color palettes. During Fiscal 1997, approximately 12% of the products produced by the Company (measured in units) were manufactured in the United States, with the balance manufactured in foreign countries. Facilities operated by the Company accounted for approximately 75% of its domestic-made products and 37% of its foreign-made products; the balance in each case was attributable to unaffiliated contract manufacturers. In Fiscal 1997, approximately 47% of the Company's foreign production was manufactured in Mexico, approximately 18% was manufactured in Guatemala and approximately 12% was manufactured in the Dominican Republic. The Company's foreign sourcing operations are subject to various risks of doing business abroad, including currency fluctuations (although the predominant currency used is the U.S. dollar), quotas and, in certain parts of the world, political instability. Although the Company's operations have not been materially adversely affected by any of such factors to date, any substantial disruption of its relationships with its foreign suppliers could adversely affect its operations. Some of the Company's imported merchandise is subject to United States Customs duties. In addition, bilateral agreements between the major exporting countries and the United States impose quotas, which limit the amounts of certain categories of merchandise that may be imported into the United States. Any material increase in duty levels, material decrease in quota levels or material decrease in available quota allocations could adversely affect the Company's operations. 9. Raw Materials ------------- The raw materials used in the Company's manufacturing operations consist principally of finished fabrics made from natural, synthetic and blended fibers. These fabrics and other materials, such as leathers used in the manufacture of various accessories, are purchased from a variety of sources both within and outside the United States. The Company believes that adequate sources of supply at acceptable price levels are available for all such materials. Substantially all of the Company's foreign purchases are denominated in U.S. currency. No single supplier accounted for more than 10% of the Company's raw material purchases during Fiscal 1997. In Fiscal 1997, the Company entered into forward foreign exchange contracts, relating to 80% of its projected 1998 Mexican peso needs, to fix its cost of acquiring pesos and diminish the risk of foreign currency fluctuation. 10. Employees --------- As of the end of Fiscal 1997, the Company employed approximately 3,800 persons, of whom 3,200 were engaged in manufacturing and distribution operations and the remainder were employed in executive, marketing and sales, product design, engineering and purchasing activities and in the operation of the Company's retail outlet stores. Substantially all of the manufacturing employees are covered by collective bargaining agreements with various unions, which expire between 1998 and 2000. The Company believes that its relations with its employees are satisfactory. 11. Competition ----------- The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line manufacturers (such as the Company) and a larger number of specialty manufacturers. The Company faces substantial competition in its markets from manufacturers in both categories. Many of the Company's competitors have greater financial resources than the Company. The Company seeks to maintain its competitive position in the markets for its branded products on the basis of the strong brand recognition associated with those products and, with respect to all of its products, on the basis of styling, quality, fashion, price and customer service. 12. 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. B. EXECUTIVE OFFICES; FINANCIAL INFORMATION The Debtor's headquarters are located at 1114 Avenue of the Americas, New York, New York 10036 and its telephone number is (212) 221-7500. Financial information regarding the Debtor is set forth in Appendices II and III hereto, consisting of the Debtor's Form 10-K for Fiscal Year 1997 and the Debtor's Form 10-Q for the third quarter of fiscal year 1998, which contains unaudited condensed consolidated financial statements for Salant and its subsidiaries (i) at January 3, 1998 and October 3, 1998, (ii) for the three months ended October 3, 1998 and September 27, 1997, and (iii) for the nine months ended October 3, 1998 and September 27, 1997. C. CAPITAL STRUCTURE OF THE DEBTOR 1. Equity ------ The equity portion of Salant's capital structure is comprised of 50,000,000 authorized shares of stock, consisting of 45,000,000 shares of common stock, par value $1.00 per share, and 5,000,000 authorized shares of preferred stock, par value $2.00 per share (the "Series A Preferred Stock"). Old Common Stock. The Old Common Stock is traded on the New York Stock Exchange (the "NYSE") under the trading symbol SLT. On December 17, 1998 the NYSE advised the Debtor that trading of the Old Common Stock will be suspended prior to the opening of the NYSE on December 30, 1998. The NYSE has advised Salant that this action was being taken in view of the fact that Salant has fallen below the NYSE's continued listing criteria relating to: the aggregate market value of all outstanding shares (less than $12 million), together with average net income after taxes for the past three years (less than $600,000); net tangible assets available to common stock (less than $12 million), together with average net income after taxes for the past three years (less than $600,000); and aggregate market value of publicly held shares (less than $8 million). The Debtor will use its best efforts to encourage the development of an alternative trading market for the Old Common Stock. The high and low sale prices per share of Old Common Stock (based upon the NYSE composite tape as reported in published financial sources) for each quarter of 1996, 1997 and 1998 are set forth below. Salant did not declare or pay any dividends during such years. The Indenture governing the Senior Notes and the Credit Agreement requires the satisfaction of certain net worth tests prior to the payment of any cash dividends by the Debtor. As of January 3, 1998, Salant was prohibited from paying cash dividends under the most restrictive of these provisions. HIGH AND LOW SALE PRICES PER SHARE OF THE OLD COMMON STOCK QUARTER HIGH LOW 1998 Third 5/8 13/32 Second 5/8 9/16 First $1 13/16 $ 3/8 1997 Fourth $3 3/8 $1 9/16 Third 3 1 15/16 Second 4 1/4 2 7/8 First 5 3/8 3 1996 Fourth $3 7/8 $3 1/8 Third 4 2 3/4 Second 4 7/8 3 1/2 First 5 3/4 3 1/8 On December 17, 1998, the day on which the NYSE advised the Debtor that trading of the Old Common Stock will be suspended prior to the opening of the NYSE on December 30, 1998, the closing market price of the Old Common Stock was 1/8 per share. Series A Preferred Stock. Pursuant to its certificate of incorporation, Salant is authorized to issue 5,000,000 shares of Series A Preferred Stock. No shares of Series A Preferred Stock are currently issued and outstanding and, no shares of Series A Preferred Stock will be issued pursuant to the Plan. 2. Debt ---- On September 20, 1993, in connection with the 1993 Chapter 11 Plan, Salant consummated an offering of $111.9 million principal amount of 10-1/2% Senior Secured Notes, due December 31, 1998. The Senior Notes were distributed pursuant to the 1993 Chapter 11 Plan. No principal payments have been made on the Senior Notes. None of the subsidiaries of Salant is a guarantor of the Senior Notes. The Senior Notes were issued pursuant to the Indenture, dated as of September 20, 1993, with Bankers Trust Company acting as Indenture Trustee. Prior to the Filing Date, the Debtor financed its working and other capital needs through a working capital facility provided by CIT under the Credit Agreement, which provided the Debtor with working capital financing in the form of direct borrowings and letters of credit up to an aggregate of $120 million, subject to an asset-based borrowing formula. As collateral for borrowings under the Credit Agreement, the Debtor granted to CIT a security interest in all of the assets of the Debtor. As of the Filing Date, the Debtor's borrowings under the Credit Agreement totaled approximately $70,547,401, consisting of $46,893,092 aggregate principal amount outstanding under the revolving loan facility, including letters of credit outstanding of approximately $23,654,308. In connection with the filing of the Chapter 11 Case, CIT agreed to provide the Debtor with a debtor-in-possession facility, in the form of a general working capital facility, up to an aggregate principal amount of $85 million. See Section II.E.4 herein, entitled "THE CIT DIP FACILITY." In addition, CIT also agreed to provide the Debtor with exit financing, in the form of a syndicated revolving credit facility, up to an aggregate principal amount of $85 million, upon consummation of the Plan. See Section II.E.5 herein, entitled "THE CIT EXIT FACILITY." D. THE DEBTOR Salant, which was incorporated in Delaware in 1987, is the successor to a business founded in 1893 and incorporated in New York in 1919. Salant is a designer, manufacturer, importer and marketer of a broad line of men's apparel, neckwear and belts and children's sleepwear and underwear. Salant's apparel products are sold under internationally recognized owned and licensed brand names, including PERRY ELLIS, MANHATTAN, JOHN HENRY and JOE BOXER trademarks, as well as under retailers' private labels. Salant's collection of PERRY ELLIS menswear, which includes collection sportswear, casual and dress shirts, slacks, jeans, neckwear and belts, is Salant's largest product offering. In Fiscal 1997, products sold under the PERRY ELLIS, PERRY ELLIS PORTFOLIO and PERRY ELLIS AMERICA brand names represented 44% of the Debtor's total Fiscal 1997 net sales. Salant's merchandise is sold throughout the United States to leading retailers, including Federated Department Stores, Inc., May Company, Dillards Department Stores, Dayton Hudson Corporation, Sears, Roebuck & Co., Wal-Mart and K-Mart. Salant believes its relationships with a wide variety of leading retailers, design expertise, low-cost manufacturing and sourcing relationships allow it to participate in numerous areas of the men's apparel industry. As described in more detail above, Salant is currently comprised of three different businesses: (i) the men's apparel business; (ii) the children's sleepwear and underwear business; and (iii) the retail outlet stores business. As noted above, in order to effectuate the consummation of the Plan, the Debtor intends to sell or otherwise dispose of all of its businesses other than its Perry Ellis business, during the Chapter 11 Case and, following the Effective Date, intends to operate as a stand-alone Perry Ellis business. E. BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING On February 22, 1985, Salant Corporation, a New York corporation ("Salant NY"), and its two largest subsidiaries at the time, Thomson Company, Inc. ("Thomson") and Obion Company, Inc. ("Obion"), filed with the Bankruptcy Court separate voluntary petitions for relief under Chapter 11 of the Bankruptcy Code (Case Nos. 85-B-10229 (PBA) through 85-B-10231 (PBA), inclusive). Salant NY's other United States, Canada and Mexico subsidiaries at the time did not seek relief under the Bankruptcy Code or other foreign insolvency laws. On May 19, 1987, the Bankruptcy Court issued an order confirming the Joint Chapter 11 Plan of Salant NY, Thomson and Obion (the "1987 Chapter 11 Plan"). The 1987 Chapter 11 Plan was consummated on June 2, 1987. On June 2, 1987, pursuant to the provisions of the 1987 Chapter 11 Plan, the assets and liabilities of Salant NY, Thomson and Obion and the inactive subsidiaries of Salant NY merged with a wholly-owned subsidiary of Salant NY. Salant is the surviving corporation of such merger. On June 27, 1990, Salant and its wholly-owned subsidiary, Denton Mills, Inc. ("Denton Mills") each filed with the Bankruptcy Court a separate voluntary petition for relief under Chapter 11 of the Bankruptcy Code (Case Nos. 90-B-12037(CB) and 90-B-12038 (CB)) (the "1990 Chapter 11 Case"). On July 30, 1993, the Bankruptcy Court issued an order confirming the Third Amended Joint Plan of Reorganization of Salant and Denton Mills (the "1993 Chapter 11 Plan"). The 1993 Chapter 11 Plan was consummated on September 20, 1993. From that date through January 3, 1998, Salant made cash payments of $9.7 million, issued $111.9 million of its 10-1/2% Senior Secured Notes, due December 31, 1998 (the "Senior Notes"), and issued 11.1 million shares of common stock in settlement of claims in the 1990 Chapter 11 Case. Salant has prepetition obligations (estimated, based on its perception of the claims that ultimately will be allowed) to distribute an additional $1.8 million in cash and an additional 206,392 shares of common stock (subject to dilution as a result of the issuance of the New Common Stock under the Plan) in connection with the remaining claims in the 1990 Chapter 11 Case. Provisions for such distributions were made in the consolidated financial statements at the time of emergence from bankruptcy during the year ended January 1, 1994. The process of resolving claims is continuing and, pursuant to the 1993 Chapter 11 Plan, remains under the jurisdiction of the Bankruptcy Court. Pursuant to the 1993 Chapter 11 Plan, on September 20, 1993, Salant issued its Senior Notes. While issuance of the Senior Notes facilitated Salant's emergence from Chapter 11, Salant, as a result, was capitalized with a significant amount of long-term debt. In connection with the formulation of the 1993 Chapter 11 Plan, management of Salant believed that, based upon projected operating results, Salant would be able to refinance the Senior Notes prior to their final maturity. The principal amount of the Senior Notes (which is currently in the aggregate amount of $104.879 million), becomes due on December 31, 1998. Since emerging from bankruptcy in September 1993, Salant has from time to time explored various strategies regarding its overall business operations and, in particular, various possible transactions that would result in a refinancing of its long-term debt obligations. In this connection, during the period from the beginning of the fiscal year ending January 3, 1998 ("Fiscal 1997") through the Filing Date, Salant has from time to time received indications of interest from various third parties to purchase all or a portion of its businesses or assets. During this period, Salant's refinancing efforts have been significantly hampered by its inconsistent operating results and the fact that investors in the marketplace generally do not look favorably upon investing in highly-leveraged apparel companies. In the latter half of Fiscal 1997, Salant, working with its various investment banking firms, its Board of Directors (the "Board") and management, analyzed and assessed its financial situation and explored the availability of capital in both the private and public debt and equity markets for the purpose of recapitalizing. The investment banking firms advised Salant that they did not believe that it could recapitalize by use of the capital markets, in light of Salant's past inconsistent operating performance, together with the reluctance of investors to invest in apparel companies suffering from high debt-to-equity ratios. Salant's unfavorable operating results continued throughout the fourth quarter of Fiscal 1997. Net sales for the fourth quarter of Fiscal 1997 were $116.4 million, a 1.1% increase from the comparable quarter in 1996. However, net losses amounted to $5.6 million (as compared to a net income of $6.1 million in 1996), and the loss from continuing operations before interest, income taxes and extraordinary gain was $2.4 million (as compared to $10.6 million of income from continuing operations before interest and income taxes for the same quarter of 1996). These results heightened Salant's concern that absent a restructuring or other extraordinary transaction, it would be difficult for Salant to make the principal payment under its Senior Notes due on December 31, 1998 of $104.879 million. Moreover, during the fourth quarter of Fiscal 1997, Salant closed 42 of its retail outlets (representing all retail outlets other than the PERRY ELLIS outlet stores), determined to close one of its distribution centers, and changed the sourcing of a portion of its PERRY ELLIS product line. While these changes were essential to streamline Salant by eliminating non-core businesses and correcting operational issues, these actions had a detrimental effect on Salant's earnings and profitability in Fiscal 1997. As a result, heading into fiscal year 1998, Salant was concerned that, in light of its inconsistent operating performance and inability to access the capital markets to refinance or retire its indebtedness under the Senior Notes, Salant's ability to maintain the support and confidence of its trade vendors was at risk. In that connection, Salant, in consultation with its financial advisors, decided that it needed to immediately address its high level of indebtedness in order to avoid any permanent adverse effects on its business operations, future productivity and growth potential. In addition, as a result of Salant's performance during Fiscal 1997, as of January 3, 1998, Salant failed to meet certain of the financial covenants (the "CIT Financial Covenants") contained in the Revolving Credit, Factoring and Security Agreement, dated as of September 20, 1993, as amended (the "Credit Agreement") between Salant and The CIT Group/Commercial Services, Inc. ("CIT"), its working capital lender. In this connection, Salant reviewed the advisability of making the $5.5 million interest payment on the Senior Notes due and payable on March 2, 1998 with a view towards maximizing liquidity in order to appropriately fund operations during the pendency of the restructuring transactions. Commencing in December 1997, Salant began discussions with CIT, regarding a possible restructuring of Salant's indebtedness under the Senior Notes (including various issues relating to its future ability to meet the CIT Financial Covenants and the March 1998 interest payment on the Senior Notes). Salant believed that, given the potential instability that is associated with any restructuring process, it would be most productive to adopt a strategy to maximize liquidity and thereby protect the total enterprise value of Salant. Salant also concluded that holders of Senior Notes (the "Noteholders") and its equity security holders (the "Stockholders") would best be served by converting the Senior Notes into equity, thus allowing Salant to eliminate a significant portion of its debt and substantially improve its balance sheet. 1. The March 2 Letter Agreement ---------------------------- In furtherance of its continuing efforts to deleverage, Salant approached Magten Asset Management Corp. ("Magten"), the beneficial owner, or the investment manager on behalf of the beneficial owners of, approximately $74 million in aggregate principal face amount of the Senior Notes, representing approximately 71% of the aggregate principal amount of all Senior Notes, to discuss the possible terms and conditions of a restructuring of the indebtedness under the Senior Notes, including the Senior Notes held by Magten. In connection with a possible restructuring, Salant agreed to finance the retention of Hebb & Gitlin, a Professional Corporation ("H&G"), as special counsel to Magten, and Allen and Company Incorporated, as financial advisor to H&G. During the months of January and February 1998, Salant continued to actively discuss a restructuring with Magten and Apollo Apparel Partners, L.P. ("Apollo"), the beneficial owner of 5,924,352 shares of the Old Common Stock, representing approximately 39.5% of the issued and outstanding shares. During this period, Salant continued its negotiations with CIT to ensure its support of a restructuring. These efforts culminated in the execution of a letter agreement dated March 2, 1998, as amended by and among Salant, Magten and Apollo (the "March 2 Letter Agreement"). Pursuant to the March 2 Letter Agreement, the parties agreed, among other things, to support a restructuring on the following terms: (i) the entire $104.879 million outstanding aggregate principal amount of, and all accrued and unpaid interest on, the Senior Notes would be converted into 92.5% of Salant's issued and outstanding new common stock, subject to dilution, and (ii) the Old Common Stock would be converted into 7.5% of Salant's issued and outstanding new common stock, subject to dilution; additionally, Stockholders would receive seven year warrants to purchase up to 10% of Salant's issued and outstanding new common stock, on a fully diluted basis. CIT agreed to support Salant's restructuring efforts under the March 2 Letter Agreement. In furtherance of Salant's restructuring effort, in order to facilitate the consummation of the terms of the March 2 Letter Agreement, on April 22, 1998, Salant filed its Registration Statement on Form S-4 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") to register the securities to be issued in accordance with the March 2 Letter Agreement. Thereafter, Salant filed amendments to the Registration Statement on May 18, 1998, May 26, 1998 and August 31, 1998. In furtherance of the March 2 Letter Agreement, during the period of March 1998 thorough the Filing Date, Salant obtained various extensions and forbearance agreements from Magten and CIT related to Salant's failure to pay interest due on the Senior Notes that was due and payable on March 2, 1998 and August 31, 1998. After Salant entered into the March 2 Letter Agreement and while it continued to pursue implementation of such agreement, Salant received various proposals from third parties to purchase all or a part of Salant's businesses or assets which if consummated would have provided significantly more value to Noteholders and Stockholders than would otherwise have been achieved under the March 2 Letter Agreement. Salant engaged in intense negotiations with certain of such parties regarding a combination transaction. However, by reason of certain market changes which, among other things, caused a reduction in the value of certain of Salant's business units, no such transaction was able to be consummated. Moreover, Salant, together with Magten and Apollo, determined to review their continued pursuit of the transactions contemplated by the March 2 Letter Agreement in light of, among other things, the significant additional time required to consummate such transactions and the occurrence of certain events (including, but not limited to, a reduction in the value of certain of Salant's business units) that caused various assumptions upon which the March 2 Letter Agreement was premised to no longer be true. 2. The Plan Negotiations --------------------- Thereafter, in contemplation of filing the Chapter 11 Case, Salant, Magten and Apollo agreed to pursue a restructuring of Salant pursuant to which all of the Senior Notes would be converted to equity of Reorganized Salant and that provided for Salant to continue to operate after the restructuring as a stand-alone Perry Ellis business. The terms for Salant's restructuring agreed to among the parties prior to the Filing Date form the basis for the Plan. Under the Plan, so long as the PEI Event (as described below) has occurred on or prior to the Confirmation Date, (i) the entire $104.879 million outstanding aggregate principal amount of, and all accrued and unpaid interest on, the Senior Notes would be converted into 95% of Salant's issued and outstanding new common stock, subject to dilution for shares issued under the Stock Award and Incentive Plan and the Restricted Stock Plan, and (ii) the Old Common Stock would be converted into 5% of Salant's issued and outstanding new common stock, subject to dilution for shares issued under the Stock Award and Incentive Plan and the Restricted Stock Plan. The parties further agreed that if either of the following (the "PEI Event") does not occur on or prior to the Confirmation Date: (i) the issuance of a Final Order of the Bankruptcy Court approving the assumption of the PEI Licenses by the Debtor and/or Reorganized Salant, as the case may be, and determining that the Debtor's reorganization under the Plan with the treatment provided to Senior Note Claims (Class 3) under Section 6.3(a)(i) of the Plan and the treatment provided to Old Common Stock Interests (Class 7) under Section 6.7(a)(i) of the Plan, and the confirmation and consummation of the Plan (including, but not limited to, the provisions providing such treatment), does not and will not give rise to any rights of PEI under the PEI Licenses based on any "change of control" provision in the PEI Licenses (as that term is defined in the PEI Licenses) or any similar provision, and does not and will not for any reason result in any forfeiture, termination or modification of any rights of Salant existing under the PEI Licenses immediately prior to the Filing Date, or (ii) the execution of an agreement or stipulation by and between PEI and the Debtor and/or Reorganized Salant, as the case may be, to the same effect; then, pursuant to the Plan, (A) Noteholders will instead receive 40% of Salant's issued and outstanding new common stock, subject to dilution for shares issued under the Stock Award and Incentive Plan and the Restricted Stock Plan, plus pay-in-kind notes (the "New PIK Senior Notes") to be issued by Reorganized Salant in the aggregate principal amount of $92 million, with a maturity date on the eighth anniversary, the Effective Date and bearing interest, payable semi-annually in arrears, at the rate of (i) 15% per annum payable in the form of additional New PIK Senior Notes, or (ii) at the sole option of Reorganized Salant, 12% per annum payable in Cash, and (B) the holders of the Old Common Stock will instead receive 60% of Salant's issued and outstanding new common stock, subject to dilution for shares issued under the Stock Award and Incentive Plan and the Restricted Stock Plan. As described in more detail below (see "The CIT DIP Facility" and the "CIT Exit Facility"), CIT has agreed to support Salant's restructuring efforts under the Plan. In connection with the negotiations leading up to the formulation of the Plan, Salant, Magten and Apollo agreed that the enterprise value of the company was less than the amount of Salant's outstanding indebtedness and, therefore, no value remained for the Stockholders. However, to reach a consensual agreement and avoid the costs associated with a protracted litigation, the parties agreed to the terms of the Plan summarized above. 3. The Waiver and Forbearance Under the CIT Credit Agreement and Commitment for New Credit Agreement ------------------------------------------------------------- As noted above, CIT agreed to support Salant's restructuring efforts under the March 2 Letter Agreement and, in that connection, during the period from March 1998 through the Filing Date, CIT entered into various waivers and forbearance agreements with Salant in respect of its working capital facility. In addition, CIT committed to provide a new working capital facility to Salant upon completion of the restructuring contemplated by the March 2 Letter Agreement. As noted above, thereafter Salant, together with Magten and Apollo, determined to review their continued pursuit of the transactions contemplated by the March 2 Letter Agreement. In that connection, and in contemplation of filing the Chapter 11 Case and pursuing the restructuring of Salant pursuant to the Plan, CIT agreed to provide to Salant a debtor-in-possession facility (the "CIT DIP Facility") in the Chapter 11 Case and an exit facility (the "CIT Exit Facility") upon consummation of Salant's restructuring. The terms and conditions of the CIT DIP Facility and Exit Facility are described below. 4. The CIT DIP Facility -------------------- As noted above, upon commencement of the Chapter 11 Case, the Debtor filed a motion seeking the authority of the Bankruptcy Court to enter into a revolving credit facility with CIT pursuant to and in accordance with the terms of the Ratification and Amendment Agreement, dated as of December __, 1998 (the "Amendment") which, together with related documents are referred to herein as the ("CIT DIP Facility"), effective as of the Filing Date, which would replace the Debtor's existing working capital facility under the Credit Agreement. On December __, 1998, the Bankruptcy Court approved the CIT DIP Facility on an interim basis. After a hearing before the Bankruptcy Court held on January __, 1998 to consider the final approval of the CIT DIP Facility, the Bankruptcy Court approved the CIT DIP Facility on a final basis. The CIT DIP Facility 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 CIT DIP Facility consists of an $85 million revolving credit facility, with a $30 million letter of credit subfacility. As collateral for borrowings under the CIT DIP Facility, the Debtor granted to CIT a first priority lien on and security interest in substantially all of the Debtor's assets and those of its subsidiaries, with superpriority administrative claim status over any and all administrative expenses in the Debtor's Chapter 11 Case, subject to a $2,000,000 carve-out for professional fees and the fees of the United States Trustee. The CIT DIP Facility has an initial term of 150 days, subject to renewal, in CIT's discretion, for an additional 90 day period and, thereafter, for an additional 120 day period. The CIT DIP Facility also provides, among other things, that the Debtor will be charged an interest rate on direct borrowings of 1.0% in excess of the Reference Rate (as defined in the Credit Agreement). If the Debtor does not consummate the Plan by the end of the initial 150 day term, and CIT elects to renew the CIT DIP Facility for an additional 90 day period, as described above, pursuant to the CIT DIP Facility, the Debtor is required to pay CIT the amount of $250,000 and the interest rate under the CIT DIP Facility will be increased to 1.25% in excess of the Reference Rate. If the Debtor does not consummate the Plan by the end of the first 90 day renewal under the CIT DIP Facility, and CIT elects to renew the CIT DIP Facility for an additional 120 day period, as described above, pursuant to the CIT DIP Facility, the Debtor is required to pay CIT the amount of $250,000 and the interest rate under the CIT DIP Facility will be increased to 1.75% in excess of the Reference Rate. CIT may, in its sole discretion, make loans to the Debtor in excess of the borrowing formula but within the $85,000,000 limit of the revolving credit facility. In addition, the CIT DIP Facility provides that the accounts of the Debtor's non-Perry Ellis business units will be factored by CIT beginning January 1, 1999 on a non-notification basis for the first 150 days and on a notification basis thereafter. Pursuant to the terms of the CIT DIP Facility, the Debtor will pay the following fees: (i) a documentary letter of credit fee of 1/8 of 1.0% on issuance and 1/8 of 1/0% on negotiation; (ii) a standby letter of credit fee of 1% per annum plus bank charges; (iii) a factoring commission of .75%; (iv) a collateral management fee of $4,167 per month; and (v) a field exam fee of $750 per day, plus out-of-pocket expenses. In addition, the Debtor will be liable for all of CIT's costs and expenses incurred in connection with the DIP Facility, including attorneys' fees and expenses. 5. The CIT Exit Facility --------------------- As noted above, upon confirmation and consummation of the Plan, the Debtor intends to enter into a syndicated revolving credit facility (the "CIT Exit Facility") with CIT pursuant to and in accordance with the terms of a commitment letter dated December 7, 1998 (the "CIT Commitment Letter"), effective as of the Effective Date of the Plan, which will replace the CIT DIP Facility described above. A copy of the CIT Commitment Letter is attached to this Disclosure Statement at Appendix IV. The CIT Exit Facility will provide 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 CIT Exit Facility will consist of a $85 million revolving credit facility, with a $30 million letter of credit subfacility. As collateral for borrowings under the CIT Exit Facility, Reorganized Salant will grant to CIT and a syndicate of lenders to be arranged by CIT (the "Lenders") a first priority lien on and security interest in substantially all of the assets of Reorganized Salant. The CIT Exit Facility will have an initial term commencing on the Effective Date and will expire three years from the Effective Date. The CIT Exit Facility will also provide, among other things, that (i) Reorganized Salant will be charged an interest rate on direct borrowings of .50% in excess of the Reference Rate; provided, however, that if Reorganized Salant meets certain mutually agreed upon financial tests based upon opening financial statements, then the interest rate shall be .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 Reorganized Salant in excess of the borrowing formula but within the $85,000,000 limit of the revolving credit facility. Pursuant to the CIT Exit Facility, Reorganized Salant will pay the following fees: (i) a documentary letter of credit fee of 1/8 of 1.0% on issuance and 1/8 of 1.0% on negotiation; (ii) a standby letter of credit fee of 1.0% per annum plus bank charges; (iii) a commitment fee of $325,000; (iv) an unused line fee of .25%; (v) an agency fee of $100,000 (only for the second and third years of the term of the CIT Exit Facility); (vi) a collateral management fee of $8,333 per month; and (vii) a field exam fee of $750 per day plus out-of-pocket expenses. In addition, Reorganized Salant will be liable for all of the Lenders' costs and expenses incurred in connection with the Facility, including attorneys' fees and expenses, whether or not the Lenders and Reorganized Salant close upon the CIT Exit Facility. The execution of the CIT Exit Facility is subject to various conditions, including, but not limited to, satisfaction of the Plan requirements and approval of the financing facility by CIT's Executive Credit Facility. Moreover, Salant is required to consummate the CIT Exit Facility no later than June 30, 1999. There is no assurance that such conditions will be satisfied or that the CIT Exit Facility will be executed. 6. Sale of Non-Perry Ellis Divisions --------------------------------- In order to effectuate the consummation of the Plan, the Debtor intends to sell or otherwise dispose of all of its businesses, other than its Perry Ellis business, during the Chapter 11 Case and, following the Effective Date, intends to operate as a stand-alone Perry Ellis Business. In that connection, if the Debtor is able to successfully market and negotiate the sale of its non-Perry Ellis businesses, the Debtor expects to request that the Bankruptcy Court establish bidding procedures with respect to such sales and, thereafter approve such sales pursuant to section 363 of the Bankruptcy Code. As a result, during the Chapter 11 Case, the Debtor intends to sell or otherwise dispose of its two non-Perry Ellis businesses, the Children's Group and the Salant Menswear Group, as well as certain related assets owned by non-debtors wholly owned subsidiaries of Salant. Under the CIT DIP Facility, the proceeds from the sale of these businesses will be paid to CIT and will reduce the outstanding indebtedness under such facility. Upon consummation of the Plan, Reorganized Salant will only consist of the operations and business related to the manufacture, design, import and marketing of PERRY ELLIS products and the operation of 20 PERRY ELLIS outlet stores. (a) SALE OF THE SALANT'S NON-PERRY ELLIS DRESS SHIRT BUSINESS Pursuant to a Purchase and Sale Agreement, dated as of December __, 1998, (the "Salant Dress Shirt Sale Agreement"), Salant, Frost Bros., and Maquiladora Sur, S.A. de C.V., a Mexican corporation and wholly-owned subsidiary of Salant ("Maquiladora"), agreed to sell to Supreme International Corporation ("Supreme"), all of Salant's right to, title and interest in, certain assets of Salant's non-Perry Ellis dress shirt business. These assets consist of, among other things, (i) all leasehold interests pertaining to Maquiladora's dress shirt facility located in Valle Hermosa, Mexico, (ii) all personal property located at the Valle Hermosa facility and the Debter's facility in Andalusia, Alabama; (iii) all JOHN HENRY and MANHATTAN dress shirt inventory including all raw material, work-in-progress, and finished goods and (iv) the intellectual property relating to JOHN HENRY, MANHATTAN and LADY MANHATTAN names. As consideration for the purchase of these assets, pursuant to the Salant Dress Shirt Sale Agreement, Supreme has agreed, among other things, to pay the following amounts: (i) $1 million will be deposited in escrow as a good faith deposit, (ii) the Net Book Value (as defined in the Salant Dress Shirt Sale Agreement) for the purchased inventory and (iii) $17 million, less the $1 million good faith deposit for all transferred assets other than the inventory. (b) SALE OF SALANT'S OTHER NON-PERRY ELLIS BUSINESSES Salant has begun the process of marketing for sale its Children's Group and the Bottoms Division of its Menswear Group. In that connection, prior to the Filing Date, Salant has had significant negotiations with at least one potential purchaser in respect of a sale of the Children's Group. In addition, Salant intends to begin marketing for sale the Accessories division of its Menswear Group. III. EFFECT OF CONSUMMATION OF THE PLAN If confirmed, the Plan will implement a restructuring of the Debtor's businesses by providing for, among other things (i) the issuance of New Common Stock, together with the New PIK Senior Notes if the PEI Event does not occur on or prior to the Effective Date, to the Noteholders in exchange for Senior Notes, and (ii) the issuance of New Common Stock to Stockholders in exchange for Old Common Stock. The Plan also provides that the PBGC Claims will receive treatment in accordance with the terms and conditions of the PBGC Agreement. If the Plan is confirmed, all Holders of Senior Note Claims, PBGC Claims and Old Common Stock Interests will be bound by the terms of the Plan, whether or not they have voted to accept the Plan in accordance with the Plan and the Voting Instructions. To be counted, Ballots and Master Ballots to vote to accept or reject the Plan described herein must be submitted in accordance with the voting instructions accompanying the Ballots and Master Ballots (the "Voting Instructions"). See Section XV herein, entitled "VOTING AND CONFIRMATION OF THE PLAN." A. DILUTION OF EQUITY INTERESTS Under the Plan, each Noteholder of record will be entitled to receive, in full and final satisfaction of such Holder's Allowed Class 3 Senior Note Claim, (i) if the PEI Event occurs on or prior to the Effective Date, 90.5805738 shares of New Common Stock for each $1,000 principal face amount of Senior Notes held by such Holder, or (ii) if the PEI Event does not occur on or prior to the Effective Date, 38.1391890 shares of New Common Stock for each $1,000 principal face amount of Senior Notes held by such Holder, thus in either case enabling such Holder to participate in the economic results and any future growth of Reorganized Salant. The issuance to Noteholders of shares of New Common Stock upon consummation of the Plan will result in significant dilution of the equity interests of the existing holders of Old Common Stock. Following consummation of the Plan, (i) if the PEI Event occurs on or prior to the Effective Date, the 9,500,000 shares of New Common Stock issued directly to Holders of Allowed Class 3 Senior Note Claims pursuant to the Plan will represent 95% of the total issued and outstanding shares of New Common Stock as of the Effective Date, and (ii) if the PEI Event does not occur on or prior to the Effective Date, the 4,000,000 shares of New Common Stock issued directly to the Noteholders pursuant to the Plan will represent 40% of the total issued and outstanding shares of New Common Stock as of the Effective Date (in each case, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan). See Section V.D. herein, entitled "SUMMARY OF THE PLAN -- SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN." Under the Plan, each Holder of a Class 7 Old Common Stock Interest will be entitled to receive, in full and final satisfaction of such Holder's Allowed Class 7 Old Common Stock Interest, for each share of Old Common Stock held by such Holder, such Holders' Pro Rata Share of the following: (i) if the PEI Event occurs on or prior to the Effective Date, 500,000 shares of New Common Stock, or (ii) if the PEI Event does not occur on or prior to the Effective Date, 6,000,000 shares of New Common Stock. As of November 13, 1998, there were 14,984,608 shares of Old Common Stock issued and outstanding. Assuming consummation of the Plan, the Stockholders will receive, in exchange for their shares of Old Common Stock, an aggregate of (i) in the event that the PEI Event occurs, 500,000 shares of New Common Stock, constituting 5% of the New Common Stock issued and outstanding immediately after the Effective Date, or (ii) in the event that the PEI Event does not occur, 6,000,000 shares of New Common Stock constituting 60% of the New Common Stock issued and outstanding immediately after the Effective Date (in each case, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan). As a result, upon consummation of the Plan, the equity interests of the Stockholders represented by the Old Common Stock, as a percentage of the total number of issued and outstanding shares of the New Common Stock, will be significantly diluted from 100% of the Old Common Stock to 5% or 60%, as the case may be, of the New Common Stock (subject to further dilution as a result of the issuance of shares of New Common Stock under the Stock Award and Incentive Plan and the Restricted Stock Plan). B. PROVISIONS FOR EMPLOYEES Salant intends for salaries, commissions, reimbursable employee expenses and wages, as the case may be, workers' compensation, accrued paid vacation, health-related benefits, severance benefits and similar employee benefits to be unaffected by the Chapter 11 Case. Employee benefit claims that accrue prior to the Filing Date will receive unimpaired treatment under the terms of the Plan. See Section V herein, entitled "SUMMARY OF THE PLAN." In order to ensure the continuity of its work force and to further accommodate the unimpaired treatment of employee benefits, Salant sought authorization from the Bankruptcy Court, immediately upon commencement of the Chapter 11 Case (i) to pay accrued and unpaid prepetition wages, commissions, salaries, reimbursable employee expenses, workers' compensation and employee benefits (such as vacation and sick day commitments and medical insurance) and applicable taxes, tax deposits and processing fees in connection therewith and (ii) to direct Salant's banks to honor outstanding payroll and expense checks. Salant also sought authorization from the Bankruptcy Court to reissue, if necessary, post-petition checks to fulfill its obligations to its employees. The Bankruptcy Court has entered an order approving the above-described treatment of employee payroll and benefits on [ , 1998]. Employee claims and benefits not paid or honored, as the case may be, prior to the consummation of the Plan will be paid or honored upon consummation of the Plan or as soon thereafter as such payment or other obligation becomes due or performable. The Debtor also intends, pursuant to the terms and conditions of the Plan, to leave unaltered all other legal, equitable and contractual rights of employees under Salant's employment and severance policies, compensation and benefit plans and all other agreements, contracts and programs applicable to Salant's employees, other than any equity or equity-based incentive plans. See Section V herein, entitled "SUMMARY OF THE PLAN." IV. THE CHAPTER 11 CASE On the Filing Date, the Debtor commenced a voluntary Chapter 11 Case. Since the Filing Date, the Debtor has continued to operate as a Debtor-in-Possession subject to the supervision of the Bankruptcy Court in accordance with the Bankruptcy Code. The Debtor is authorized to operate in the ordinary course of business. Transactions out of the ordinary course of business have required Bankruptcy Court approval. In addition, the Bankruptcy Court has supervised the Debtor's employment of attorneys, accountants and other professionals. An immediate effect of the filing of the bankruptcy petitions was the imposition of the automatic stay under the Bankruptcy Code which, with limited exceptions, enjoined the commencement or continuation of all collection efforts by creditors, the enforcement of liens against the Debtor and litigation against the Debtor. This injunction remains in effect, unless modified or lifted by order of the Bankruptcy Court, until consummation of a plan of reorganization. A. TIMETABLE FOR THE CHAPTER 11 CASE Following the Filing Date, the Debtor expects the Chapter 11 Case to proceed on the following estimated timetable. There can be no assurance, however, that the Bankruptcy Court's orders to be entered on or after the Filing Date or actions that may be taken by various parties-in-interest will permit the Chapter 11 Case to proceed as expeditiously as anticipated. On the Filing Date, the Debtor filed this Disclosure Statement and the Plan and sought an order that the Disclosure Statement hearing be held as soon as possible. The Bankruptcy Court has scheduled the Disclosure Statement hearing for January __, 1998 at __:__ __.m. The deadline to object to approval of the Disclosure Statement is January __, 1998 at 5:00. The Debtor anticipates that the hearing on confirmation of the Plan will occur on or about 30 days after Disclosure Statement hearing. The Debtor anticipates that at least 25 days' notice of the Confirmation Hearing and of the time for filing objections to confirmation of the Plan will be given to all creditors and interest holders. Assuming that the Plan is confirmed at the initial Confirmation Hearing, the Plan provides that the Effective Date will be a date which is 11 days after the Confirmation Date, or, if such date is not a Business Day, the next succeeding Business Day, or such earlier date after the Confirmation Date as agreed to in writing between the Debtor and Magten so long as no stay of the Confirmation Order is in effect on such date; provided, however, that if, on or prior to such date, all conditions to the Effective Date set forth in Article Thirteen of the Plan have not been satisfied, or waived, then the Effective Date will be the first Business Day following the day on which all such conditions to the Effective Date have been satisfied or waived. Under the foregoing timetable, the Debtor would emerge from the Chapter 11 Case within 90 days after the Filing Date. There can be no assurance, however, that this projected timetable will be achieved. B. COMMITTEES To facilitate negotiations and otherwise provide for a unified and efficient representation of unsecured creditors and equity interest holders with similar rights and interests, the United States Trustee will generally appoint one or more committees as soon as practicable after the Filing Date, pursuant to section 1102 of the Bankruptcy Code. Ordinarily, one committee will be appointed to represent unsecured creditors, but the United States Trustee may appoint additional committees to represent equity interest holders and/or creditors if deemed necessary to assure adequate representation of creditors or equity interest holders. A creditors' committee will ordinarily consist of those creditors willing to serve who hold the seven largest unsecured claims against the Debtor of those claims to be represented by the committee, or of the members of a prepetition committee if it was fairly chosen and is representative. The fees and expenses of such committees, including those of legal counsel and financial advisors, are paid for from the debtor's estate subject to Bankruptcy Court approval. However, given the prenegotiated nature of the Plan and the unimpaired treatment of unsecured creditors, the United States Trustee may elect not to appoint an unsecured creditors' committee in the Chapter 11 Case. Holders of equity interests are not ordinarily represented by an official committee, but such a committee may be appointed if the United States Trustee deems it appropriate or if the Bankruptcy Court determines such an official committee to be necessary to assure the adequate representation of interest holders. Committees appointed by the United States Trustee would be considered parties-in-interest and would have a right to be heard on all matters concerning the Chapter 11 Case, including the confirmation of a plan of reorganization and, additionally, would be entitled to consult with the Debtor concerning the administration of the Chapter 11 Case and perform such other functions and services that would further the interests of those creditors or interest holders they represent. C. ACTIONS TAKEN UPON COMMENCEMENT OF CASE The Debtor does not expect the Chapter 11 Case to be protracted. To expedite its emergence from Chapter 11 and to facilitate the administration of the Chapter 11 Case, the Debtor sought the relief detailed below, among other relief, from the Bankruptcy Court on the Filing Date. 1. Applications to Retain Professionals ------------------------------------ On the Filing Date, the Debtor filed applications to retain the reorganization professionals to assist and advise the Debtor in connection with administration of the Chapter 11 Case, including, among others, (i) Fried, Frank, Harris, Shriver & Jacobson, as counsel to the Debtor, (ii) Conway, Del Genio, Gries & Co., LLP, as financial advisors to the Debtor, and (iii) Deloitte & Touche, LLP, as accountants for the Debtor (collectively, the "Professionals"). The Bankruptcy Court approved the retention and employment of the Professionals by separate orders dated ___________. 2. Motion to Extend Time to File Schedules and Statement of Financial Affairs -------------------------------------------------------- Section 521 of the Bankruptcy Code and Bankruptcy Rule 1007 direct that a debtor must prepare and file certain schedules of assets and liabilities, current income and current expenditures, executory contracts and unexpired leases and related information (the "Schedules") and a statement of financial affairs (the "Statement") when a Chapter 11 case is commenced. The purpose of filing the Schedules and the Statement is to provide a debtor's creditors, equity interest holders and other interested parties with sufficient information to make informed decisions regarding the debtor's reorganization. However, a bankruptcy court may extend the time for a debtor to file the Schedules and the Statement pursuant to Bankruptcy Rule 1007. On the Filing Date, the Debtor filed an application requesting that the Bankruptcy Court grant the Debtor an extension of the time to file the Schedules and the Statement until 45 days after the Filing Date. The Bankruptcy Court granted an extension of time to file the Schedules and the Statement until __________, pursuant to an order of the Court dated _______. Accordingly, the Debtor filed its Schedules and the Statement with the Bankruptcy Court on ___________. 3. Motion to Maintain Prepetition Bank Accounts, Use Existing Business Forms, Stationary and Checks ---------------------------------------------------------- Because the Debtor expects the Chapter 11 Case to be pending for less than three months, and because of the administrative hardship that any operating changes would impose upon it, the Debtor sought authority on the Filing Date to continue using its existing bank accounts, and to use existing business forms, stationary and checks. Absent the Bankruptcy Court's authorization of the continued use of its current bank accounts, business forms, stationary and checks, the Debtor's normal business activities would be disrupted, to the detriment of the Debtor's estate and its creditors. The Bankruptcy Court approved the Debtor's request, thereby minimizing the disruption to the Debtor's business while in Chapter 11 and potentially expediting the Debtor's emergence from Chapter 11, pursuant to an order dated ____________. 4. Motion for Authority to Pay Prepetition Employee Wages Commissions, Salaries, Reimbursable Employee Expenses, Worker's Compensation and Associated Benefits --------------------------------------------------------------- In light of the Debtor's belief that any delay in paying prepetition compensation or benefits to its employees would destroy its relationships with employees and irreparably harm employee morale at a time when the dedication, confidence and cooperation of such employees are most critical, the Debtor sought authority to pay, among other things, compensation, reimbursable expenses, workers' compensation and benefits to its employees which were accrued but unpaid as of the Filing Date. Additionally, the Debtor sought an order directing its banks to honor checks drawn prepetition in connection with its employees. The Debtor further sought authority to reissue, if necessary, post-petition checks to its employees. Pursuant to an order dated _________, the Bankruptcy Court approved the Debtor's payment of prepetition compensation and benefits to their employees. 5. Chapter 11 Financing -------------------- In order to ensure that the Debtor's business operations would continue without interruption during the Chapter 11 Case, the Debtor sought Bankruptcy Court approval to enter into a debtor-in-possession financing arrangement with CIT. See Section II.E.4 above entitled "THE CIT DIP FACILITY," for a description of the terms and conditions of the financing arrangement. The Bankruptcy Court entered an interim order approving the CIT DIP Facility on __________. A final order approving the terms and conditions of the CIT DIP Facility was entered on __________. 6. Motion Restraining and Enjoining Utilities from Discontinuing Service ------------------------------------------------------------- In connection with its ongoing operations, the Debtor obtains electricity, natural gas, water, telephone services, trash removal and other utility services from various utility companies. The Debtor sought an order directing the utility companies not to refuse or discontinue service. If services were disrupted, even for a brief period, irreparable harm could have been caused to the Debtor's efforts to restructure. The Bankruptcy Court entered an order requiring the utilities to continue service on __________. 7. Motion to Pay Custom Duties, Broker Charges, Shipping Charges and Related Possessory Liens ----------------------------------------------------------------- It is essential to the Debtor's efforts to reorganize that the flow of goods into the United States continue uninterrupted. Any failure to pay custom duties, broker charges, shipping charges and related possessory liens will likely result in a refusal by the U.S. Customs Service to clear goods and, in addition, overseas carriers, storage facilities and port authorities may refuse to release goods, thereby hindering the delivery of merchandise to the Debtor and its customers at a critical point in its restructuring pursuant to the Plan. The Debtor filed several motions on the Filing Date to forestall any break in the flow of goods by requesting that it be allowed to pay the appropriate charges described herein. The Bankruptcy Court entered separate orders approving the requested relief on ________. 8. Motion for Authority to Pay Sales and Use Taxes ----------------------------------------------- In connection with the Debtor's normal operations of its 20 PERRY ELLIS outlet stores, the Debtor collects sales and use taxes from its customers on behalf of various state taxing authorities. Salant pays the taxes collected periodically to the appropriate taxing authority. As of the Filing Date, the Debtor held amounts owed to the taxing authorities but not yet scheduled for payment, thus, the Debtor sought authority to pay these funds to the appropriate taxing authority. Pursuant to an order dated __________, the Bankruptcy Court approved the Debtor's payment of the taxes to the appropriate taxing authority. 9. Deadline for Filing Proofs of Claim ----------------------------------- The Bankruptcy Court entered an order on _________ requiring all creditors to file proofs of claim in the Bankruptcy Court by _________ (the "Bar Date"). Creditors whose obligations are listed as undisputed, liquidated, noncontingent liabilities on the Debtor's schedules of assets and liabilities are not required to file proofs of claim. V. SUMMARY OF THE PLAN A. BRIEF EXPLANATION OF CHAPTER 11 Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is authorized to reorganize its business for the benefit of itself and its creditors and stockholders. In addition to permitting rehabilitation of the debtor, another goal of Chapter 11 is to promote equality of treatment of creditors and equity security holders, respectively, who hold substantially similar claims or interests with respect to the distribution of the value of a debtor's assets. In furtherance of these two goals, upon the filing of a petition for relief under Chapter 11, section 362 of the Bankruptcy Code generally provides for an automatic stay of substantially all acts and proceedings against a debtor and its property, including all attempts to collect claims or enforce liens that arose prior to the commencement of the debtor's Chapter 11 case. The consummation of a plan of reorganization is the principal objective of a Chapter 11 case. A plan of reorganization sets forth the treatment of claims against and interests in a debtor. Confirmation of a plan of reorganization by the Bankruptcy Court makes the plan binding upon the debtor, any issuer of securities under the plan, any person or entity acquiring property under the plan and any creditor of or equity security holder in the debtor, whether or not such creditor or equity security holder (i) is impaired under or has accepted the plan or (ii) receives or retains any property under the plan. Subject to certain limited exceptions, and except as provided in the plan itself or the confirmation order, confirmation discharges the debtor from any debt that arose prior to the date of confirmation of the plan and substitutes therefor the obligations specified under the confirmed plan, and terminates all rights and interests of prepetition equity security holders. The following is an overview of certain material provisions of the Plan. The following summaries of the material provisions of the Plan do not purport to be complete and are qualified in their entirety by reference to all the provisions of the Plan, including all exhibits thereto, all documents described therein and the definitions therein of certain terms used below. B. GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS The Plan provides (i) that each Holder of an Allowed Administrative Expense, Allowed Priority Tax Claim, Allowed Priority Claim, or the Allowed CIT Claim will receive payment in full or other treatment as agreed upon by such Holder and the Debtor, and (ii) that the rights of each Holder of an Allowed Miscellaneous Secured Claim or Allowed General Unsecured Claim will remain unaltered or that such Claim will be reinstated or otherwise treated as agreed upon by such Holder and the Debtor. The Plan provides that the PBGC in respect of the Allowed PBGC Claims will receive treatment in accordance with an agreement to be negotiated between the Debtor and the PBGC. In the event that the PEI Event occurs, the Plan provides that Holders of Allowed Senior Note Claims will receive New Common Stock pursuant to Section 6.3(a)(i) of the Plan in exchange for their Allowed Senior Note Claims and that Holders of Allowed Old Common Stock Interests, which will be canceled pursuant to the Plan, will also receive New Common Stock pursuant to Section 6.7(a)(i) of the Plan on account of their Allowed Old Common Stock Interests. In the event that the PEI Event does not occur prior to the Effective Date, the Holders of Allowed Senior Note Claims will receive the treatment provided under Section 6.3(a)(ii) of the Plan and the Holders of Old Common Stock Interests will receive the treatment provided under Section 6.7(a)(ii) of the Plan. See "CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS" in Section V.C. Holders of Other Interests will receive no distribution under the Plan. See "SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN" in Section V.D. for a description of the New Common Stock. The Debtor intends that pre-Filing Date Claims of vendors will be paid in full in Cash no later than on the Effective Date or the date after the Effective Date that such payment is due in the ordinary course of business, consistent with past practice. To allow the Debtor to complete a financial restructuring in the manner which will maximize its enterprise value, the Debtor is soliciting acceptances of the Plan from Holders of Senior Notes Claims, the PBGC Claims and Old Common Stock Interests. Holders of Other Interests do not receive or retain any property under the Plan. Under section 1126(g) of the Bankruptcy Code, the Holders of Other Interests are deemed not to have accepted the Plan, and the acceptance of such Holders will not be solicited. The Debtor presently intends to seek to consummate the Plan and to cause the Effective Date to occur as soon as practicable. In any event, pursuant to the CIT Commitment Letter, the Debtor is required to emerge from Chapter 11 no later than June 30, 1999 in order to be able to consummate the CIT Exit Facility. There can be no assurance, however, as to when the Effective Date will actually occur. Procedures for the distribution of cash and securities pursuant to the Plan, including matters that are expected to affect the timing of the receipt of distributions by Holders of Claims and Interests in certain Classes and that could affect the amount of distributions ultimately received by such Holders, are described in "PROVISIONS COVERING DISTRIBUTIONS" in Section V.H. Management of the Debtor believes that the Plan provides treatment for all Classes of Claims and Interests reflecting an appropriate resolution of their Claims and Interests, taking into account the differing nature of such Claims and Interests. The Bankruptcy Court must find, however, that a number of statutory tests are met before it may confirm the Plan. Many of these tests are designed to protect the interests of Holders of Claims or Interests who do not vote to accept the Plan, but who will be bound by the provisions of the Plan if it is confirmed by the Bankruptcy Court. The "cramdown" provisions of section 1129(b) of the Bankruptcy Code, for example, permit confirmation of a Chapter 11 plan of reorganization in certain circumstances even if the plan is not accepted by all impaired classes of claims and interests. See Section XV herein, entitled "VOTING AND CONFIRMATION OF THE PLAN." The Debtor will request that the Bankruptcy Court confirm the Plan under Bankruptcy Code section 1129(b). Section 1129(b) permits confirmation of the Plan despite rejection by one or more impaired classes if the Bankruptcy Court finds that the Plan "does not discriminate unfairly" and is "fair and equitable" as to the rejecting class or classes. Because Class 8 is deemed not to have accepted the Plan, the Debtor will request that the Bankruptcy Court find that the Plan is fair and equitable and does not discriminate unfairly as to Class 8 (and any other class that fails to accept the Plan). For a more detailed description of the requirements for acceptance of the Plan and of the criteria for confirmation notwithstanding rejection by certain classes, see Section XIII herein, entitled "REQUIREMENTS FOR CONFIRMATION OF PLAN." C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS Section 1123 of the Bankruptcy Code requires that, for purposes of treatment and voting, a Chapter 11 plan divide the different claims against, and equity interests in, the debtor into separate classes based upon their legal nature. In accordance with section 1123 of the Bankruptcy Code, claims of a substantially similar legal nature are usually classified together, as are equity interests which give rise to the same legal rights; the "claims" and "equity interests" themselves, rather than their holders, are classified. Under a Chapter 11 plan, the separate classes of claims and equity interests must be designated either as "impaired" or "unimpaired" by the plan. If a class of claims is "impaired," the Bankruptcy Code affords certain rights to the holders of such claims, such as the right to vote on the plan (unless the plan provides for no distribution to the holders, in which case, the holder is deemed to reject the plan), and the right to receive under the Chapter 11 plan property of a value that is not less than the value the Holder would receive if the debtor were liquidated under Chapter 7. Under section 1124 of the Bankruptcy Code, a class of claims or interests is "impaired" unless the plan (i) does not alter the legal, equitable, and contractual rights of the holders or (ii) irrespective of the holders' acceleration rights, cures all defaults (other than those arising from the debtor's insolvency, the commencement of the case, or nonperformance of a nonmonetary obligation), reinstates the maturity of the claims or interests in the class, compensates the holders for actual damages incurred as a result of their reasonable reliance upon any acceleration rights, and does not otherwise alter their legal, equitable, and contractual rights. Typically, this means the holder of an unimpaired claim will receive on the later of the effective date or the date on which amounts owing are due and payable, payment in full, in cash, with postpetition interest to the extent appropriate and provided under the governing agreement (or if there is no agreement, under applicable nonbankruptcy law), and the remainder of the debtor's obligations, if any, will be performed as they come due in accordance with their terms. Thus, other than its right to accelerate the debtor's obligations, the holder of an unimpaired claim will be placed in the position it would have been in had the debtor's case not been commenced. As discussed above, section 1123 of the Bankruptcy Code provides that a plan of reorganization shall classify the claims of a debtor's creditors and equity interest holders. In compliance therewith, the Plan divides Claims and Interests into eight Classes and sets forth the treatment for each Class. In accordance with section 1123(a), Administrative Expenses and Priority Tax Claims have not been classified. The Debtor also is required, as discussed above, under section 1122 of the Bankruptcy Code, to classify Claims against and Interests in the Debtor into Classes that contain Claims and Interests that are substantially similar to the other Claims and Interests in such Classes. The Debtor believes that the Plan has classified all Claims and Interests in compliance with the provisions of section 1122 of the Bankruptcy Code, but it is possible that a Holder of a Claim or Interest may challenge the classification of Claims and Interests and that the Bankruptcy Court may find that a different classification is required for the Plan to be confirmed. In such event, the Debtor intends, to the extent permitted by the Bankruptcy Court and the Plan, to make such reasonable modifications of the classifications under the Plan to permit confirmation and to use the Plan acceptances received in this Solicitation for the purpose of obtaining the approval of the reconstituted Class or Classes of which the accepting Holder is ultimately deemed to be a member. Any such reclassification could adversely affect the Class in which such Holder was initially a member, or any other Class under the Plan, by changing the composition of such Class and the vote required of that Class for approval of the Plan. Furthermore, a reclassification of a Claim or Interest after solicitation of acceptances of the Plan could necessitate a resolicitation of acceptances of the Plan. The classification of Claims and Interests and the nature of distributions to Holders of Impaired Claims or Impaired Interests in each Class are summarized below. See "SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN" in Section V.D. for a description of the manner in which the number of shares of New Common Stock will be determined and Section IX herein, entitled "RISK FACTORS," for a discussion of various other factors that could materially affect the value of the New Common Stock distributed pursuant to the Plan. 1. Unclassified Claims ------------------- The Bankruptcy Code does not require classification of certain priority claims against a debtor. In this Chapter 11 Case, these unclassified claims include Administrative Expenses and Priority Tax Claims. All distributions referred to below that are scheduled for the Effective Date will be made on the Effective Date or as soon as practicable thereafter. (a) ADMINISTRATIVE EXPENSES Administrative Expenses are the actual and necessary costs and expenses of the Debtor's Chapter 11 Case that are allowed under sections 503(b) and 507 of the Bankruptcy Code. Those expenses will include the postpetition salaries and other employee benefits, postpetition rents, amounts owed to vendors providing goods and services to the Debtor during the Chapter 11 Case, tax obligations incurred after the Filing Date, and certain statutory fees and charges assessed under section 1930 of title 28 of the United States Code. Other Administrative Expenses include the actual, reasonable fees and expenses of the Debtor's advisors and the advisors to any official committees appointed in, and incurred during, the Chapter 11 Case. Administrative Expenses representing liabilities incurred in the ordinary course of business, consistent with past practice, by the Debtor or liabilities arising under loans or advances to the Debtor after the Filing Date, whether or not incurred in the ordinary course of business, will be paid by the Debtor in accordance with the terms and conditions of the particular transaction and any related agreements and instruments. All other Allowed Administrative Expenses will be paid, in full, in Cash, on the Effective Date or as soon thereafter as is practicable, or on such other terms as to which the Debtor and the Holder of such Administrative Expense agree. The Debtor anticipates that most Administrative Expenses will be paid as they come due during the Chapter 11 Case and that the Administrative Expenses to be paid on the Effective Date of the Plan will, for the most part, comprise the allowed fees and expenses incurred by professionals retained in the case and the costs attendant to the Debtor's assumption of executory contracts and unexpired leases under the Plan. The Debtor estimates that, assuming the Effective Date occurs ninety days after the commencement of the Chapter 11 Case, allowed Administrative Expenses will approximate $[______] (of which approximately $[______] is estimated for the fees and expenses of the Debtor's professionals). All payments to professionals for compensation and reimbursement of expenses and all payments to reimburse expenses of members of committees will be made in accordance with the procedures established by the Bankruptcy Code and the Bankruptcy Rules relating to the payment of interim and final compensation and expenses. The Bankruptcy Court will review and determine all such requests. In addition to the foregoing, section 503(b) of the Bankruptcy Code provides for payment of compensation to creditors, indenture trustees, and other persons making a "substantial contribution" to a Chapter 11 case, and to attorneys for, and other professional advisors to, such persons. Requests for such compensation must be approved by the Bankruptcy Court after notice and a hearing at which the Debtor and other parties-in-interest may participate, and if appropriate, object to the allowance thereof. Under the Plan, each Holder of an allowed Administrative Expense will be paid in full in Cash on the later of (i) the Effective Date and (ii) the date on which the Bankruptcy Court enters an order allowing such Administrative Expense; provided, however, that allowed Administrative Expenses representing obligations incurred in the ordinary course of business, consistent with past practice, or assumed by the Debtor shall be paid in full or performed by the Debtor or Reorganized Salant in the ordinary course of business, consistent with past practice; provided further, however, that allowed Administrative Expenses incurred by the Debtor or Reorganized Salant after the Confirmation Date, including (without limitation) claims for professionals' fees and expenses, shall not be subject to application and may be paid by the Debtor or Reorganized Salant, as the case may be, in the ordinary course of business and without further Bankruptcy Court approval. (b) PRIORITY TAX CLAIMS Priority Tax Claims essentially consist of unsecured claims by federal and state governmental units for taxes specified in section 507(a)(8) of the Bankruptcy Code, such as certain income taxes, property taxes, excise taxes, and employment and withholding taxes. These unsecured claims are given a statutory priority in right of payment. The Debtor estimates that on the Effective Date, the Allowed Priority Tax Claims will aggregate no more than $[____]. At the sole option of the Debtor, each Holder of an Allowed Priority Tax Claim shall receive (i) Cash payments made in equal annual installments beginning on or before the first anniversary following the Effective Date with the final installment being payable no later than the sixth anniversary of the date of the assessment of such Allowed Priority Tax Claim, together with interest on the unpaid balance of such Allowed Priority Tax Claim from the Effective Date calculated at the Market Rate; or (ii) such other treatment agreed to by the Holder of such Allowed Priority Tax Claim and the Debtor or Reorganized Salant, as the case may be. The foregoing treatment of Allowed Priority Tax Claims is consistent with the provisions of section 1129(a)(9)(C) of the Bankruptcy Code, and the Holders of Allowed Priority Tax Claims are not entitled to vote on the Plan. 2. Classified Claims And Interests ------------------------------- (a) CLASS 1-PRIORITY CLAIMS Class 1 Claims are Unimpaired. Class 1 consists of all Allowed Priority Claims. A Priority Claim is a Claim against Salant for an amount entitled to priority under section 507(a) of the Bankruptcy Code, and does not include any Administrative Expense or Priority Tax Claim. These Priority Claims include, among others: (a) unsecured Claims for accrued employee compensation earned within 90 days prior to the Filing Date, to the extent of $4,300 per employee; and (b) contributions to employee benefit plans arising from services rendered within 180 days prior to the Filing Date, but only for such plans to the extent of (i) the number of employees covered by such plans multiplied by $4,300, less (ii) the aggregate amount paid to such employees under section 507(a)(3) of the Bankruptcy Code, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan. The Plan provides that, on the latest of (i) the Effective Date, (ii) the date on which such Priority Claim becomes an Allowed Priority Claim, or (iii) the date on which the Debtor and the Holder of such Allowed Priority Claim otherwise agree, each Holder of an Allowed Priority Claim will be entitled to receive Cash in an amount sufficient to render such Allowed Priority Claim Unimpaired under section 1124 of the Bankruptcy Code. Allowed Priority Claims in Class 1 are not Impaired under the Plan and, accordingly, the Holders of Allowed Priority Claims in Class 1 are not entitled to vote for or against the Plan and will be deemed to have accepted the Plan. (b) CLASS 2-CIT CLAIM Class 2 Claims are Unimpaired. Class 2 consists of the CIT Claim. The CIT Claim is any and all Claims in respect of all or any portion of the aggregate outstanding and unpaid amount of principal and interest due and owing under, and subject to the terms and provisions of, the Credit Agreement and any and all related documents, including, without limitation, any and all interest, costs, attorneys' fees and other expenses owed by the Debtor or for which the Debtor may be liable in connection therewith. Under the Plan, at the election of the Debtor prior to the Effective Date, on the Effective Date or as soon as practicable thereafter, CIT will be entitled to receive on account of the Allowed CIT Claim one of the following treatments: (i) CIT will be entitled to receive Cash in an amount sufficient to render such Allowed CIT Claim Unimpaired under section 1124 of the Bankruptcy Code, (ii) the Allowed CIT Claim shall be otherwise rendered Unimpaired in accordance with section 1124 of the Bankruptcy Code, or (iii) such other treatment as mutually agreed to by the Debtor and CIT. The Class 2 CIT Claim is Unimpaired and, accordingly, the Holder of such Claim is not entitled to vote for or against the Plan and will be deemed to have accepted the Plan. (c) CLASS 3-SENIOR NOTES CLAIMS Class 3 Claims are Impaired. Class 3 consists of all Senior Note Claims. The Senior Note Claims are any and all Claims in respect of all or any portion of the aggregate outstanding and amount of unpaid principal and interest due and owing under, and subject to the terms and provisions of, the Senior Notes, and any other indebtedness of the Debtor due and owing under the Indenture or the Senior Notes (including, without limitation, any and all interest, costs, attorneys' fees and other expenses owed by the Debtor or for which the Debtor may be liable in connection therewith) and all other Claims against the Debtor, if any, directly or indirectly related to or arising out of the transactions, agreements or instruments upon which the Senior Notes are based. Under the Plan, if the PEI Event occurs on or prior to the Effective Date, then on the Effective Date, or as soon as practicable thereafter, each Holder of an Allowed Class 3 Senior Note Claim will receive, on account of such Holder's Allowed Senior Note Claim, such Holder's Pro Rata Share of 9,500,000 shares of New Common Stock (or 90.5805738 shares of New Common Stock for each $1,000 principal face amount of Senior Notes held by such Holder), which in the aggregate shall represent 95% of the issued and outstanding shares of New Common Stock of Reorganized Salant as of the Effective Date, subject to dilution for shares of New Common Stock issued under the Stock Award Incentive Plan and the Restricted Stock Plan. If the PEI Event does not occur on or prior to the Effective Date, then on the Effective Date or and soon as practicable thereafter, each Holder of an Allowed Senior Note Claim will be entitled to receive on account of such Holder's Allowed Senior Note Claim such Holder's Pro Rata Share of (A) 4,000,000 shares of New Common Stock (or 38.1391890 shares of New Common Stock for each $1,000 principal amount of Senior Notes held by such Holder), which in the aggregate shall represent 40% of the issued and outstanding shares of New Common Stock of Reorganized Salant as of the Effective Date, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan, and (B) the New PIK Senior Notes (or $877.20 aggregate principal amount of New PIK Senior Notes for each $1,000 principal amount of Senior Notes held by such Holder). The aggregate Senior Note Claims in Class 3 shall be deemed Allowed in the aggregate amount of $119,190,277, plus interest in the amount of $30,590 for each day after December 18, 1998, until and including the Filing Date. The Senior Note Claims are not disputed, contingent or unliquidated, and no Holder of a Senior Note Claim or the Indenture Trustee shall be required to file a proof of claim in order for such Claims to be Allowed pursuant to the Plan. Any Claims filed with respect to the Senior Note Claims shall be disallowed as duplicative of the Claim deemed filed and Allowed as provided in Section 6.3(c) of the Plan. The reasonable fees, costs and expenses of the Indenture Trustee as provided for pursuant to the Indenture shall be paid in cash in accordance with Section 14.10 of the Plan. Class 3 Senior Notes Claims are Impaired, and, accordingly, the Holders of such Claims are entitled to vote to accept or reject the Plan. (d) CLASS 4-MISCELLANEOUS SECURED CLAIMS Class 4 Claims are Unimpaired. Class 4 consists of all Miscellaneous Secured Claims. Miscellaneous Secured Claims are any Claims other than the CIT Claim, the Senior Note Claims or an Administrative Expense, that is a Secured Claim within the meaning of, and to the extent allowable as a secured claim under, section 506 of the Bankruptcy Code. To the extent, if any, that the value of the collateral securing a Class 4 Miscellaneous Secured Claim is less than the amount of such Allowed Miscellaneous Secured Claim, the difference will be treated as a Class 5 General Unsecured Claim. Under the Plan, at the election of the Debtor prior to the Effective Date, on the Effective Date, or as soon as practicable thereafter, each Holder of an Allowed Class 4 Miscellaneous Secured Claim will be entitled to receive one of the following treatments: (i) the legal, equitable and contractual rights to which such Allowed Miscellaneous Secured Claim entitles such Holder will remain unaltered, (ii) such Holder's Allowed Miscellaneous Secured Claim will be reinstated and rendered Unimpaired in accordance with section 1124(2) of the Bankruptcy Code, or (iii) such other treatment as mutually agreed to by the Debtor and such Holder. Class 4 Miscellaneous Secured Claims are Unimpaired and, accordingly, the Holders of such Claims are not entitled to vote for or against the Plan and will be deemed to have accepted the Plan. (e) CLASS 5-PBGC CLAIMS Class 5 Claims are Impaired. Class 5 consists of all PBGC Claims. PBGC Claims are any and all Claims of the PBGC. The Plan provides that, on the Effective Date, the Holder of the Allowed PBGC Claim will be entitled to receive on account of such Holder's Allowed PBGC Claim, the treatment provided for in the PBGC Agreement. The PBGC Agreement is an agreement to be entered into between the PBGC and Reorganized Salant on or prior to the Effective Date with respect to, among other things, any pension plan liability of the Debtor. The PBGC Agreement, when finalized, will be presented to the Bankruptcy Court for its review and approval after notice to all parties in interest and an opportunity to be heard. Class 5 PBGC Claims are Impaired and, accordingly, the Holder of such Claim is entitled to vote to accept or reject the Plan. (f) CLASS 6-GENERAL UNSECURED CLAIMS Class 6 Claims are Unimpaired. Class 6 consists of all General Unsecured Claims. General Unsecured Claims are any Claims against the Debtor other than the CIT Claim, a Miscellaneous Secured Claim, a Senior Note Claim, a Priority Claim, a Priority Tax Claim, or an Administrative Expense, or any Claim subordinated under section 510(b) of the Bankruptcy Code. The Plan provides that, at the election of the Debtor, prior to the Effective Date, on the Effective Date or as soon as practicable thereafter, each Holder of an Allowed General Unsecured Claim will be entitled to receive on account of such Holder's Allowed General Unsecured Claim one of the following treatments: (i) the legal, equitable and contractual rights to which such Allowed General Unsecured Claim entitles such Holder will remain unaltered; (ii) such Holder's Allowed General Unsecured Claim will be reinstated and rendered Unimpaired in accordance with section 1124 of the Bankruptcy Code; or (iii) such other treatment as mutually agreed to by the Debtor and such Holder. Allowed General Unsecured Claims in Class 6 are not Impaired under the Plan and, accordingly, the Holders of General Unsecured Claims in Class 6 will be deemed to have accepted the Plan. (g) CLASS 7-HOLDERS OF OLD COMMON STOCK INTERESTS Class 7 Interests are Impaired. Class 7 consists of all Old Common Stock Interests. Old Common Stock Interests are any Interests evidenced by Old Common Stock or any Claim, if any, relating to Old Common Stock that is subordinated under section 510(b) of the Bankruptcy Code. Under the Plan, if the PEI Event occurs on or prior to the Effective Date, then on the Effective Date, or as soon as practicable thereafter, each Holder of an Allowed Class 7 Old Common Stock Interest will receive on account of such Holder's Allowed Old Common Stock Interest such Holder's Pro Rata Share of 500,000 shares of New Common Stock, which in the aggregate shall represent 5% of the issued and outstanding shares of New Common Stock of Reorganized Salant as of the Effective Date, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan. If the PEI Event does not occur on or prior to the Effective Date, then on the Effective Date or as soon as practicable thereafter, each Holder of an Allowed Old Common Stock Interest shall be entitled to receive on account of such Holder's Allowed Old Common Stock Interest such Holder's Pro Rata Share of 6,000,000 shares of New Common Stock, which in the aggregate shall represent 40% of the issued and outstanding shares of New Common Stock of Reorganized Salant as of the Effective Date, subject to dilution for shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan. The distributions provided for under the Plan are in full settlement, release and discharge of each Holder's Old Common Stock Interests. Allowed Old Common Stock Interests are Impaired under the Plan and, accordingly, the Holders of Allowed Old Common Stock Interests in Class 7 are entitled to vote to accept or reject the Plan. (h) CLASS 8-OTHER INTERESTS Class 8 Interests are Impaired. Class 8 consists of all Other Interests. Other Interests consist of any equity interests in the Debtor, including, without limitation, any rights, options, warrants, calls, subscriptions or other similar rights or agreements, commitments or outstanding securities obligating the Debtor to issue, transfer or sell any shares of capital stock of the Debtor, but excluding any Old Common Stock Interest. Under the Plan, on the Effective Date, all Other Interests will be extinguished and no distributions will be made in respect of such Other Interests. Class 8 Other Interests do not receive or retain any property under the Plan. Under section 1126(g) of the Bankruptcy Code, the Holders of Other Interests are deemed not to have accepted the Plan, and the acceptance of such Holders will not be solicited. 3. Employee Claims --------------- Upon commencement of the Chapter 11 Case, the Debtor filed various motions requesting that salaries, commission, reimbursable expenses, wages, as the case may be, workers' compensation, accrued paid vacation, health related benefits, severance benefits and similar employee benefits continue unaffected by the Debtor's Chapter 11 filing. The Bankruptcy Court approved the motions by order dated ________. Employee benefit claims that accrue prior to the Filing Date will receive unimpaired treatment under the terms of the Plan. To ensure the continuity of the Debtor's work force and to further accommodate the unimpaired treatment of employee benefits, the Debtor sought immediate authorization from the Bankruptcy Court (i) to pay accrued and unpaid prepetition wages, commissions, salaries, reimbursable employee expenses, workers' compensation and employee benefits (such as vacation and sick day commitments and medical insurance) and applicable taxes, tax deposits and processing fees in connection therewith, and (ii) to direct the Debtor's banks to honor outstanding payroll and expense checks. The Bankruptcy Court approved all of these measures by orders dated ________. Employee claims and benefits not paid or honored, as the case may be, prior to consummation of the Plan will be paid or honored upon consummation of the Plan or as soon as such payment or other obligation becomes due or performable thereafter. The Debtor also intends, pursuant to the Plan, to leave unaltered all other legal, equitable and contractual rights of employees under the Debtor's employment and severance policies, compensation and benefit plans and all other agreements, contracts and programs applicable to their employees, other than the Debtor's existing equity or equity-based plans. D. SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN As of the Effective Date, Reorganized Salant will issue the New Common Stock. The New Common Stock will be issued for distribution in accordance with the Plan to Holders of Allowed Class 3 Senior Note Claims and Holders of Allowed Class 7 Old Common Stock Interests. 1. The New Common Stock -------------------- In accordance with the Reorganized Salant Certificate of Incorporation, Reorganized Salant will have 50,000,000 authorized shares of stock, consisting of 45,000,000 shares of New Common Stock, par value $1.00 per share, and 5,000,000 authorized shares of Series A Preferred Stock, par value $2.00 per share. Following consummation of the Plan, 10,000,000 shares of New Common Stock will be issued and outstanding to approximately [ ] holders of record, and no shares of preferred stock will be issued and outstanding. If the PEI Event occurs on or prior to the Effective Date, then 9,500,000 shares of New Common Stock will be issued to Noteholders as of immediately after the Effective Date and 500,000 shares of New Common Stock will be issued to Stockholders as of immediately after the Effective Date (not including shares of New Common Stock issuable upon the exercise of stock options granted to the Debtor's employees and directors under the Stock Award and Incentive Plan and the Restricted Stock Plan). If the PEI Event does not occur on or prior to the Effective Date, then 4,000,000 shares of New Common Stock will be issued to Noteholders as of immediately after the Effective Date and 6,000,000 shares of New Common Stock will be issued to Stockholders as of immediately after the Effective Date (in each case, exclusive of shares of New Common Stock issued under the Stock Award and Incentive Plan and the Restricted Stock Plan. All of the New Common Stock issued and outstanding as of the Effective Date will be fully paid and nonassessable. (a) DISTRIBUTIONS Subject to such preferential rights as may be granted by the Board of Reorganized Salant in connection with future issuances of Series A Preferred Stock, holders of shares of New Common Stock will be entitled to receive ratably such dividends as may be declared by the Board of Reorganized Salant in its discretion from funds legally available therefor. The Credit Agreement contains negative covenants that restrict, among other things, the ability of the Debtor to pay dividends and the Debtor believes that the CIT Exit Facility will contain similar restrictions. In the event of a liquidation, dissolution or winding up of the Debtor, the holders of New Common Stock will be entitled to share ratably in all assets remaining after payment of liabilities and any liquidation preference owed to holders of any preferred stock. Holders of New Common Stock will have no preemptive rights and have no rights to convert their New Common Stock into any other securities. (b) VOTING Subject to any preferential rights of holders of Series A Preferred Stock, holders of shares of New Common Stock will be entitled to one vote per share on all matters to be voted on by stockholders. Matters submitted for stockholder approval require a majority vote of the shares, except where the vote of a greater number is required by the DGCL. Article Sixth of Reorganized Salant's Certificate of Incorporation provides that any action required or permitted to be taken by the stockholders of Reorganized Salant must be effected at a duly called annual or special meeting of such holders and may not be effected by written consent of the stockholders. Article Sixth may not be repealed or amended in any respect except with the approval of 67% of the outstanding shares of New Common Stock. (c) ELECTION OF DIRECTORS Article Fifth of the Reorganized Salant's Certificate of Incorporation divides the Board into three classes, with each class serving a three year term. Any vacancies in the Board, for any reason, and any directorships resulting from any increase in the number of directors, may be filled only by the affirmative vote of a majority of the Board, although less than a quorum. Article Fifth may not be repealed or amended in any respect except with the approval of 67% of the outstanding shares of New Common Stock and subject to the provisions of any preferred stock outstanding. (d) SHARES RESERVED IN CONNECTION WITH THE 1993 CHAPTER 11 PLAN In accordance with the 1993 Chapter 11 Plan, Salant reserved for issuance a certain number of shares of Old Common Stock in order to satisfy certain claims that had been asserted in the 1990 Chapter 11 Case pursuant to the terms and conditions of the 1993 Chapter 11 Plan. As of the date hereof, Salant continues to have 206,392 shares of Old Common Stock reserved for such purpose. Upon the consummation of the Plan, such shares will be canceled and Reorganized Salant intends to reserve for issuance approximately 10,209 shares of New Common Stock for the purpose of settling any remaining claims in the 1990 Chapter 11 Case for which a settlement of stock may be appropriate. 2. Market And Trading Information ------------------------------ The Old Common Stock is currently traded on the NYSE and is quoted under the symbol "SLT." On December 17, 1998, the NYSE advised the Debtor that trading of the Debtor's Old Common Stock will be suspended prior to the opening of the NYSE on Wednesday, December 30, 1998. On the date that the NYSE advised the Debtor of the suspension, the closing sale price for the Old Common Stock was $1/8 per share. The Debtor intends to use its best efforts to encourage the development of an alternative trading market for the Old Common Stock. 3. The New PIK Senior Notes ------------------------ The New PIK Senior Notes will be issued under the New PIK Senior Note Indenture to the holders of Allowed Class 3 Claims on the Effective Date by Reorganized Salant pursuant to the New PIK Senior Note Indenture, if the PEI Event does not occur on or prior to the Effective Date. The New PIK Senior Notes will be issued in the aggregate principal amount of $92 million and will mature on the eighth anniversary of the Effective Date. Interest on the New PIK Senior Notes will be payable semi-annually in arrears at a rate of (i) 15% per annum payable in the form of New PIK Senior Notes or (ii) at the sole option of Reorganized Salant, 12% per annum payable in Cash. Reorganized Salant, in its sole discretion, will have the option to repurchase the New PIK Senior Notes, at 100% of the principal amount thereof plus accrued interest thereon to the date of such repurchase. E. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS Except as otherwise provided in the Plan or the Confirmation Order, all Cash necessary for Reorganized Salant to make payments pursuant to the Plan will be obtained from the CIT Exit Facility. F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES 1. Generally --------- Under section 365 of the Bankruptcy Code, the Debtor has the right, subject to Bankruptcy Court approval, to assume or reject any executory contracts or unexpired leases. If an executory contract or unexpired lease entered into before the Filing Date is rejected by the Debtor, it will be treated as if the Debtor breached such contract or lease on the date immediately preceding the Filing Date, and the other party to the agreement may assert a General Unsecured Claim for damages incurred as a result of the rejection. In the case of rejection of employment agreements and real property leases, damages are subject to certain limitations imposed by sections 365 and 502 of the Bankruptcy Code. See Article Eight of the Plan. 2. Assumption and Rejection ------------------------ Pursuant to the Plan, each executory contract or unexpired lease that has not been expressly assumed or rejected with approval by order of the Bankruptcy Court on or prior to the Confirmation Date will, as of the Confirmation Date (subject to the occurrence of the Effective Date), be deemed to have been assumed by the Debtor unless there is then pending before the Bankruptcy Court a motion to reject such unexpired lease or executory contract. Entry of the Confirmation Order by the clerk of the Bankruptcy Court will constitute an order approving such assumptions and rejections, as the case may be, pursuant to section 365(a) of the Bankruptcy Code. 3. Deadline for Filing Rejection Damage Claims ------------------------------------------- Pursuant to the Plan, unless otherwise provided by an order of the Bankruptcy Court entered prior to the Confirmation Date, a proof of claim with respect to any Claim against the Debtor arising from the rejection of any executory contract or unexpired lease pursuant to an order of the Bankruptcy Court must be filed with the Bankruptcy Court within the later of (a) the time period established by the Bankruptcy Court in an order of the Bankruptcy Court approving such rejection, or (b) if no such time period is or was established, thirty (30) days from the date of entry of such order of the Bankruptcy Court approving such rejection. Any Entity that fails to file a proof of claim with respect to its Claim arising from such a rejection within the period set forth above will be forever barred from asserting a Claim against the Debtor, Reorganized Salant, or the property or interests in property of the Debtor or Reorganized Salant. All Allowed Claims arising from the rejection of executory contracts or unexpired leases will be classified as a General Unsecured Claim (Class 6) under the Plan. G. IMPLEMENTATION OF THIS PLAN 1. Vesting of Property ------------------- Except as otherwise provided in the Plan, on the Effective Date, title to all property of the Debtor's estate shall pass to Reorganized Salant free and clear of all Claims, Interests and liens (including, without limitation, all liens securing the Senior Note Claims). Confirmation of the Plan (subject to the occurrence of the Effective Date) will be binding and the Debtor's debts, without in any way limiting the discharge and release provisions contained in Article Twelve of the Plan, will be discharged as provided in section 1141 of the Bankruptcy Code. 2. Transactions on Business Days ----------------------------- Pursuant to the Plan, if the Effective Date or any other date on which a transaction may occur under the Plan will occur on a day that is not a Business Day, the transactions contemplated by the Plan to occur on such day will instead occur on the next succeeding Business Day. 3. Restated Certificate of Incorporation; Restated By-Laws ------------------------------------------------------- Pursuant to the Plan, on the Effective Date or as soon thereafter as is practicable, Reorganized Salant will file with the Secretary of State of the State of Delaware, in accordance with sections 103 and 303 of the DGCL, the Reorganized Salant Certificate of Incorporation and such certificate will be the certificate of incorporation for Reorganized Salant. Pursuant to the Plan, on the Effective Date, the Reorganized Salant By-Laws will become the by-laws of Reorganized Salant. 4. Implementation -------------- Pursuant to the Plan, the Debtor will be authorized to take all necessary steps, and perform all necessary acts, to consummate the terms and conditions of the Plan. Pursuant to the Plan, on or before the Effective Date, the Debtor may file with the Bankruptcy Court such agreements and other documents as may be necessary or appropriate to effectuate or further evidence the terms and conditions of the Plan and the other agreements referred to herein. The Debtor or Reorganized Salant, as the case may be, may, and will, execute such documents and take such other actions as are necessary to effectuate the transactions provided for in the Plan. 5. Issuance of New Securities -------------------------- Pursuant to the Plan, the issuance and distribution of the New Common Stock by Reorganized Salant is authorized and directed without the need for any further corporate action, under applicable law, regulation, order, rule or otherwise. 6. Cancellation of Existing Securities and Agreements -------------------------------------------------- Pursuant to the Plan, on the Effective Date, the Senior Notes, the Old Common Stock, and any rights, options, warrants, calls, subscriptions, or other similar rights or other agreements or commitments, contractual or otherwise, obligating the Debtor to issue, transfer, or sell any shares of Old Common Stock or any other capital stock of the Debtor will be canceled. Except for purposes of effectuating the distributions under the Plan, on the Effective Date, the Indenture will be canceled. 7. Board of Directors of Reorganized Salant ---------------------------------------- Pursuant to the Plan, on the Effective Date, the operation of Reorganized Salant will become the general responsibility of its Board, subject to, and in accordance with, the Reorganized Salant Certificate of Incorporation and the Reorganized Salant By-Laws. The Reorganized Salant Certificate of Incorporation will provide, among other things, for a classified board of directors with each class of directors serving for a three-year term. The initial Board of Reorganized Salant will consist of the individuals identified on the exhibit to the Plan to be filed with the Bankruptcy Court prior to the Disclosure Statement hearing. Such directors will be deemed elected or appointed, as the case may be, pursuant to the Confirmation Order, but will not take office and will not be deemed to be elected or appointed until the occurrence of the Effective Date. Those directors not continuing in office will be deemed removed therefrom as of the Effective Date pursuant to the Confirmation Order. 8. Employee Benefit Plans ---------------------- Pursuant to the Plan and subject to the occurrence of the Effective Date, all employee benefit plans, policies, and programs of the Debtor, and the Debtor's obligations thereunder, will survive confirmation of the Plan, remain unaffected thereby, and not be discharged. Employee benefit plans, policies, and programs will include, without limitation, all savings plans, retirement pension plans, health care plans, disability plans, severance benefit plans, life, accidental death, and dismemberment insurance plans (to the extent not executory contracts assumed under the Plan), but will exclude all of the Debtor's existing equity or equity-based plans. 9. The Stock Award and Incentive Plan ---------------------------------- Pursuant to the Plan, the Stock Award and Incentive Plan will remain in effect after the Effective Date; provided, that, if the Stock Award and Incentive Plan has not previously been approved by the stockholders of the Debtor, the Stock Award and Incentive Plan and any grants made thereunder shall be subject to the subsequent approval of the stockholders of Reorganized Salant. 10. The Restricted Stock Plan ------------------------- Pursuant to the Plan, the Restricted Stock Plan will become effective as of the Effective Date. Grants under the Restricted Stock Plan will not be effective until after the Effective Date. In accordance therewith, on the Effective Date, Reorganized Salant will reserve 2% of the New Common Stock on a fully diluted basis (subject to dilution for shares issued under the Stock Award and Incentive Plan) for issuance to employees of Reorganized Salant that may be granted under the Restricted Stock Plan; provided, that, if the PEI Event does not occur on or prior to the Effective Date then the percentage of New Common Stock that is reserved for issuance under the Restricted Stock Plan shall be adjusted so that the amount reserved will equal 2% of the aggregate distribution to be made to Holders of Senior Note Claims (Class 3) under Section 6.3(a)(ii) of the Plan. The Debtor expects that following the Effective Date, shares reserved under the Restricted Stock Plan will be issued to certain members of senior management of Reorganized Salant. 11. Survival of Indemnification and Contribution Obligations -------------------------------------------------------- Notwithstanding anything to the contrary contained in the Plan, the obligations of the Debtor to indemnify and/or provide contribution to its present or former directors, officers, agents, employees and representatives, pursuant to the Certificate of Incorporation, By-Laws, applicable statutes or contractual obligations, in respect of all past, present and future actions, suits and proceedings against any of such directors, officers, agents, employees and representatives, based upon any act or omission related to service with, for or on behalf of the Debtor, shall not be discharged or impaired by confirmation or consummation of the Plan but shall survive unaffected by the reorganization contemplated by the Plan and shall be treated as, and deemed to be, Allowed General Unsecured Claims that are Unimpaired pursuant to Section 6.5 of the Plan. 12. Listing of New Common Stock; Registration of Securities ------------------------------------------------------- Pursuant to the Plan, Reorganized Salant will use its reasonable best efforts to (i) maintain its status as a reporting company under the Exchange Act and cause, on the Effective Date, the shares of New Common Stock issued hereunder to be listed on the NYSE, or, if Reorganized Salant is unable to have the shares of New Common Stock listed on the NYSE, on another national securities exchange, or, as to the New Common Stock, quoted in the national market system of the National Association of Securities Dealers' Automated Quotation System, (ii) in accordance with the terms of the Registration Rights Agreement, file prior to the Effective Date and have declared effective as soon as possible thereafter a registration statement or registration statements under the Securities Act, for the offering on a continuous or delayed basis in the future of the shares of New Common Stock (the "Shelf Registration"), (iii) cause to be filed with the Commission on the Effective Date an appropriate registration statement under the Exchange Act with respect to the New Common Stock, (iv) keep the Shelf Registration effective for a three-year period, and (v) supplement or make amendments to the Shelf Registration, if required under the Securities Act or by the rules or regulations promulgated thereunder or in accordance with the terms of the Registration Rights Agreement, and have such supplements and amendments declared effective as soon as practicable after filing. In addition, on the Effective Date, Reorganized Salant will enter into the Registration Rights Agreement in the form of Exhibit B attached to the Plan. See Section VI herein, entitled "DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT." 13. The Management Employment Agreements ------------------------------------ Pursuant to the Plan, the Management Employment Agreements will become effective as of the Effective Date. Such agreements will supersede all employment, severance, retention, bonus and other agreements with respect to Messrs. Setola and Kahn in effect prior to the Effective Date. On the Effective Date, all Claims and Administrative Expenses of Messrs. Setola and Kahn against the Debtor under any employment, severance, retention, bonus and other agreements, if any, between such party and the Debtor will be governed by, and completely satisfied in accordance with, the terms and conditions of each of their Management Employment Agreements. 14. Retention and Enforcement of Causes of Action --------------------------------------------- Pursuant to the Plan and pursuant to section 1123(b)(3) of the Bankruptcy Code, Reorganized Salant will retain and will have the exclusive right, in its discretion, to enforce against any Entity any and all Causes of Action of the Debtor, including all Causes of Action of a trustee and debtor-in-possession under the Bankruptcy Code, other than those released or compromised as part of, or under, the Plan. H. PROVISIONS COVERING DISTRIBUTIONS 1. Timing of Distributions Under the Plan -------------------------------------- Pursuant to the Plan, except as otherwise provided therein, payments and distributions in respect of Allowed Claims and Allowed Interests which are required by the Plan to be made on the Effective Date will be made by the Debtor, Reorganized Salant or its designee or, in the case of the distributions to the Noteholders, by Reorganized Salant or its designee (with the assistance of the Indenture Trustee, if necessary), on, or as soon as practicable following, the Effective Date. Distributions of New Common Stock to the Noteholders will be made at the addresses of the registered Holders of the Senior Notes last provided in writing to the Indenture Trustee. Distributions of New Common Stock to the Stockholders will be made at the addresses of the holders of record of the Old Common Stock as of the Distribution Record Date. 2. Allocation of Consideration --------------------------- Pursuant to the Plan, the aggregate consideration to be distributed to the Holders of Allowed Claims in each Class under the Plan will be treated as first satisfying an amount equal to the stated principal amount of the Allowed Claim for such Holders and any remaining consideration as satisfying accrued, but unpaid, interest, if any. 3. Cash Payments ------------- Pursuant to the Plan, cash payments made pursuant to the Plan will be in U.S. dollars. Cash payments of $1,000,000 or more to be made pursuant to the Plan will, to the extent requested in writing no later than ten days after the Confirmation Date, be made by wire transfer from a domestic bank. Cash payments to foreign creditors may be made, at the option of the Debtor or Reorganized Salant, in such funds and by such means as are necessary or customary in a particular foreign jurisdiction. Cash payments made pursuant to the Plan in the form of checks issued by Reorganized Salant shall be null and void if not cashed within 120 days of the date of the issuance thereof. Requests for reissuance of any check shall be made directly to Reorganized Salant or its designee as set forth in the Plan. 4. Payment of Statutory Fees ------------------------- Pursuant to the Plan, all fees payable to the United States Trustee pursuant to 28 U.S.C. ss. 1930 as determined by the Bankruptcy Court at the Confirmation Hearing will be paid by the Debtor on or before the Effective Date. 5. No Interest ----------- Pursuant to the Plan, except with respect to Holders of Unimpaired Claims entitled to interest under applicable non-bankruptcy law or as expressly provided herein, no Holder of an Allowed Claim or Interest will receive interest on the distribution to which such Holder is entitled hereunder, regardless of whether such distribution is made on the Effective Date or thereafter. 6. Fractional Securities --------------------- Pursuant to the Plan, and notwithstanding any other provision of the Plan, only whole numbers of shares of New Common Stock will be issued or transferred, as the case may be, pursuant to the Plan. Reorganized Salant will not distribute any fractional shares of New Common Stock. For purposes of distribution, fractional shares of New Common Stock will be rounded up or down to the nearest share of New Common Stock. 7. Withholding of Taxes -------------------- Pursuant to the Plan, Reorganized Salant will withhold from any property distributed under the Plan any property which must be withheld for taxes payable by the Entity entitled to such property to the extent required by applicable law. As a condition to making any distribution under the Plan, Reorganized Salant or its designee, as the case may be, may request that the Holder of any Allowed Claim provide such Holder's taxpayer identification number and such other certification as may be deemed necessary to comply with applicable tax reporting and withholding laws. 8. Distribution Record Date ------------------------ Pursuant to the Plan, as of the close of business on the Distribution Record Date, the transfer registers for the Senior Notes and Old Common Stock maintained by the Debtor, or its respective agents, will be closed. Reorganized Salant, and its designees and the Indenture Trustee will have no obligation to recognize the transfer of any Senior Notes or Old Common Stock occurring after the Distribution Record Date and will be entitled for all purposes relating to the Plan to recognize and deal only with those Holders of record as of the close of business on the Distribution Record Date. 9. Persons Deemed Holders of Registered Securities ----------------------------------------------- Pursuant to the Plan, except as otherwise provided therein, the Debtor, Reorganized Salant or its designee or, in the case of the Noteholders, the Indenture Trustee, shall be entitled to treat the record holder of a registered security as the Holder of the Claim or Interest in respect thereof for purposes of all notices, payments or other distributions under the Plan unless the Debtor, Reorganized Salant, its designee or the Indenture Trustee, as the case may be, has received written notice specifying the name and address of any new Holder thereof (and the nature and amount of the interest of such new Holder) at least ten (10) Business Days prior to the date of such notice, payment or other distribution. In the event of any dispute regarding the identity of any party entitled to any payment or distribution in respect of any Claim or Interest under the Plan, no payments or distributions will be made in respect of such Claim or Interest until the Bankruptcy Court resolves that dispute pursuant to a Final Order. 10. Surrender of Existing Securities -------------------------------- Pursuant to the Plan, as a condition to receiving any distribution under the Plan, each Holder of a Senior Note, Old Common Stock Interest, or other instrument evidencing a Claim or Interest must surrender such Senior Note, Old Common Stock Interest, or other instrument to Reorganized Salant or its designee. Reorganized Salant appoints the Indenture Trustee under the Indenture as its designee to receive the Senior Notes. Any Holder of a Claim or Interest that fails to (a) surrender such instrument or (b) execute and deliver an affidavit of loss and/or indemnity reasonably satisfactory to Reorganized Salant before the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such Holder's Claim becomes an Allowed Claim, will be deemed to have forfeited all rights, Claims, and/or Interests and may not participate in any distribution under the Plan. 11. Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments ----------------------------------------------------------- Pursuant to the Plan, in addition to any requirements under the Debtor's Certificates of Incorporation or By-laws, any Holder of a Claim or an Interest evidenced by an Instrument that has been lost, stolen, mutilated or destroyed will be required to, in lieu of surrendering such Instrument, deliver to Reorganized Salant or its designee: (a) evidence satisfactory to Reorganized Salant or its designee, as the case may be, of the loss, theft, mutilation or destruction; and (b) such security or indemnity as may be required by Reorganized Salant or its designee, as the case may be, to hold Reorganized Salant and/or its designee, as applicable, harmless from any damages, liabilities or costs incurred in treating such individual as a Holder of an Instrument. Upon compliance with the foregoing provision of the Plan, the Holder of a Claim or Interest evidenced by any such lost, stolen, mutilated or destroyed Instrument will, for all purposes under the Plan, be deemed to have surrendered such Instrument. 12. Undeliverable or Unclaimed Distributions ---------------------------------------- Pursuant to the Plan, any Entity that is entitled to receive a Cash distribution under the Plan but that fails to cash a check within 120 days of its issuance will be entitled to receive a reissued check from Reorganized Salant for the amount of the original check, without any interest, if such Entity requests Reorganized Salant or its designee to reissue such check and provides Reorganized Salant or its designee, as the case may be, with such documentation as Reorganized Salant or its designee requests to verify that such Entity is entitled to such check, prior to the second anniversary of the Effective Date. If an Entity fails to cash a check within 120 days of its issuance and fails to request reissuance of such check prior to the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such Holder's Claim becomes an Allowed Claim, such Entity will not be entitled to receive any distribution under the Plan. If the distribution to any Holder of an Allowed Claim or Allowed Interest is returned to Reorganized Salant or its designee as undeliverable, no further distributions will be made to such Holder unless and until Reorganized Salant or its designee is notified in writing of such Holder's then-current address. Undeliverable distributions will remain in the possession of Reorganized Salant or its designee pursuant to the Plan until such time as a distribution becomes deliverable. All claims for undeliverable distributions will have to be made on or before the later to occur of (i) the second anniversary of the Effective Date and (ii) six months following the date such Holder's Claim or Interest becomes an Allowed Claim or Allowed Interest. After such date, all unclaimed property will revert to Reorganized Salant and the claim of any Holder or successor to such Holder with respect to such property will be discharged and forever barred notwithstanding any federal or state escheat laws to the contrary. I. PROCEDURES FOR RESOLVING DISPUTED CLAIMS 1. Objections to Claims -------------------- Pursuant to the Plan, only the Debtor and Reorganized Salant will have the authority to file objections to Claims after the Effective Date. Subject to an order of the Bankruptcy Court providing otherwise, Reorganized Salant may object to a Claim by filing an objection with the Bankruptcy Court and serving such objection upon the Holder of such Claim not later than one hundred and twenty (120) days after the Effective Date or one hundred and twenty (120) days after the filing of the proof of such Claim, whichever is later, or such other date determined by the Bankruptcy Court upon motion to the Bankruptcy Court without further notice or hearing. Notwithstanding the foregoing, neither the Debtor nor Reorganized Salant shall object to the allowance of the Senior Note Claims as described in Section 6.3(c) of the Plan. 2. Procedure --------- Pursuant to the Plan, unless otherwise ordered by the Bankruptcy Court or agreed to by written stipulation of the Debtor or Reorganized Salant, or until an objection thereto by the Debtor or by Reorganized Salant is withdrawn, the Debtor or Reorganized Salant will litigate the merits of each Disputed Claim until determined by a Final Order; provided, however, that, (a) prior to the Effective Date, the Debtor, subject to the approval of the Bankruptcy Court, and (b) after the Effective Date, Reorganized Salant, subject to the approval of the Bankruptcy Court, may compromise and settle any objection to any Claim. 3. Payments and Distributions With Respect to Disputed Claims ------------------------------------------ Pursuant to the Plan, no payments or distributions will be made in respect of a Disputed Claim until such Disputed Claim becomes an Allowed Claim. 4. Timing of Payments and Distributions With Respect to Disputed Claims ----------------------------------------- Pursuant to the Plan, and subject to the provisions of the Plan, payments and distributions with respect to each Disputed Claim that becomes an Allowed Claim that would have otherwise been made had the Disputed Claim been an Allowed Claim on the Effective Date will be made within thirty (30) days after the date that such Disputed Claim becomes an Allowed Claim. Holders of Disputed Claims that become Allowed Claims will be bound, obligated and governed in all respects by the provisions of the Plan. 5. Individual Holder Proofs of Interest ------------------------------------ Pursuant to the Plan, individual Holders of Allowed Old Common Stock Interests are not required to file proofs of such Interests unless they disagree with the number of shares set forth on the Debtor's stock register. J. DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS 1. Discharge of All Claims and Interests and Releases -------------------------------------------------- Pursuant to the Plan and except as otherwise specifically provided by the Plan, the confirmation of the Plan (subject to the occurrence of the Effective Date) will discharge and release the Debtor, Reorganized Salant, their successors and assigns and their respective assets and properties from any debt, charge, Cause of Action, liability, encumbrances, security interest, Claim, Interest, or other cause of action of any kind, nature or description (including, but not limited to, any claim of successor liability) that arose before the Confirmation Date, and any debt of the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not a proof of Claim is filed or is deemed filed, whether or not such Claim is Allowed, and whether or not the Holder of such Claim has accepted the Plan. Furthermore, except as otherwise specifically provided by the Plan, the distributions and rights that are provided in the Plan to Class 3, Class 5 and Class 7 will be in complete satisfaction, discharge and release, effective as of the Effective Date (i) of all Claims and Causes of Action against, liabilities of, liens on, charges, encumbrances, security interests, obligations of and Interests in the Debtor, Reorganized Salant, or the direct or indirect assets and properties of the Debtor or Reorganized Salant, whether known or unknown, and (ii) all Causes of Action, whether known or unknown, either directly or derivatively through the Debtor or Reorganized Salant, against successors and assigns of the Debtor, present and former Affiliates of the Debtor, and its partners, directors, officers, agents, attorneys, advisors, financial advisors, investment bankers, independent accountants, employees of the Debtor and its Affiliates and any Affiliate of any of the foregoing, and Magten, and its attorneys, advisors, and financial advisors, based on the same subject matter as any Claim or Interest, or based on any act or omission, transaction or other activity or security, instrument or other agreement of any kind or nature occurring, arising or existing prior to the Effective Date that was or could have been the subject of any Claim or Interest, in each case regardless of whether a proof of Claim or Interest was filed, whether or not Allowed and whether or not the Holder of the Claim or Interest has voted to accept or reject the Plan. In addition, except as otherwise specifically provided by the Plan, any Holder of a Claim in Class 3, Class 5 or Class 7 accepting any distribution pursuant to the Plan will be presumed conclusively to have released the Debtor, Reorganized Salant, successors and assigns of the Debtor, the present and former Affiliates of the Debtor, directors, officers, agents, attorneys, independent accountants, advisors, financial advisors, investment bankers and employees of the Debtor and its Affiliates, and any Entity claimed to be liable derivatively through any of the foregoing, from any Cause of Action based on the same subject matter as the Claim on which the distribution is received. The release described in the preceding sentence shall be enforceable as a matter of contract against any Entity that accepts any distribution pursuant to the Plan. All injunctions or stays entered in the Chapter 11 Case and existing immediately prior to the Confirmation Date will remain in full force and effect until the Effective Date. 2. Injunction ---------- Pursuant to the Plan, the satisfaction, release and discharge provisions of the Plan, will act as an injunction against any Entity commencing or continuing any action, employment of process, or act to collect, offset or recover any Claim or Cause of Action satisfied, released or discharged under the Plan. The injunction, discharge and releases provisions of the Plan will apply regardless of whether or not a proof of Claim or Interest based on any Claim, debt, liability or Interests is filed or whether or not a Claim or Interest based on such Claim, debt, liability or Interest is Allowed, or whether or not such Entity voted to accept or reject the Plan. 3. Exculpation ----------- Pursuant to the Plan, in consideration of the distributions under the Plan, upon the Effective Date, each Holder of a Claim or Interest will be deemed to have released the Debtor and its directors, officers, agents, attorneys, independent accountants, advisors, financial advisors, investment bankers and employees (as applicable) employed by the Debtor from and after the Filing Date and Magten and its attorneys, advisors, and financial advisors employed by Magten from and after the Filing Date, from any and all Causes of Action (other than the right to enforce the Debtor's obligations under the Plan and the right to pursue a Claim based on any willful misconduct) arising out of actions or omissions during the administration of the Debtor's estate. 4. Guaranties and Claims of Subordination -------------------------------------- (a) Guaranties Pursuant to the Plan, the classification and the manner of satisfying all Claims under the Plan takes into consideration the possible existence of any alleged guaranties by the Debtor of obligations of any Entity or Entities, and that the Debtor may be a joint obligor with another Entity or Entities with respect to the same obligation. All Claims against the Debtor based upon any such guaranties will be satisfied, discharged and released in the manner provided in the Plan and the Holders of Claims will be entitled to only one distribution with respect to any given obligation of the Debtor. (b) Claims of Subordination Pursuant to the Plan, except as expressly provided for in the Plan, to the fullest extent permitted by applicable law, all Claims against and Interests in the Debtor, and all rights and Claims between or among Holders of Claims and Interests relating in any manner whatsoever to Claims against or Interests in the Debtor, based on any contractual, legal or equitable subordination rights, will be terminated on the Effective Date and discharged in the manner provided in the Plan, and all such Claims, Interests and rights so based and all such contractual, legal and equitable subordination rights to which any Entity may be entitled will be irrevocably waived by the acceptance by such Entity (or, unless the Confirmation Order provides otherwise, the Class of which such Entity is a member) of the Plan or of any distribution pursuant to the Plan. Except as otherwise provided in the Plan and to the fullest extent permitted by applicable law, the rights afforded and the distributions that are made in respect of any Claims or Interests hereunder will not be subject to levy, garnishment, attachment or like legal process by any Holder of a Claim or Interest by reason of any contractual, legal or equitable subordination rights, so that, notwithstanding any such contractual, legal or equitable subordination, each Holder of a Claim or Interest will have and receive the benefit of the rights and distributions set forth in the Plan. Pursuant to the Plan, and pursuant to Bankruptcy Rule 9019 and any applicable state law and as consideration for the distributions and other benefits provided under the Plan, the provisions regarding Claims of subordination of the Plan will constitute a good faith compromise and settlement of any Causes of Action relating to the matters described in such provisions of the Plan which could be brought by any Holder of a Claim or Interest against or involving another Holder of a Claim or Interest, which compromise and settlement is in the best interests of Holders of Claims and Interests and is fair, equitable and reasonable. This settlement will be approved by the Bankruptcy Court as a settlement of all such Causes of Action. Entry of the Confirmation Order will constitute the Bankruptcy Court's approval of this settlement pursuant to Bankruptcy Rule 9019 and its finding that this is a good faith settlement pursuant to any applicable state law, including, without limitation, the laws of the States of New York and Delaware, given and made after due notice and opportunity for hearing, and will bar any such Cause of Action by any Holder of a Claim or Interest against or involving another Holder of a Claim or Interest. K. CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE 1. Conditions Precedent to Entry of the Confirmation Order ------------------------------------------------------- Pursuant to the Plan, the following condition must occur and be satisfied or waived in accordance with the Plan on or before the Confirmation Date for the Plan to be confirmed on the Confirmation Date: the Confirmation Order is in form and substance reasonably acceptable to the Debtor, Magten and Apollo. 2. Conditions Precedent to the Effective Date ------------------------------------------ Pursuant to the Plan, the following conditions must occur and be satisfied or waived by the Debtor on or before the Effective Date for the Plan to become effective on the Effective Date. 1. Final Order. The Confirmation Order will have become a Final Order; 2. Working Capital Facility. Reorganized Salant will have executed an agreement for a working capital facility on terms reasonably satisfactory to Apollo and Magten; 3. Certificate of Incorporation. The Reorganized Salant Certificate of Incorporation, in the form of Exhibit E to the Plan, will have been filed with the Secretary of State of the State of Delaware, in accordance with Sections 103 and 303 of the DGCL; 4. PBGC Agreement. The PBGC and Reorganized Salant will have entered into the PBGC Agreement and the PBGC Agreement will have been approved by the Bankruptcy Court and consummated; and 5. Authorizations, Consents and Approvals. All authorizations, consents and regulatory approvals required (if any) in connection with the Plan's effectiveness will have been obtained. 3. Waiver of Conditions -------------------- Pursuant to the Plan, with the prior written consent (which consent will not be unreasonably withheld) of Magten and Apollo, but not otherwise, the Debtor may waive one or more of the conditions precedent to the confirmation or effectiveness of the Plan set forth in the Plan. 4. Effect of Failure of Conditions ------------------------------- Pursuant to the Plan, if all the conditions to effectiveness and the occurrence of the Effective Date have not been satisfied or duly waived on or before the first Business Day that is more than 179 days after the date the Bankruptcy Court enters an order confirming the Plan, or by such later date as is proposed and approved, after notice and a hearing, by the Bankruptcy Court, then upon motion by the Debtor or any party in interest made before the time that all of the conditions have been satisfied or duly waived, the order confirming the Plan may be vacated by the Bankruptcy Court; provided, however, that notwithstanding the filing of such a motion, the order confirming the Plan shall not be vacated if each of the conditions to consummation is either satisfied or duly waived before the Bankruptcy Court enters an order granting the relief requested in such motion. If the order confirming the Plan is vacated pursuant to the foregoing provision of the Plan, the Plan will be null and void in all respects, and nothing contained in the Plan will (a) constitute a waiver or release of any claims against or equity interests in the Debtor or (b) prejudice in any manner the rights of the Holder of any claim or equity interest in the Debtor. L. MISCELLANEOUS PROVISIONS 1. Bankruptcy Court to Retain Jurisdiction --------------------------------------- Pursuant to the Plan, the business and assets of the Debtor will remain subject to the jurisdiction of the Bankruptcy Court until the Effective Date. From and after the Effective Date, the Bankruptcy Court will retain and have exclusive jurisdiction of all matters arising out of, and related to the Chapter 11 Case or the Plan pursuant to, and for purposes of, subsection 105(a) and section 1142 of the Bankruptcy Code and for, among other things, the following purposes: (a) to determine any and all disputes relating to Claims and Interests and the allowance and amount thereof; (b) to determine any and all disputes among creditors with respect to their Claims; (c) to consider and allow any and all applications for compensation for professional services rendered and disbursements incurred in connection therewith; (d) to determine any and all applications, motions, adversary proceedings and contested or litigated matters pending on the Effective Date and arising in or related to the Chapter 11 Case or this Plan; (e) to remedy any defect or omission or reconcile any inconsistency in the Confirmation Order; (f) to enforce the provisions of the Plan relating to the distributions to be made hereunder; (g) to issue such orders, consistent with section 1142 of the Bankruptcy Code, as may be necessary to effectuate the consummation and full and complete implementation of the Plan; (h) to enforce and interpret any provisions of the Plan; (i) to determine such other matters as may be set forth in the Confirmation Order or that may arise in connection with the implementation of the Plan; (j) to determine the amounts allowable as compensation or reimbursement of expenses pursuant to section 503(b) of the Bankruptcy Code; (k) to hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan and the Related Documents; (l) to hear and determine any issue for which the Plan or any Related Document requires a Final Order of the Bankruptcy Court; (m) to hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code; (n) to hear and determine any issue related to the composition of the initial Board of Reorganized Salant; (o) to hear any other matter not inconsistent with the Bankruptcy Code; and (p) to enter a Final Decree closing the Chapter 11 Case. 2. Binding Effect of this Plan --------------------------- Pursuant to the Plan, the provisions of the Plan will be binding upon and inure to the benefit of the Debtor, Reorganized Salant, Magten, Apollo, any Holder of a Claim or Interest, their respective predecessors, successors, assigns, agents, officers, managers and directors and any other Entity affected by the Plan. 3. Nonvoting Stock --------------- Pursuant to the Plan, and in accordance with section 1123(a)(6) of the Bankruptcy Code, the Reorganized Salant Certificate of Incorporation will contain a provision prohibiting the issuance of nonvoting equity securities by Reorganized Salant for a period of one year following the Effective Date. 4. Authorization of Corporate Action --------------------------------- Pursuant to the Plan, the entry of the Confirmation Order will constitute a direction and authorization to and of the Debtor and Reorganized Salant to take or cause to be taken any action necessary or appropriate to consummate the provisions of the Plan and the Related Documents prior to and through the Effective Date (including, without limitation, the filing of the Reorganized Salant Certificate of Incorporation), and all such actions taken or caused to be taken will be deemed to have been authorized and approved by the Bankruptcy Code. 5. Retiree Benefits ---------------- Pursuant to the Plan, on and after the Effective Date, to the extent required by section 1129(a)(13) of the Bankruptcy Code, Reorganized Salant will continue to pay all retiree benefits (if any), as the term "retiree benefits" is defined in section 1114(a) of the Bankruptcy Code, maintained or established by the Debtor prior to the Confirmation Date. 6. Withdrawal of the Plan ---------------------- Pursuant to the Plan, the Debtor reserves the right, at any time prior to the entry of the Confirmation Order, to revoke or withdraw the Plan. If the Debtor revokes or withdraws the Plan, if the Confirmation Date does not occur, or if the Effective Date does not occur then (i) the Plan will be deemed null and void and (ii) the Plan will be of no effect and will be deemed vacated, and the Chapter 11 Case will continue as if the Plan and the Disclosure Statement had never been filed and, in such event, the rights of any Holder of a Claim or Interest will not be affected nor will such Holder be bound by, for purposes of illustration only, and not limitation, (a) the Plan, (b) any statement, admission, commitment, valuation or representation contained in the Plan, this Disclosure Statement or the Related Documents or (c) the classification and proposed treatment (including any allowance) of any Claim in the Plan. 7. Dissolution of Committees ------------------------- Pursuant to the Plan, on the Effective Date, any committees appointed in the Chapter 11 Case pursuant to section 1102 of the Bankruptcy Code will cease to exist and its members and employees or agents (including, without limitation, attorneys, investment bankers, financial advisors, accountants and other professionals) shall be released and discharged from further duties, responsibilities and obligations relating to and arising from and in connection with this Chapter 11 Case. 8. Fees, Costs and Expenses of Indenture Trustee --------------------------------------------- Pursuant to the Plan, and subject to applicable provisions of the Bankruptcy Code and Bankruptcy Court authorization and approval to the extent necessary, the Indenture Trustee will be entitled to payment for its reasonable fees, costs and expenses as provided for pursuant to the Indenture; provided, however, that if the Debtor or Reorganized Salant decides, in its sole discretion, that the fees, costs and expenses of the Indenture Trustee are reasonable, the Debtor or Reorganized Salant may pay the same without application to or further order of the Bankruptcy Court unless the Confirmation Order provides otherwise. 9. Amendments and Modifications to the Plan ---------------------------------------- Pursuant to the Plan, the Plan may be altered, amended or modified by the Debtor, after consultation with Magten, before or after the Confirmation Date, as provided in section 1127 of the Bankruptcy Code. 10. Section 1125(e) of the Bankruptcy Code -------------------------------------- The Plan provides that upon confirmation of the Plan, (i) the Debtor will be deemed to have solicited acceptances of the Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code and (ii) the Debtor, Magten, Apollo, and each of the members of the Creditors' Committee, if any (and each of their respective affiliates, agents, directors, officers, employees, advisors, and attorneys) will be deemed to have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in the offer, issuance, sale, and purchase of the securities offered and sold under the Plan, and therefore will have no liability for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale, or purchase of the securities offered and sold under the Plan. Pursuant to the Plan, on the Effective Date or as soon thereafter as is practicable, Reorganized Salant will file with the Secretary of State of the State of Delaware, in accordance with Sections 103 and 303 of the DGCL, the Reorganized Salant Certificate of Incorporation and such certificate will be the certificate of incorporation for Reorganized Salant. Pursuant to the Plan, on the Effective Date, the Reorganized Salant By-Laws will become the by-laws of Reorganized Salant. VI. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT On the Effective Date, Reorganized Salant will enter into a registration rights agreement (the "Registration Rights Agreement"), in the form of Exhibit A to the Plan, with the holders of the New Common Stock. Under the terms and conditions of the Registration Rights Agreement, Reorganized Salant must use reasonable best efforts to register the New Common Stock pursuant to a "shelf registration," and to keep such shelf registration continuously effective for three years (subject to a two-year extension of such period to the extent that a registration statement on Form S-3 is available to Reorganized Salant at the end of such initial three-year period), subject to the right to suspend the use of the prospectus constituting part of such registration statement for designated corporate purposes. Thereafter, holders who did not resell New Common Stock during the three-year period, but whose resales would have been covered by the registration statement, will be entitled to exercise, over a two-year period, up to three demand registrations and will be entitled to piggyback registration rights as well during such period. In the event that the shelf registration does not become effective within one hundred days after the date that the registration statement is filed, holders of the New Common Stock whose resales would have been covered by the registration statement will be entitled to exercise, over a two-year period, up to four demand registrations and will be entitled to piggyback registration rights as well during such period. VII. DESCRIPTION OF STOCK AWARD AND INCENTIVE PLAN On the Effective Date, pursuant to the Plan, the Board will be deemed to have adopted the Stock Award and Incentive Plan, which provides for the grant of various types of stock-based compensation to directors, officers and employees of Salant and its subsidiaries. The Stock Award and Incentive Plan and any grants thereunder are subject to subsequent approval by Salant's stockholders. The Stock Award and Incentive Plan is designed with the intention that compensation resulting from options, stock appreciation rights and certain other awards may qualify as "performance-based compensation" under Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the "Tax Code"), and to comply with the conditions for exemption from the short-swing profit recovery rules under Rule 16b-3 ("Rule 16b-3") of the Exchange Act of 1934, as amended (the "Exchange Act"). The summary that follows is not intended to be complete and is qualified in its entirety by the actual terms of the Stock Award and Incentive Plan, a copy of which is attached to the Plan as Exhibit B. Capitalized terms used but not otherwise defined in the summary that follows shall have the respective meanings ascribed to them in the Stock Award and Incentive Plan. A. PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN The purpose of the Stock Award and Incentive Plan is to strengthen Salant by providing an incentive to its directors, officers and employees and thereby encouraging them to devote their abilities and industry to the success of Salant's business enterprise. B. ELIGIBILITY Awards may be made by the Awards Committee (as defined below), in its discretion, to directors, officers and employees of Salant and its subsidiaries. Directors of Salant who are not also employees of Salant or any of its subsidiaries are entitled to automatic option grants as provided in the Stock Award and Incentive Plan and described below. C. PLAN ADMINISTRATION AND SHARES SUBJECT TO THE STOCK AWARD AND INCENTIVE PLAN [1,000,000] shares of New Common Stock (subject to adjustment as provided in the Stock Award and Incentive Plan), representing, on a fully diluted basis, 10% of the aggregate shares of New Common Stock to be issued and reserved on the Effective Date, will be reserved for Awards to be granted under the Stock Award and Incentive Plan. These Awards will be granted (subject to stockholder approval) by a committee of the Board of Salant from and after the Effective Date (the "Awards Committee") comprised solely of two or more "non-employee directors" within the meaning of Rule 16b-3(b)(3) (or any successor rule) of the Exchange Act, and unless otherwise determined by the Board of Salant, "outside directors" within the meaning of Treasury Regulation Section 1.162-27(e)(3) and Section 162(m) of the Tax Code, which will administer the Stock Award and Incentive Plan. No individual may be granted Options or Awards with respect to more than a total of 500,000 shares during any one calendar year period under the Stock Award and Incentive Plan. In addition, the maximum dollar amount of cash or the Fair Market Value of shares of New Common Stock that any individual may receive in any calendar year in respect of Performance Units denominated in dollars may not exceed $3,000,000. Shares of New Common Stock subject to the Stock Award and Incentive Plan may either be authorized and unissued shares or previously issued shares acquired or to be acquired by Salant and held in its treasury. Subject to the terms of the Stock Award and Incentive Plan, the Awards Committee has the right to grant Awards to eligible participants and to determine the terms and conditions of Agreements evidencing Awards, including the vesting schedule and exercise price of such Awards. Pursuant to the Stock Award and Incentive Plan, if a Change in Control (as defined in the Stock Award and Incentive Plan) occurs all Stock Appreciation Rights shall become immediately and fully exercisable. Upon the occurrence of a Change in Capitalization, the Stock Award and Incentive Plan permits the Awards Committee to make appropriate adjustments to the type and aggregate number of shares subject to the Stock Award and Incentive Plan or any Award, and to the purchase or exercise price to be paid or the amount to be received in connection with the realization of any Award. D. AWARDS Stock Options. Stock options granted pursuant to the Stock Award and Incentive Plan may either be incentive stock options within the meaning of Section 422 of the Tax Code ("ISOs"), or non-qualified stock options ("NQSOs") as determined by the Awards Committee. The exercise price for each share of New Common Stock subject to an option will be determined by the Awards Committee at the time of grant and set forth in an Agreement, provided that the exercise price may not be less than the Fair Market Value of the New Common Stock on the date the option is granted. The option exercise price may be paid in the discretion of the Awards Committee on the date of the grant, in cash or by the delivery of shares then owned by the participant or as otherwise determined by the Awards Committee. No option will be exercisable later than ten years after the date on which it is granted, provided that the Awards Committee may (and in the case of a Formula Option shall) provide that an NQSO may, upon the death of a participant, be exercised for up to one year following the date of such participant's death, even if such period extends beyond ten years from the date such option is granted. ISOs may not be granted to any participant who owns stock possessing (after application of the attribution rules of Section 424(d) of the Tax Code) more than 10% of the total combined voting power of all outstanding classes of stock of Salant, unless the option price is at least 110% of the Fair Market Value at the date of grant and the option is not exercisable after five years from the date of grant. The Stock Award and Incentive Plan provides for automatic option grants ("Formula Options") to certain directors of Salant who are not also employees of Salant and its subsidiaries. Such directors will be granted initial Formula Options in respect of [ ] Shares (on the Effective Date or, if applicable, when becoming a director for the first time) as well as annual Formula Options in respect of [ ] shares at each subsequent annual stockholders meeting of Salant. Formula Options will be granted with per share exercise prices equal to the Fair Market Value on the date of grant, with ten year terms and subject to the vesting schedule set forth in the Stock Award and Incentive Plan. Stock Appreciation Rights. Under the Stock Award and Incentive Plan, a stock appreciation right in respect of a share of New Common Stock represents the right to receive payment in cash and/or New Common Stock in an amount equal to the excess of the Fair Market Value of such share of New Common Stock on the date the right is exercised over the Fair Market Value on the date the right is granted. The Awards Committee may grant stock appreciation rights to the holders of any options under the Stock Award and Incentive Plan. Such rights may also be granted independently of options. Restricted Stock. The Awards Committee will determine the terms and conditions applicable to Restricted Stock at the time of grant, including the price, if any, to be paid by the grantee for the Restricted Stock, the restrictions placed on the shares, and the time or times when the restrictions will lapse. In addition, at the time of grant, the Awards Committee, in its discretion, may decide: (i) whether any dividends will be held for the account of the grantee or deferred until the restrictions thereon lapse, (ii) whether any deferred dividends will be reinvested in additional shares of New Common Stock or held in cash, (iii) whether interest will be accrued on any dividends not reinvested in additional shares of Restricted Stock and (iv) whether any stock dividends paid will be subject to the restrictions applicable to the Restricted Stock Award. Performance Units and Performance Shares. Performance Units and Performance Shares will be awarded as the Awards Committee may determine, and the vesting of Performance Units and Performance Shares will be based upon Salant's attainment within an established period of specified performance objectives to be determined by the Awards Committee. Upon granting Performance Units or Performance Shares, the Awards Committee may provide, to the extent permitted under Section 162(m) of the Tax Code, the manner in which performance will be measured against the performance objectives, or may adjust the performance objectives to reflect the impact of specified corporate transactions, accounting or tax law changes, and other similar extraordinary and nonrecurring events. Performance Units may be denominated in dollars or in Shares, and payments in respect of Performance Units will be made in cash, Shares, shares of Restricted Stock or any combination of the foregoing, as determined by the Awards Committee. The Agreement evidencing Performance Shares or Performance Units will set forth the terms and conditions thereof. Unless otherwise determined by the Awards Committee at the time of grant, such awards that can be so granted, may be granted in a manner which is intended to qualify for the performance based compensation exemption of Section 162(m). In such event, either the granting or vesting of such awards will be based upon one or more of the following factors: earnings per share, New Common Stock share price, pre-tax profit, net earnings, return on stockholders' equity or assets or any combination of the foregoing. E. CHANGE IN CONTROL In the event of a Change in Control, the vesting of options and stock appreciation rights will accelerate and, to the extent provided by the Awards Committee in an Agreement, the restrictions on Restricted Stock will lapse and Performance Units and Performance Shares will vest. F. TRANSFERABILITY Awards under the Stock Award and Incentive Plan will not be transferable except by will or the laws of descent or distribution. Awards will only be exercisable during the lifetime of a participant by such participant only. However, at the discretion of the Awards Committee, any option, other than an ISO, may permit the transfer of such option by a participant to certain family members or trusts for the benefit of such family members by such persons. G. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain relevant federal income tax effects applicable to certain awards granted under the stock award and incentive plan. ISOs. In general, a recipient will not recognize income upon the grant or exercise of an ISO, and Salant will not be entitled to any business expense deduction with respect to the grant or exercise of an ISO. However, upon the exercise of an ISO, the excess of the fair market value on the date of exercise of the shares received over the exercise price of the option will be treated as an adjustment to alternative minimum taxable income. In order for the exercise of an ISO to qualify as an ISO, a recipient generally must be an employee of Salant or a subsidiary (within the meaning of Section 422 of the Tax Code) from the date the ISO is granted through the date three months before the date of exercise (one year preceding the date of exercise in the case of a recipient whose employment is terminated due to disability). The employment requirement does not apply where a recipient's employment is terminated due to his or her death. If a recipient has held the shares acquired upon exercise of an ISO for at least two years after the date of grant and for at least one year after the date of exercise, when the recipient disposes of the shares, the difference, if any, between the sales price of the shares and the exercise price of the option will be treated as long-term capital gain or loss, provided that any gain will be subject to reduced rates of tax if the shares were held for more than twelve months and will be subject to further reduced rates if the shares were held for more than eighteen months. If a recipient disposes of the shares prior to satisfying these holding period requirements (a "Disqualifying Disposition"), the recipient will recognize ordinary income (treated as compensation) at the time of the Disqualifying Disposition, generally in an amount equal to the excess of the fair market value of the shares at the time the option was exercised over the exercise price of the option. The balance of the gain realized, if any, will be short-term or long-term capital gain, depending upon whether the shares have been held for at least twelve months after the date of exercise. If the recipient sells the shares in a Disqualifying Disposition at a price below the fair market value of the shares at the time the option was exercised, the amount of ordinary income (treated as compensation) will be limited to the amount realized on the sale over the exercise price of the option. In general, Salant will be allowed a business expense deduction to the extent a recipient recognizes ordinary income. NQSOs. In general, a recipient who receives a NQSO will not recognize income at the time of the grant of the option. Upon exercise of a NQSO, a recipient will recognize ordinary income (treated as compensation) in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price of the option. The basis in shares acquired upon exercise of a NQSO will equal the fair market value of such shares at the time of exercise, and the holding period of the shares (for capital gain purposes) will begin on the date of exercise. In general, if Salant complies with the applicable income reporting requirements, it will be entitled to a business expense deduction in the same amount and at the same time as the recipient recognizes ordinary income. In the event of a sale of the shares received upon the exercise of a NQSO, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss, provided that any gain will be subject to reduced rates of tax if the shares were held for more than twelve months and will be subject to further reduced rates if the shares were held for more than eighteen months. The foregoing discussion assumes that at the time of exercise, the sale of the shares at a profit would not subject a recipient to liability under Section 16(b) of the Exchange Act. Special rules may apply with respect to persons who may be subject to Section 16(b) of the Exchange Act. Participants who are or may become subject to Section 16 of the Exchange Act should consult with their own tax advisors in this regard. Excise Taxes. Under certain circumstances, the accelerated vesting or exercise of options in connection with a change in control of Salant might be deemed an "excess parachute payment" for purposes of the golden parachute tax provisions of Section 280G of the Tax Code. To the extent it is so considered, a recipient may be subject to a 20% excise tax and Salant may be denied a tax deduction. Section 162(m) Limitation. Section 162(m) generally disallows a federal income tax deduction to any publicly held corporation for compensation paid in excess of $1 million in any taxable year to each of the chief executive officer and the four other most highly compensated executive officers (other than the chief executive officer) who are employed by such corporation on the last day of such corporation's taxable year. Salant has structured the Stock Award and Incentive Plan with the intention that compensation resulting from options, stock appreciation rights, Performance Shares and Performance Units may qualify as "performance-based compensation" and, if so qualified, would be deductible. The approval of the Stock Award and Incentive Plan by the Stockholders may be required by the applicable rules of the NYSE. H. TREATMENT OF OLD OPTIONS Pursuant to the Plan, all Old Options held by directors, officers and employees of Salant to purchase shares of Old Common Stock outstanding as of the commencement of the Chapter 11 Case granted under the Old Plans will be terminated and of no further force or effect as of the consummation of the Plan. In addition, each of the Old Plans shall be terminated and of no further force or effect as of the consummation of the Plan. VIII. CHANGES IN MANAGEMENT As of the Effective Date, the directors identified on Exhibit _ to the Plan will serve as the initial members of the Board of Reorganized Salant. Such directors shall be elected or appointed, as the case may be, pursuant to the Confirmation Order, but shall not take office and shall not be deemed to be elected or appointed until the occurrence of the Effective Date. Those directors and officers of the Debtor not continuing in office shall be deemed removed therefrom as of the Effective Date pursuant to the Confirmation Order. As noted above, in connection with the Debtor's efforts to effectuate the consummation of the Plan, the Debtor intends to sell or otherwise dispose of all of its business, other than its Perry Ellis business. In that connection, effective as of the Filing Date, Salant has appointed Michael Setola, the former President of Salant's Perry Ellis division, to serve as the Chief Executive Officer and Chairman of the Board of the Debtor. Jerald Politzer, Salant's former Chairman of the Board and Chief Executive Officer, will continue as a member of Salant's Board and will be employed by Salant as a consultant to assist in the transition of Salant's business to a stand-alone Perry Ellis business. In addition, effective as of the Filing Date, Todd Kahn, Salant's former Executive Vice President and General Counsel, will become Salant's Chief Operating Officer and will continue to be General Counsel. During the Chapter 11 Case, the Debtor expects that Messrs. Setola and Kahn will continue their employment with Salant under the same terms and conditions of their existing employment arrangements other than the change in titles and duties referred to above. Effective as of the Effective Date, the Debtor intends to enter into new employment agreements with Mr. Setola (the "Setola Agreement") and Todd Kahn (the "Kahn Agreement"). Copies of the Setola Agreement and the Kahn Agreement will be filed with the Bankruptcy Court prior to the Disclosure Statement hearing. The principal terms and conditions of the Setola Agreement and the Kahn Agreement are described below. In addition, on or prior to the Effective Date, the Debtor expects that Awadhesh Sinha, the current Executive Vice President of Salant's Perry Ellis Division, will become the Chief Financial Officer of the Debtor and, from and after the Effective Date, of the Reorganized Debtor. As a consequence, the Debtor expects that on or prior to the Effective Date, Mr. Philip Franzel, the current Chief Financial Officer of the Debtor, will cease to be employed by the Debtor. A. EMPLOYMENT OF MICHAEL SETOLA Pursuant to the terms of the Setola Agreement, Mr. Setola will serve as the Chairman and Chief Executive Officer of Reorganized Salant. The Setola Agreement provides for a term of employment of three years, commencing on the Effective Date and supercedes any existing employment agreement between Mr. Setola and the Debtor. Base salary for Mr. Setola will be $650,000 for year one; $700,000 for year two; and $750,000 for year three. The Setola Agreement also provides for the payment of an annual bonus and fringe benefits to Mr. Setola, subject to certain terms and conditions. In addition, the Setola Agreement contains provisions with respect to restricted stock and stock option plans. B. EMPLOYMENT OF TODD KAHN Pursuant to the terms of the Kahn Agreement, Mr. Kahn will serve as the Chief Operating Officer and General Counsel of Reorganized Salant until the expiration of the term of his employment under the Kahn Agreement. The Kahn Agreement provides for a term of employment of one year, commencing on January 1, 1999, and will supercede any existing employment agreement between Mr. Kahn and the Debtor. Given that the term of the Kahn Agreement will, under the terms thereof, begin prior to the Effective Date but the Kahn Agreement will not become effective until the Effective Date, the Kahn Agreement will have retroactive effect to January 1, 1999. Base salary for Mr. Kahn will be $25,000 per month. The Kahn Agreement also provides for a bonus in the amount of $25,000 per month from February 15, 1999 through December 31, 1999, payable as follows: for the period from February 15, 1999 through March 31, 1999, payable on February 15, 1999 in advance; and for the period from April 1, 1999 through December 31, 1999, payable quarterly in advance. Notwithstanding the foregoing, upon the later to occur of (i) the Debtor's emergence from Chapter 11, and (ii) the wind-down and/or sale of all of the Debtor's non-Perry Ellis businesses, Mr. Kahn will receive a lump sum payment of $262,500 less any aggregate bonus payments actually made to him prior to that event. In addition, the Kahn Agreement will provide for the payment of a $150,000 retention bonus to Mr. Kahn on February 15, 1999. If Mr. Kahn is terminated without cause prior to December 31, 1999, under the Kahn Agreement, Mr. Kahn will be entitled to receive the aggregate amount of $565,500 plus his retention bonus of $150,000, less any aggregate base salary and bonus payments made prior to his termination. C. EXISTING EMPLOYMENT AGREEMENTS WITH JERALD POLITZER AND PHILIP FRANZEL Mr. Politzer is a party to an agreement (the "Politzer Agreement"), dated as of March 24, 1997, which provides for his employment as Chief Executive Officer of the Company effective April 1, 1997 through March 31, 2000. The Politzer Agreement provides for the payment of a base salary in the amount of $650,000 per annum for the first twelve months of his employment, $700,000 per annum for the second twelve months of his employment and $750,000 for the third twelve months of his employment. Under the terms of the Politzer Agreement, Mr. Politzer is paid a cash bonus equal to 50% of his then current base salary if the Company generates actual pre-tax income for a year equal to at least 90% of the pre-tax income provided in the Company's annual business plan for such year. If the Company's actual pre-tax income for a year equals 100% of its annual business plan, then he receives a cash bonus equal to 100% of his then current base salary. Actual pre-tax income in excess of the annual business plan for such year increases Mr. Politzer's incentive bonus by 1% of his then current base salary for each 1% increment of increased actual pre-tax income for the year. Pursuant to the Politzer Agreement, Mr. Politzer will receive a minimum cash bonus for Fiscal 1997, and no other fiscal year thereafter, in the amount of $650,000. If Mr. Politzer's employment is terminated by him for "good reason" (as defined in the Politzer Agreement) or by the Company without cause, Mr. Politzer will receive (collectively, the "Severance Payments") (i) his base salary at the annualized rate on the date his employment ends for a period ending on the later of (x) the Employment Period (as defined in the Politzer Agreement) or (y) twelve months following termination, (ii) any pro-rata bonus earned in the year his employment ends and (iii) the right to exercise any stock options (whether or not then vested) for six months from the date his employment ends. If Mr. Politzer's employment ends as a result of death or Disability (as defined in the Politzer Agreement) he will receive (i) his base salary through the date of death or Disability and any bonus for any fiscal year earned but not yet paid, (ii) any pro-rata bonus earned in the year his employment ends, (iii) in the case of death only, a lump sum payment equal to three months base salary and (iv) the right to exercise any stock option (whether or not then vested) for a one year period. Prior to the Filing Date, the Debtor implemented a Management Retention Incentive Program. Pursuant to the Management Retention Incentive Program, Mr. Politzer will receive a payment of $700,000 if he remains employed by the Debtor until February 15, 1999 or if terminated by the Debtor without cause (the "Retention Amount," and, together with the Severance Payments, the "Termination Amount"). As of the Filing Date, Mr. Politzer ceased to be the Chief Executive Officer and Chairman of the Board of the Debtor and became a consultant to the Debtor pursuant to an amendment to the Politzer Agreement (the "Politzer Agreement Amendment") entered into by and between Mr. Politzer and the Debtor. The Politzer Agreement Amendment provides that during the period (the "Consulting Period") from the Filing Date to the Effective Date, Mr. Politzer will provide services to the Debtor as a consultant on an as-needed basis, and will provide advice and guidance to Mr. Setola, as the newly-appointed Chief Executive Officer, and the Board, as requested by the Board or Mr. Setola, including, (i) assisting the Debtor in connection with the transition of its management, (ii) assisting the Debtor in effectuating a corporate restructuring of its three current business units into a Perry Ellis only business unit; and (iii) providing guidance and advice to the Debtor in connection with transition and strategic decision making. Under the Politzer Agreement Amendment, from and after the Filing Date and terminating on March 31, 2000 (the "Continuation Period"), Mr. Politzer will continue to receive bi-weekly payments equal to the bi-weekly salary payments to which Mr. Politzer was entitled as of the Filing Date (the "Fee Payments"), subject to the limitation described in the following paragraph. On February 15, 1999, Mr. Politzer will receive, pursuant to the terms of the Management Retention Program, a bonus in an amount equal to $700,000. In addition, during the period commencing on the Filing Date and terminating on the date (the "Target Date") that is the earlier of (i) the Effective Date and (ii) April 30, 1999, Mr. Politzer will be entitled to the continuation of certain benefits including the maintenance of an office and a secretary and reimbursement of expenses associated with maintaining an automobile and an apartment (the "Housing and Car Reimbursements"). Following the Target Date, the aggregate amount of any and all Fee Payments that Mr. Politzer would otherwise have been entitled to receive under the Politzer Agreement Amendment from the Target Date through the end of the Continuation Period will be reduced by an amount equal to (i) $250,000 minus (ii) an amount equal to the cost that would be incurred by Reorganized Salant to provide the Housing and Car Reimbursements to Mr. Politzer during the period from the Target Date through the Continuation Period. The payments and other benefits to be provided to Mr. Politzer pursuant to the Politzer Agreement Amendement will be in full satisfaction and release of all claims (including, but not limited to, any claims for severance) arising out of Mr. Politzer's employment with Salant or the termination thereof. The Politzer Agreement Amendment (i) provides that the non-compete provision contained in the existing agreement will terminate on the later to occur of the Effective Date or April 30, 1999 and (ii) includes a non-disparagement provision which will terminate on March 31, 2001. Mr. Franzel is a party to an agreement (the "Franzel Agreement"), dated as of August 18, 1997, which provides for his employment as Executive Vice President, and Chief Financial Officer of the Company effective August 18, 1997 through December 31, 1999. The Franzel Agreement provides for the payment of a base salary in the amount of $300,000 per year. Commencing in August of 1998, Mr. Franzel's base salary will be reviewed for increase, and in no event shall the base salary be less than $300,000 per year. Under the terms of the Franzel Agreement, Mr. Franzel shall receive a minimum cash bonus of $150,000 for Fiscal 1997 payable to Mr. Franzel within ninety (90) days after the end of the fiscal year. Under the terms of the Franzel Agreement, Mr. Franzel is entitled to receive a cash bonus equal to 40% of his then current base salary if the Company generates actual pre-tax income for a year equal to or greater than 90% and less than 100% of the pre-tax income provided in the Company's annual business plan for such year. If the Company's actual pre-tax income for a year is equal to or greater than 100% of its annual business plan for such year, then he receives a cash bonus equal to 50% of his then current base salary. Actual pre-tax income in excess of the annual business plan increases Mr. Franzel's incentive bonus by 5% of his then current base salary for each 5% increment of increased pre-tax income for the year. If Mr. Franzel's employment is terminated by him for "good reason" (as defined in the Franzel Agreement) or by the Company without cause, Mr. Franzel will receive (i) his base salary at the annualized rate on the date his employment ends for a period ending on the later of (x) the Employment Period (as defined in the Franzel Agreement) or (y) twelve months following termination, (ii) any pro-rata bonus earned in the year his employment ends and (iii) the right to exercise any stock options (whether or not then vested) for six months from the date his employment ends. If Mr. Franzel's employment ends as a result of death or Disability (as defined in the Franzel Agreement) he will receive (i) his base salary through the date of death or Disability and any bonus for any fiscal year earned but not yet paid, (ii) any pro-rata bonus earned through the date of death or Disability, (iii) in the case of death only, a lump sum payment equal to three months salary, and (iv) the right to exercise any stock option (whether or not vested) for a one year period. Pursuant to the Franzel Agreement, all stock options outstanding will immediately vest upon a "Change of Control" (as defined in the Franzel Agreement). Pursuant to the Management Retention Incentive Program implemented by the Debtor prior to the Filing Date, Mr. Franzel will receive a payment of $150,000 if he remains employed by the Debtor until February 15, 1999 or if terminated by the Debtor without cause. As noted above, on or prior to the Effective Date, the Debtor expects that Mr. Franzel will cease to be employed by the Debtor as the Chief Financial Officer of the Debtor. Unless otherwise mutually agreed to by the Debtor and Mr. Franzel, any and all amounts owed by the Debtor to Mr. Franzel will be governed by and subject to the terms of the above agreements. IX. RISK FACTORS THE HOLDER OF AN IMPAIRED CLAIM AGAINST OR IMPAIRED INTEREST IN THE DEBTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING WHETHER TO VOTE TO ACCEPT OR TO REJECT THE PLAN. A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING The commencement of the Chapter 11 Case could adversely affect the Debtor's and its subsidiaries' relationships with their customers, suppliers or employees. If the Debtor's and its subsidiaries' relationships with customers, suppliers or employees are adversely affected, the Debtor's operations could be materially affected. Weakened operating results could adversely affect the Debtor's ability to obtain confirmation of the Plan or to avoid financial difficulties after consummation of the Plan. The Debtor anticipates, however, that it will have sufficient cash to service the obligations that it intends to pay during the period prior to and through the consummation of the Plan. NONE OF THE SUBSIDIARIES OF THE DEBTOR ARE PARTIES TO THE PLAN, AND WILL THEREFORE CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS DURING THE DEBTOR'S CHAPTER 11 CASE. AS SUCH, THE PLAN DOES NOT AFFECT THE CONTINUING AND TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PLAN PROVIDES FOR ALL HOLDERS OF GENERAL UNSECURED CLAIMS AGAINST THE DEBTOR, INCLUDING, WITHOUT LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH THEIR TERMS, AND SUCH CREDITORS WILL NOT, THEREFORE, BE IMPAIRED AND WILL BE DEEMED TO ACCEPT THE PLAN. B. CERTAIN RISKS OF NON-CONFIRMATION Even if the requisite acceptances are received, there can be no assurance that the Bankruptcy Court will confirm the Plan. A creditor or an interest holder might challenge the adequacy of the disclosure or the balloting procedures and results as not being in compliance with the Bankruptcy Code. Even if the Bankruptcy Court were to determine that the disclosure and the balloting procedures and results were appropriate, the Bankruptcy Court could still decline to confirm the Plan if it were to find that any statutory conditions to confirmation had not been met. Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation and requires, among other things, a finding by the Bankruptcy Court that the confirmation of the Plan is not likely to be followed by a liquidation or a need for further financial reorganization and that the value of distributions to non-accepting creditors and interest holders will not be less than the value of distributions such creditors and interest holders would receive if the Debtor was liquidated under Chapter 7 of the Bankruptcy Code. See Section XIII herein, entitled "REQUIREMENTS FOR CONFIRMATION OF PLAN." There can be no assurance that the Bankruptcy Court will conclude that these requirements have been met, but the Debtor believes that the Bankruptcy Court should be able to find that the Plan will not be followed by a need for further financial reorganization and that non-accepting creditors and Interest Holders will receive distributions at least as great as would be received following a liquidation pursuant to Chapter 7 of the Bankruptcy Code. See Section XV herein, entitled "VOTING AND CONFIRMATION OF THE PLAN." Additionally, even if the required acceptances of each of Class 3, Class 5 and Class 7 are received, the Bankruptcy Court might find that the Solicitation of votes or the Plan did not comply with the solicitation requirements made applicable by section 1125 of the Bankruptcy Code. In such an event, the Debtor may seek to resolicit acceptances, but confirmation of the Plan could be substantially delayed and possibly jeopardized. The Debtor believes that its Solicitation of acceptances of the Plan complies with the requirements of section 1125 of the Bankruptcy Code, that duly executed Ballots and Master Ballots will be in compliance with applicable provisions of the Bankruptcy Code and the Bankruptcy Rules, and that, if sufficient acceptances are received, the Plan should be confirmed by the Bankruptcy Court. Should the Bankruptcy Court fail to confirm the Plan, the Debtor would then consider all financial alternatives available to it at the time, which may include an effort to sell in the Chapter 11 Case all or a part of its business or an equity interest in the Debtor and the negotiation and filing of an alternative reorganization plan. Pursuit of any such alternative could result in a protracted and non-orderly reorganization with all the attendant risk of adverse consequences to the Debtor's and its subsidiaries' businesses, operations, employees, customers and supplier relations and their ultimate ability to function effectively and competitively. Even if the Plan is confirmed by the Bankruptcy Court, there can be no assurance that the Debtor would not thereafter suffer a disruption in its business operations as a result of filing the Chapter 11 Case, particularly in light of the fact that the Debtor has been a debtor in bankruptcy on two prior occasions. The confirmation and consummation of the Plan are also subject to certain conditions. See Section V.K. above, entitled "SUMMARY OF THE PLAN - -- CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE." If the Plan, or a plan determined by the Bankruptcy Court not to require resolicitation of acceptances by Classes, were not to be confirmed, it is unclear whether a reorganization could be implemented and what Holders of Claims and Interests would ultimately receive with respect to their Claims and Interests. If an alternative reorganization could not be agreed to, it is possible that the Debtor would have to liquidate assets, in which case Holders of Claims and Interests could receive less than they would have received pursuant to the Plan. C. CERTAIN BANKRUPTCY CONSIDERATIONS 1. Failure To Consummate Plan -------------------------- Absent the restructuring under the Plan, the Debtor does not believe it will be able to satisfy its debt obligations under the Senior Notes without a refinancing of its indebtedness under the Credit Agreement and/or the Senior Notes or an additional capital infusion and it is unlikely that the Debtor will be able to obtain such refinancing or capital infusion. If the Debtor determines that it is or will be unable to complete the restructuring pursuant to the Plan, the Debtor will consider all other available financial alternatives, including the sale of all or a part of the Debtor's business. There can be no assurance, however, that any alternative would be on terms as favorable to Holders of Senior Notes, the PBGC Claim, Old Common Stock or General Unsecured Claims as the proposed restructuring under the Plan. There is a risk that distributions to Holders of Claims and Interests under a liquidation or under a protracted and non-orderly reorganization would be substantially delayed and diminished. For purposes of comparison with the anticipated distributions under the Plan, the Debtor has prepared an analysis of estimated recoveries in a liquidation under Chapter 7 of the Bankruptcy Code. See Section XIII herein, entitled "REQUIREMENTS FOR CONFIRMATION OF PLAN." A description of procedures followed and the assumptions and qualifications in connection with this analysis is set forth in the notes thereto. 2. Effect On Operations -------------------- The Debtor believes that the Solicitation and the commencement of the Chapter 11 Case in connection with the Plan should not materially adversely affect the Debtor's and its subsidiaries' relationships with customers, employees and suppliers, provided that the Debtor can demonstrate sufficient liquidity to continue to operate the business and a likelihood of success for the Plan. It is possible that despite the belief and intent of the Debtor, the commencement of the Chapter 11 Case or the Solicitation could adversely affect the relationships between the Debtor, its subsidiaries, and their employees, customers and suppliers. There is a risk that, due to uncertainty about the Debtor's future, (i) employees may be distracted from performance of their duties or more easily attracted to other career opportunities, (ii) customers may seek alternative sources of supply or require financial assurances of future performance and (iii) suppliers may restrict ordinary credit terms or require financial assurances of performance. This risk is exacerbated by the fact that the Debtor has been a debtor in bankruptcy on two prior occasions. If such relationships were adversely affected, the Debtor's and its subsidiaries' financial performance and working capital position could materially deteriorate. This deterioration could adversely affect the Debtor's ability to complete the Solicitation or, if such Solicitation is successfully completed, to obtain confirmation of the Plan. 3. Nonconsensual Confirmation -------------------------- The Debtor will request that the Bankruptcy Court confirm the Plan under Bankruptcy Code section 1129(b). Section 1129(b) permits confirmation of the Plan despite rejection by one or more impaired classes if the Bankruptcy Court finds that the Plan "does not discriminate unfairly" and is "fair and equitable" as to the non-accepting class or classes. Because Class 8 is deemed not to have accepted the Plan, the Debtor will request that the Bankruptcy Court find that the Plan is fair and equitable and does not discriminate unfairly as to Class 8 (and any other class that fails to accept the Plan). For a more detailed description of the requirements for acceptance of the Plan and of the criteria for confirmation notwithstanding rejection by certain classes, see Section XIII.E. herein, entitled "REQUIREMENTS FOR CONFIRMATION OF PLAN -- NONCONSENSUAL CONFIRMATION." The Debtor, however, will not seek confirmation of the Plan unless it is accepted by Class 3. D. BUSINESS RISK FACTORS 1. Results of Operations Subject to Variable Influences; Intense Competition ------------------------------------------------------------- The Debtor's business is sensitive to changes in consumer spending patterns, consumer preferences and overall economic conditions. The Debtor is also subject to fashion trends affecting the desirability of its merchandise. The apparel industry in the United States is highly competitive and characterized by a relatively small number of multi-line manufacturers (such as the Debtor) and a large number of specialty manufacturers. The Debtor faces substantial competition in its markets from manufacturers in both categories. Many of the Debtor's competitors have significantly greater financial resources than the Debtor. The Debtor also competes for private label programs with the internal sourcing organizations of its own customers. Reorganized Salant's future performance will be subject to such factors, most of which are beyond its control, and there can be no assurance that such factors would not have a material adverse effect on Reorganized Salant's results of operations and financial condition. 2. Dilution -------- As described in more detail above, pursuant to the Plan, on or after the Effective Date, Reorganized Salant will issue shares of New Common Stock directly to exchanging Noteholders which will result in a significant dilution of the existing equity interests of the Stockholders (as a percentage of outstanding shares of common stock) which could adversely affect the market price and the value of the New Common Stock. See Section III above, entitled "EFFECT OF CONSUMMATION OF THE PLAN." There can be no assurance that Reorganized Salant will not need to issue additional common stock in the future in order to achieve its business plan or if it does not achieve its projected results, which could lead to further dilution to holders of Reorganized Salant's New Common Stock. 3. Limitation on Use of Net Operating Losses ----------------------------------------- As a result of the receipt by Noteholders of New Common Stock in exchange for the Senior Notes pursuant to the Plan, Reorganized Salant will, if the PEI Event occurs, undergo an "ownership change" for Federal income tax purposes. Accordingly, Reorganized Salant will be limited in its ability to use its net operating losses and net operating loss carryovers (collectively, "NOLs") and certain tax credit carryforwards to offset future taxable income. If the PEI Event does not occur, it is unclear whether Reorganized Salant will undergo an ownership change for Federal income tax purposes. However, if Reorganized Salant does not undergo an ownership change upon consummation of the Plan, it is possible that it will undergo an ownership change following consummation of the Plan resulting in an even greater limitation on the use of its tax attributes. See Section XIII.A. herein, entitled "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN -- FEDERAL INCOME TAX CONSEQUENCES TO REORGANIZED SALANT." 4. Volatility; Lack of Trading Market and Potential De-Listing of the New Common Stock -------------------------------------------------------------- There can be no assurance that an active market for the New Common Stock will develop or, if any such market does develop, that it will continue to exist. Further, the degree of price volatility in any such market that does develop may be significant. Accordingly, no assurance can be given as to the liquidity of the market for the New Common Stock or the price at which any sales may occur. The Debtor has fallen below the continued listing criteria of the NYSE for net tangible assets available to common stock together with average net income after taxes for the past three years. On December 17, 1998, the NYSE advised the Debtor that trading of the Debtor's Old Common Stock will be suspended prior to the opening of the NYSE on Wednesday, December 30, 1998. Reorganized Salant will use its reasonable best efforts to cause all New Common Stock to be quoted on the National Market System of NASDAQ or to be listed on another national securities exchange. However, there is no assurance that Reorganized Salant would be successful in such efforts. 5. Possible Volatility of Stock Price ---------------------------------- Since March 3, 1998, the market price of the Old Common Stock has experienced some degree of volatility. There can be no assurance that such volatility will not continue for the New Common Stock or become more pronounced. In addition, the stock market has recently experienced, and is likely to experience in the future, significant price and volume fluctuations which could materially adversely effect the market price of the New Common Stock without regard to the operating performance of Reorganized Salant. The Debtor believes that factors such as the commencement of the Chapter 11 Case, quarterly fluctuations in the financial results of Reorganized Salant or its competitors and general conditions in the industry, the overall economy, the financial markets and other risks described herein could cause the price of the New Common Stock to fluctuate substantially. 6. Concentrated Ownership of New Common Stock ------------------------------------------ Following consummation of the Plan, the ownership of the New Common Stock will likely be significantly more concentrated than was the ownership of the Old Common Stock. Assuming that the PEI Event occurs on or prior to the Effective Date and the current holders of the Senior Notes do not significantly change prior to the Effective Date, Reorganized Salant will be controlled by a few stockholders who are currently holders of the Senior Notes. These holders of New Common Stock may seek to influence the direction of Reorganized Salant. For instance, following consummation of the Plan, Magten will own in excess of 67% of the issued and outstanding shares of New Common Stock. As a result, Magten may have the ability to control Reorganized Salant's management, policies and financing decisions, to elect a majority of the members of Reorganized Salant's Board and to control the vote on all matters coming before the stockholders of Reorganized Salant. The Debtor does not have complete information regarding the beneficial ownership of the Senior Notes and is not aware of any stated intention by Magten or any agreement among Noteholders generally to seek to influence the direction of Reorganized Salant or to otherwise act in concert following the consummation of the Plan. There can be no assurance, however, that such agreements do not exist. 7. Absence of and/or Restrictions on Dividends ------------------------------------------- The Debtor did not pay any dividends on the Old Common Stock in 1995, 1996, 1997 or 1998 and does not anticipate that Reorganized Salant will pay dividends on the New Common Stock at any time in the foreseeable future. Moreover, the Credit Agreement places restrictions on the ability to declare or pay cash dividends on the Old Common Stock and the CIT Exit Facility is expected to similarly restrict the payment of dividends on the New Common Stock. 8. History of Losses; Effect of Transaction ---------------------------------------- Although the Debtor was profitable for the fiscal year ended December 30, 1995, for the fiscal years ended December 31, 1994, December 28, 1996 and January 3, 1998, the Debtor reported net losses of $7,865,000, $9,323,000 and $18,088,000, respectively. The net losses were primarily attributable to the write-off of goodwill, the write-down of other assets, facility shut-downs and the closure of certain unprofitable operations. There can be no assurance that Reorganized Salant will regain its profitability, or have earnings or cash flow sufficient to cover its fixed charges. 9. Cash Flow From Operations ------------------------- During the fiscal years ended December 28, 1996 and January 3, 1998, the Debtor had a positive cash flow from operating activities of $17.1 million and a negative cash flow from operating activities of $9.8 million, respectively. The Fiscal 1996 figure reflects a $17.5 million reduction in inventories due to improved inventory management, and the effects of the implementation of a strategic business plan for the men's apparel group. The lower inventory balance was partially offset by an increase in accounts receivable, due to changes in the Debtor's factoring arrangements with CIT which reduced the amount of accounts receivable sold to CIT and the related factoring costs. The Fiscal 1997 figure reflects an operating loss of $10.7 million and an increase in accounts receivable of $5.7 million, offset by non-cash charges, such as depreciation and amortization, of $8.9 million. The Debtor's principal sources of liquidity, both on a short-term and a long-term basis, are cash flow from operations and borrowings under the Credit Agreement. Based upon its analysis of its consolidated financial position, its cash flow during the past twelve months and the cash flow anticipated from its future operations, the Debtor believes that its future cash flows together with funds available under the CIT DIP Facility should be adequate to meet the financing requirements it anticipates during the next twelve months provided that the Debtor consummates the Plan and closes the CIT Exit Facility. There can be no assurance, however, (i) that the Debtor will consummate the Plan, (ii) the Debtor will be able to close the CIT Exit Facility on favorable terms, or (iii) that future developments and general economic trends will not adversely affect Reorganized Salant's operations and, hence, its anticipated cash flow. The Debtor's capital expenditure levels assumed in preparation of the projected financial data contained herein may be inadequate to maintain Reorganized Salant's long-term competitive position depending on the demand for Reorganized Salant's goods and as a result of competitive regulatory and technological developments (including new market developments and new opportunities) in Reorganized Salant's industry. 10. Declines in Net Sales and Gross Profits --------------------------------------- Sales of men's apparel decreased by $18.9 million, or 5.5%, in Fiscal 1997. This decrease resulted from (a) a $12.4 million reduction in sales of men's slacks, of which $8.4 million reflected the elimination of unprofitable programs and the balance was primarily due to operational difficulties experienced in the first quarter of Fiscal 1997 related to the move of manufacturing and distribution out of the Debtor's facilities in Thomson, Georgia, (b) a $5.7 million reduction in sales of men's sportswear, which included a $16.7 million reduction for the elimination of the Debtor's JJ. FARMER and MANHATTAN sportswear lines, as offset by an $11.0 million increase in sales of PERRY ELLIS sportswear product, (c) a $5.1 million decrease in sales of men's accessories, primarily due to the slow-down of the novelty neckwear business and (d) a $4.7 million reduction in sales of certain dress shirt lines, which reflected the elimination of unprofitable businesses. The total sales reduction attributable to the elimination of unprofitable programs was $29.8 million. These sales decreases were partially offset by a $9.5 million increase in sales of PERRY ELLIS dress shirts due to the addition of new distribution and the continued strong acceptance of these products by consumers. Sales of children's sleepwear, underwear and sportswear increased by $3.4 million, or 7.5%, in Fiscal 1997. This increase was primarily a result of the continuing expansion of the JOE BOXER children's product lines. Sales of the retail outlet stores division decreased by $5.4 million, or 19.8%, in Fiscal 1997. This decrease was due to (i) a decrease in the number of stores in the first 10 months of Fiscal 1997 and (ii) the decision in November 1997 to close all non-PERRY ELLIS outlet stores. The Debtor ceased to operate the non-PERRY ELLIS outlet stores in November 1997. The gross profit margin of the children's sleepwear and underwear segment declined as a result of (i) slowdown in sales of certain licensed products, requiring a greater percentage of off-price sales, as well as an increase in discounts and allowances, (ii) an increase in reserves for remaining inventory and (iii) higher distribution and product handling costs. The gross profit of the retail outlet stores decreased primarily as a result of inventory markdowns of $1.6 million (7.3% of net sales) related to the closing of the non-PERRY ELLIS stores. Excluding these inventory markdowns, the gross profit margin increased as a result of a decrease in the transfer prices (from a negotiated rate to standard cost) charged to the retail outlet stores for products made by other divisions of the Debtor. 11. Retail Environment ------------------ The retail industry has experienced significant consolidation and other ownership changes resulting in a decrease in the number of retailers. In addition, various retailers, including some of the Debtor's customers, have experienced declines in revenue and profits in recent periods and some have been forced to file for protection under the federal bankruptcy laws. In the future, other retailers in the United States and in foreign markets may consolidate, undergo restructurings or reorganizations, or realign their affiliations, any of which could decrease the number of stores that carry the Debtor's products or increase the ownership concentration within the retail industry. There can be no assurance that such changes would not have a material adverse effect on Reorganized Salant's results of operations and financial condition. 12. Apparel Industry Cycles and Other Economic Factors -------------------------------------------------- The apparel industry historically has been subject to substantial cyclical variations, 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 Reorganized Salant's results of operations and financial condition. 13. Seasonality and Fashion Risk ---------------------------- The Debtor's principal products are organized into seasonal lines for resale at the retail level during the Spring, Fall and Holiday seasons. Typically, the Debtor'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 Debtor's products is often dependent on the ability of the Debtor to successfully anticipate the needs of the Debtor's retail customers and the tastes of the ultimate consumer up to a year prior to the relevant selling season. In addition, the Debtor experiences seasonal fluctuations in its net sales and net income, with a disproportional amount of the Debtor's net sales and a majority of its net income typically realized during the fourth quarter. Net sales and net income are generally weakest during the first quarter. The Debtor's quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the Debtor's ability to source, manufacture and distribute its products. 14. Dependence on Certain Customers and Licensees; Effect of Plan on Licenses ---------------------------------------------------------------- Certain of the Debtor's customers, including some under common ownership, have accounted for significant portions of the Debtor's gross revenues. In Fiscal 1997, approximately 17% of the Debtor's net sales were made to Sears, approximately 11% of the Debtor's net sales were made to Federated and approximately 10% of the Debtor's net sales were made to TJX. In 1996, approximately 13% of the Debtor's net sales were made to Sears. In 1996 and 1995, net sales to Federated represented approximately 11% and 12% of the Debtor's net sales, respectively. In 1995, approximately 11% of the Debtor's net sales were made to TJX. In 1995, approximately 13% of the Debtor's Children's Group's net sales were made to Dayton Hudson Corporation. No other customers accounted for more than 10% of the net sales of the Debtor or any of its business segments during 1995, 1996, or 1997. A decision by the controlling owner of a group of stores or any substantial customer, whether motivated by fashion concerns, financial difficulties, or otherwise, to decrease the amount of merchandise purchased from the Debtor or to cease carrying the Debtor's products could materially adversely affect Reorganized Salant. In Fiscal 1997, approximately 44% of the Debtor's net sales was attributable to products sold under the PERRY ELLIS PORTFOLIO by PERRY ELLIS and PERRY ELLIS AMERICA trademarks which are licensed to the Debtor under a series of license agreements with PEI. The license agreements contain renewal options which, subject to compliance with certain conditions contained therein, permit the Debtor to extend the terms of such license agreements. Assuming the exercise by the Debtor of all available renewal options, the license agreements covering men's apparel and accessories will expire on December 31, 2015. If the Debtor was unable to exercise its right to renew the agreements or the agreements were terminated by their terms (as a result of, among other things, the failure of the Debtor to make payments to PEI in accordance with the agreements and the expiration of the applicable grace periods or the failure by the Debtor to perform any of its other obligations under the agreements, including its obligations in respect of the production of the products licensed thereunder), the resulting inability to sell products bearing a PERRY ELLIS trademark would have a material adverse effect on Salant. The Debtor has four material licenses with PEI. The earliest possible expiration of three of such licenses (i.e., the PEI dress shirt license, neckwear license and belt and suspender license) is December 31, 2000 (assuming that such date is not accelerated under the terms of the licenses); however, each of these licenses is renewable in the sole discretion of the Debtor until the year 2015. The Debtor is also the licensee under eleven license agreements with The Walt Disney Company ("Disney"). While the Disney licenses, in the aggregate, are material, no single Disney license is material to the Debtor's businesses. Certain of the Disney licenses expire as early as December 31, 1998. The Debtor's licensing agreements with PEI contain a "change of control" provision that provides PEI with certain rights upon the occurrence of a "change of control." Those rights include among others, the right to terminate any or all of the licenses within two years after the occurrence of the change of control. On or prior to the Confirmation Date, the Debtor intends to seek either (i) the issuance of a Final Order of the Bankruptcy Court approving the assumption of the PEI Licenses by the Debtor and/or Reorganized Salant, as the case may be, and determining that the Debtor's reorganization under the Plan with the treatment provided to Senior Note Claims (Class 3) under Section 6.3(a)(i) of the Plan and the treatment provided to Old Common Stock Interests (Class 7) under Section 6.7(a)(i) of the Plan, and the confirmation and consummation of the Plan (including, but not limited to, the provisions providing such treatment), does not and will not give rise to any rights of PEI under the PEI Licenses based on any "change of control" provision in the PEI Licenses (as that term is defined in the PEI Licenses) or any similar provision, and does not and will not for any reason result in any forfeiture, termination or modification of any rights of Salant existing under the PEI Licenses immediately prior to the Filing Date, or (ii) the execution of an agreement or stipulation by and between PEI and the Debtor and/or Reorganized Salant, as the case may be, to the same effect. In the event that such Final Order is not issued, or such agreement or stipulation is not executed prior to the Effective Date, the holders of Senior Note Claims (Class 3) will receive the treatment provided under Section 6.3(a)(ii) of the Plan and the holders of Old Common Stock Interests (Class 7) will receive the treatment provided under Section 6.7(a)(ii) of the Plan. In any event, as noted above in the section entitled "Background and Events Leading to Chapter 11 Filing - -- the December Agreement," PEI's consent and approval of the Plan is not required in order to confirm or consummate the Plan. In addition to the license agreement with PEI, the Debtor is also a party to several other license agreements. Certain of these license agreements, including the license agreements with PEI and The Walt Disney Company, contain "change of control" provisions which may be triggered by the Plan, or otherwise contain provisions that enable the licensor to terminate the license or exercise other remedies thereunder as a result of the Restructuring. The Debtor intends to seek a waiver of any such provisions from the applicable licensors. However, there can be no assurance that any such waivers will be obtained, or to the extent such waivers are obtained, on what terms they would be granted. 15. Foreign Operations and Sourcing; Import Restrictions ---------------------------------------------------- During Fiscal 1997, approximately 12% of the products produced by the Debtor (measured in units) were manufactured in the United States, with the balance manufactured in foreign countries. Facilities operated by the Debtor accounted for approximately 75% of its domestic-made products and 37% of its foreign-made products; the balance in each case was attributable to unaffiliated contract manufacturers. In Fiscal 1997, approximately 47% of the Debtor's foreign production was manufactured in Mexico, approximately 18% was manufactured in Guatemala and approximately 12% was manufactured in the Dominican Republic. The Debtor'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 Debtor's operations. Some of the Debtor'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 Debtor's operations. The Debtor's operations in Asia, including those of its licensees, 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. The Debtor's risks associated with its Asian operations may be higher in 1998 than has historically been the case, due to the fact that financial markets in East and Southeast Asia have recently experienced and continue to experience difficult conditions, including a currency crisis. As a result of recent economic volatility, the currencies of many countries in this region have lost value relative to the U.S. dollar. Although the Debtor has experienced no material foreign currency transaction losses since the beginning of this crisis, its operations in the region are subject to an increased level of economic instability. The impact of these events on the Debtor's business, and in particular its sources of supply and royalty income cannot be determined at this time. There can be no assurance that such factors would not have a material adverse effect on Reorganized Salant's results of operations. 16. Dependence on Contract Manufacturing ------------------------------------ In Fiscal 1997, the Debtor produced 59% of all of its products (in units) through arrangements with independent contract manufacturers. The use of such contractors and the resulting lack of direct control could subject the Debtor to difficulty in obtaining timely delivery of products of acceptable quality. In addition, as is customary in the industry, the Debtor does not have any long-term contracts with its fabric suppliers or product manufacturers. While the Debtor is not dependent on one particular product manufacturer or raw materials supplier, the loss of several such product manufacturers and/or raw material suppliers in a given season could have a material adverse effect on Reorganized Salant's performance. 17. Information Systems and Control Procedures ------------------------------------------ The Debtor has completed an assessment of its information systems ("IS"), including its computer software and hardware, and the impact that the year 2000 will have on such systems and Salant's overall operations. As of November 17, 1998, the Debtor has completed the implementation of new financial systems that are year 2000 compliant ("Y2K"). In addition, the Debtor has completed all testing of software modifications to correct the Y2K problems on certain existing software programs, including its primary enterprise systems (the "AMS System") at a total cost of $3.5 million. The Debtor anticipates that any business units that are using software that is not Y2K compliant will be converted to the modified software by the end of the first quarter of 1999, at an estimated cost of $2.0 million. The funding for these activities has or will come from internally generated cash flow and/or borrowings under the Debtor's working capital facility. As a result of the Debtor's (i) successful implementation of its new financial systems, (ii) completed testing of the modifications to the AMS Systems, and (iii) expectation that all non-Y2K Systems will be converted by the end of the second quarter of 1999, the Debtor has not developed a contingency plan to address Y2K issues. If however, Reorganized Salant or the Debtor fail to complete such conversion in a timely manner, such failure will have a material adverse effect on the business, financial condition and results of operations of Reorganized Salant. 18. Leverage and Debt Service ------------------------- Reorganized Salant is expected to continue to have annual fixed debt service requirements under the CIT Exit Facility. See Section II.E.5. herein, entitled the "The CIT Exit Facility." The ability of Reorganized Salant to make principal and interest payments under the Debtor's working capital facility, will be dependent upon Reorganized Salant's future performance, which is subject to financial, economic and other factors affecting Reorganized Salant, some of which are beyond its control. There can be no assurance that Reorganized Salant will be able to meet its fixed charges as such charges become due. 19. Need for Sustained Trade Support -------------------------------- The Debtor's ability to achieve sales growth and profitability includes significant reliance on continued support from its vendors. If the Debtor's major vendors reduce their credit lines or product availability to the Debtor, it could have a material adverse effect on Reorganized Salant's sales, cash position and liquidity. X. APPLICATION OF SECURITIES ACT A. ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE PLAN Section 1145 of the Bankruptcy Code generally exempts from registration under the Securities Act (and any equivalent state securities or "blue sky" laws) the offer of a debtor's securities under a Chapter 11 plan if such securities are offered or sold in exchange for a claim against, or equity interest in, such debtor. In reliance upon this exemption, the New Common Stock to be issued on the Effective Date as provided in the Plan generally will be exempt from the registration requirements of the Securities Act, and state and local securities laws. Such securities may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act") or other federal securities laws pursuant to the exemption provided by Section 4(l) of the Securities Act, unless the holder is an "underwriter" with respect to such securities, as that term is defined in the Bankruptcy Code (see discussion below). In addition, such securities generally may be resold without registration under state securities laws pursuant to various exemptions provided by the respective laws of the several states. However, recipients of securities issued under the Plan are advised to consult with their own counsel as to the availability of any such exemption from registration under state law in any given instance and as to any applicable requirements or conditions to such availability. Section 1145(b) of the Bankruptcy Code defines "underwriter" under Section 2(11) of the Securities Act as an entity who (A) purchases a claim against, interest in, or claim for an administrative expense in the case concerning, the debtor, if such purchase is with a view to distribution of any security received or to be received in exchange for such a claim or interest; (B) offers to sell securities offered or sold under a plan for the holders of such securities; (C) offers to buy securities offered or sold under a plan from the holders of such securities, if such offer to buy is (i) with a view to distribution of such securities, and (ii) under an agreement made in connection with the plan, with the consummation of a plan, or with the offer or sale of securities under a plan; or (D) is an issuer, as used in Section 2(11) of the Securities Act, with respect to such securities. Notwithstanding the foregoing, statutory underwriters may be able to sell securities without registration pursuant to the resale limitations of Rule 144 under the Securities Act which, in effect, permits the resale of securities received by statutory underwriters pursuant to a Chapter 11 plan, subject to applicable volume limitation, notice and manner of sale requirements, and certain other conditions. Parties which believe they may be statutory underwriters as defined in section 1145 of the Bankruptcy Code are advised to consult with their own counsel as to the availability of the exemption provided by Rule 144. For a description of the Registration Rights Agreement, see Section VI above, entitled "DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT." There can be no assurance that an active market for any of the securities to be distributed under the Plan will develop and no assurance can be given as to the prices at which they might be traded. BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE DEBTOR MAKES NO REPRESENTATION CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THE SECURITIES TO BE DISTRIBUTED UNDER THE PLAN. MOREOVER, SUCH SECURITIES, OR THE DOCUMENTS THAT ESTABLISH THE TERMS AND PROVISIONS THEREOF, MAY CONTAIN TERMS AND LEGENDS THAT RESTRICT OR INDICATE THE EXISTENCE OF RESTRICTIONS ON THE TRANSFERABILITY OF SUCH SECURITIES. THE DEBTOR RECOMMENDS THAT RECIPIENTS OF SECURITIES UNDER THE PLAN CONSULT WITH LEGAL COUNSEL CONCERNING THE LIMITATIONS ON THEIR ABILITY TO DISPOSE OF SUCH SECURITIES. XI. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED [TO BE PROVIDED PRIOR TO DISCLOSURE STATEMENT HEARING] XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN The following is a summary of certain Federal income tax consequences expected to result from the consummation of the Plan to Noteholders, Stockholders, and Reorganized Salant and is for general information purposes only. This summary is based on the Federal income tax law now in effect, which is subject to change, possibly retroactively. This summary does not discuss all aspects of Federal income taxation which may be important to particular Noteholders or Stockholders in light of their individual investment circumstances, including Stockholders who acquired their Old Common Stock pursuant to the exercise of stock options or otherwise as compensation, or to Noteholders or Stockholders subject to special tax rules (e.g., financial institutions, broker-dealers, insurance companies, tax-exempt organizations, traders or dealers in securities, foreign taxpayers and Noteholders or Stockholders who hold the Senior Notes or shares of Old Common Stock as part of a hedging transaction, "straddle," conversion transaction or other integrated transaction). In addition, this summary does not address state, local or foreign tax consequences. This summary assumes that Noteholders and Stockholders hold their Senior Notes or Old Common Stock, and will hold their New Common Stock and New PIK Senior Notes as "capital assets" (generally, property held for investment) under the Tax Code. The summary does not address the tax consequences to subsequent holders of New PIK Senior Notes. No rulings have been or will be requested from the Internal Revenue Service with respect to any of the matters discussed herein, and no opinion of counsel has been sought or obtained by the Debtor with respect thereto. NOTEHOLDERS AND STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES RESULTING FROM THE CONSUMMATION OF THE PLAN. Although it is not entirely free from doubt, the discussion below assumes, and Reorganized Salant intends to take the position that, if issued, the new PIK Senior Notes will be treated as debt (and not equity) for Federal income tax purposes. If the New PIK Senior Notes were treated as equity for Federal income tax purposes, the tax consequences to Reorganized Salant and to Noteholders would be different than those discussed below. A. FEDERAL INCOME TAX CONSEQUENCES TO REORGANIZED SALANT 1. Cancellation Of Indebtedness Income ----------------------------------- Reorganized Salant will realize cancellation of indebtedness ("COI") income, for Federal income tax purposes, in an amount equal to the excess, if any, of the adjusted issue price of the Senior Notes (including any accrued but unpaid interest) over either, (i) if the PEI Event occurs, the fair market value of the New Common Stock received by Noteholders pursuant to the Plan, or (ii) if the PEI Event does not occur, the sum of the issue price (as described below) of the New PIK Senior Notes and the fair market value of the New Common Stock received by Noteholders. COI income that is realized in a case under the Bankruptcy Code (i.e., pursuant to the Plan) will not be included in Reorganized Salant's gross income under Section 108 of the Tax Code. Reorganized Salant will be required, however, to reduce certain of its tax attributes, such as its NOLs, certain tax credits, and the basis of its assets, by the amount of the COI income that is not so included. 2. Limitation On Net Operating Loss Carryovers ------------------------------------------- As a result of the confirmation and consummation of the Plan, Reorganized Salant will, if the PEI Event occurs, undergo an "ownership change" for purposes of Section 382 of the Tax Code and, accordingly, Reorganized Salant will be limited in its ability to use its NOLs (including for this purpose any deductions attributable to any "recognized built-in loss" within the meaning of Section 382(h) of the Tax Code which could include deductions for depreciation and amortization of Reorganized Salant's assets, which existed at the time of the implementation of the Plan) and certain tax credit carryforwards (the "Section 382 Limitation") to offset future taxable income. The Section 382 Limitation will generally be determined by multiplying the value of Reorganized Salant's equity immediately before the ownership change by the long-term tax-exempt rate (currently ____%). Because Reorganized Salant will undergo an ownership change in a case under the Bankruptcy Code, however, the Debtor anticipates that the value of its equity for purposes of determining the Section 382 Limitation would be adjusted to reflect the increase in such value arising from the cancellation of the Senior Notes. If the PEI Event does not occur, it is unclear whether Reorganized Salant will, as a result of the confirmation and consummation of the Plan, undergo an ownership change for purposes of Section 382 of the Tax Code. Under Section 382, an ownership change will occur if, on the Effective Date, the interest of "5% Shareholders" (as defined under Section 382) of Reorganized Salant have cumulatively increased by more than 50 percentage points above their lowest level during the preceding 3 year period. If the PEI Event does not occur, and the Senior Noteholders do not own, within the meaning of Section 382 of the Tax Code, any Old Common Stock, the issuance of New Common Stock to Senior Noteholders will increase the percentage of stock owned by the Senior Noteholders (which will by treated as a single 5% Shareholder for this purpose) by 40 percentage points. Thus, if on the Effective Date, the interests of any other 5% Shareholders have increased by 10 percentage points over their lowest level during the preceding 3 year period, an ownership change would occur. If Reorganized Salant does undergo an ownership change at such time, it would be subject to the Section 382 Limitation on use of NOL's. However, the Section 382 Limitation would, subject to the next paragraph, be more restrictive in this circumstance than in the circumstances covered by the preceding paragraph because the value of Reorganized Salant's equity at the time of the ownership change would, as a result of the issuance of the New PIK Senior Notes, be smaller. If the PEI Event does not occur but an ownership change does occur upon the Plan's consummation, Reorganized Salant may elect to entirely avoid the application of the Section 382 Limitation under Section 382(l)(5) of the Tax Code. Reorganized Salant would, however, be required to reduce its NOLs and possibly other tax attributes by any interest deductions claimed by Salant with respect to any indebtedness converted into New Common Stock for (i) the three year period preceding the date of the "ownership change" and (ii) the portion of the year of the ownership change prior to the Effective Date. Moreover, under Section 382(l)(5)(D) of the Tax Code, if a second ownership change with respect to Reorganized Salant were to occur within the two year period following the Effective Date, the Section 382(l)(5) exception would not apply and any NOLs remaining after the second ownership change will be eliminated. If the PEI Event does not occur but an ownership change does occur upon the Plan's consummation, Reorganized Salant will determine whether to elect the application of Section 382(l)(5) of the Tax Code. If Reorganized Salant does not undergo an ownership change as a result of the consummation of the Plan, no Section 382 Limitation upon use of NOL's would arise at such time. However, if, during the succeeding 3 year period, an equity shift in Reorganized Salant occurs which, when aggregated with the equity shift arising as a result of the Plan gave rise to a 50% change in ownership under the rules described above, a new Section 382 Limitation would be imposed at such time. If such ownership change occurred within two years of the consummation of the Plan, the value of Reorganized Salant's equity for purposes of computing such limitation would not include the increase in value created by the retirement of the Senior Notes pursuant to the Plan. 3. Limitation on Interest Deductions --------------------------------- Under certain provisions of the Tax Code the New PIK Senior Notes will likely constitute "applicable high yield discount obligations." As a result, (i) Reorganized Salant will be denied an interest deduction on the New PIK Senior Notes to the extent the yield to maturity on such New PIK Senior Notes exceeds six percentage points over the applicable federal rate in effect for the month in which the Effective Date occurs, and (ii) Reorganized Salant will not be entitled to an interest deduction for the remainder of the interest accruing on such New PIK Senior Notes until such interest is paid. The New PIK Senior Notes will constitute an "applicable high yield discount obligation" if their yield to maturity is at least equal to the applicable federal rate plus five percentage points. The applicable federal rate for indebtedness whose term is eight years is currently _______. B. FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS 1. General ------- The Plan, if confirmed and consummated as described herein, should, assuming that the Senior Notes and the New PIK Senior Notes, if issued, are "securities" for federal income tax purposes, constitute a tax-free recapitalization for purposes of the Tax Code. Accordingly, for Federal income tax purposes: (i) no gain or loss will be recognized by a Noteholder upon the receipt of New Common Stock or, if the PEI Event does not occur, the New PIK Senior Notes pursuant to the Plan, except that the holder will recognize income to the extent of the value of the New Common Stock or, if applicable, New PIK Senior Notes received pursuant to the Plan which is allocable to any interest on the Senior Notes that accrued on or after the beginning of the holder's holding period and which was not previously included in the holder's taxable income (the "Accrued Interest"); (ii) if the PEI event occurs, the aggregate tax basis of the New Common Stock received by a Noteholder pursuant to the Plan will be the same as the aggregate tax basis of the Senior Notes exchanged therefor, except that the basis of the shares of New Common Stock received (or fractions thereof) which are treated as attributable to Accrued Interest will be equal to the fair market value of such shares (or fractions thereof) on the Effective Date. If the PEI event does not occur, the aggregate tax basis of the New Common Stock and the New PIK Senior Notes will, subject to the next sentence, equal the aggregate tax basis of the Senior Notes exchanged therefor which aggregate amount will be divided amongst the New PIK Senior Notes and the New Common Stock in accordance with their relative fair market values on the Effective Date. To the extent shares of New Common Stock and New PIK Senior Notes are treated as attributable to Accrued Interest, such shares or notes will have a basis equal to the fair market value of such shares (or fractions thereof) or notes on the Effective Date; and (iii) the holding period of the New Common Stock and, if applicable, New PIK Senior Notes in the hands of a Noteholder will include the holding period of the Senior Notes exchanged therefor, except that the holding period of the shares of New Common Stock (or fractions thereof) and, if applicable, the New PIK Senior Notes treated as attributable to Accrued Interest will begin the day after the Effective Date. (iv) The Plan provides that shares of New Common Stock and, if applicable New PIK Senior Notes, issued to Noteholders will be allocated first to the principal amount of the Senior Notes held by such Noteholders and thereafter to accrued interest. Certain legislative history provides that an allocation provided in a bankruptcy plan may be binding for federal income tax purposes. However, the Internal Revenue Service may take the position that the shares of New Common Stock and, if applicable, the New PIK Senior Notes received by Noteholders should be allocated either between principal and accrued interest in proportion to the relative amounts thereof, or first, to accrued interest to the extent thereof and thereafter to principal. Noteholders should consult their own tax advisors as to the proper allocation between principal and interest. 2. Market Discount --------------- Noteholders who acquired their Senior Notes at a "market discount" subsequent to the initial offering of the Senior Notes may be required to carry over any accrued (but unrecognized) market discount to the New Common Stock and, if applicable, the New PIK Senior Notes received pursuant to the Plan, which discount will be recognized as ordinary income upon disposition of such New Common Stock or, if applicable, the New PIK Senior Notes. However, it is possible (although unlikely) that any such accrued market discount would be required to be recognized to the extent of any gain realized. 3. Application of Original Issue Discount Rules to New PIK Senior Notes -------------------------------------------------------------- a. General Rules The federal income tax treatment of ownership of, and payments with respect to, the New PIK Senior Notes to be issued by the Debtor under the Plan will be governed by Treasury regulations concerning original issue discount (the "OID Regulations"). The OID Regulations are extremely complex and ambiguous in some respects; thus, their application is subject to uncertainty. Noteholders that receive New PIK Senior Notes are urged to consult their own tax advisors concerning the application of the OID Regulations to the New PIK Senior Notes. Under the OID Regulations, holders of New PIK Senior Notes that bear OID must include such OID in income under a method that reflects the economic accrual of interest based on a constant yield. Thus, such holders may be required to include amounts in income prior to the receipt of the cash associated with such income. The total amount of OID on the New PIK Senior Notes will equal the excess of the "stated redemption price at maturity" of such notes over their "issue price." The stated redemption price at maturity of the New PIK Senior Notes is the sum of all payments to be made on such notes other than payments of stated interest in cash or other property (other than debt instruments of the issuer) at a single fixed rate that are unconditionally payable at least annually over the entire term of such issue ("qualified stated interest"). Because interest is not unconditionally payable in cash or property (other than debt instruments of Reorganized Salant) at least annually on the New PIK Senior Notes, none of the interest on such debt obligations will be treated as qualified stated interest. Consequently, the stated redemption price at maturity of such debt obligations will be the sum of ALL payments to be made on such obligations (whether denominated principal or interest). The OID Regulations require one to assume, for purposes of computing the stated redemption price at maturity, that Reorganized Salant will exercise the option to make cash interest payments at the lower 12% rate rather than issuing additional New PIK Senior Notes as interest at a 15% rate. If Reorganized Salant does not exercise this option but instead issues New PIK Senior Notes as a payment of interest, the amount and accrual of OID on the New PIK Senior Notes will be adjusted in the manner described below under "Issuance of Additional New PIK Senior Notes as Interest." The issue price of the New PIK Senior Notes will depend on whether such notes or the Senior Notes are treated as publicly traded for purposes of the OID regulations. Under the OID Regulations, the Senior Notes and New PIK Senior Notes would generally be treated as publicly traded if, at any time during the 60-day period ending 30 days after the date such notes are issued, (i) they are listed on a national securities exchange or certain interdealer quotation systems or (ii) they appear on a system of general circulation that provides a reasonable basis to determine fair market value by disseminating either recent price quotations of one or more qualified brokers, dealers or traders, or actual prices of recent sales transactions. The Debtor does not believe that either the Senior Notes or the New PIK Senior Notes have met or will meet this definition. Consequently, under the OID Regulations, the issue price of the New PIK Senior Notes will likely be their stated principal amount. If, however, the Senior Notes or New PIK Senior Notes did satisfy the OID Regulations' definition of "publicly traded," the issue price of the New PIK Senior Notes would be determined under different rules. Holders of New PIK Senior Notes will be required to include in income the sum of the "daily portions" of OID with respect to the debt instrument for each day during the taxable year or portion of the taxable year in which such holder held the debt instrument. "Daily portions" are determined by allocating to each day in any "accrual period" a pro rata portion of the OID allocable to that accrual period. The amount of OID allocable to an accrual period will equal (i) the product of the annual "yield to maturity" of the instrument, appropriately adjusted for the length of such accrual period, and the "adjusted issue price" of the instrument at the beginning of that accrual period, (ii) minus the amount of qualified stated interest payments allocable to the accrual period. The annual "yield to maturity" of a debt instrument is the discount rate at which the present value of all payments due under the instrument from the date of issue equals the issue price of the instrument. The "adjusted issue price" of a debt instrument generally equals the issue price of the instrument increased by the amount of OID previously includible in the gross income of a holder, and decreased by the amount of any payment previously made on the instrument other than a payment of qualified stated interest. The OID Regulations provide that holders that acquire New PIK Senior Notes will be allowed to amortize any "acquisition premium" as an offset to otherwise includible OID. New PIK Senior Notes will be considered to be acquired at an "acquisition premium" to the extent the holder's initial tax basis for such New PIK Senior Notes is greater than the issue price but less than the stated redemption price at maturity of such notes. If, as is likely, the New PIK Senior Notes constitute "applicable high yield discount obligations" (See "Federal Income Tax Consequences to Reorganized Salant: Limitation on Interest Deductions"), holders of New PIK Senior Notes that are corporations may be entitled to a dividends-received deduction for the portion of the OID on such notes for which Reorganized Salant is denied an interest deduction. Corporate holders of New PIK Senior Notes should consult their tax advisors as to the applicability and consequences to them of this rule. b. Issuance of Additional New PIK Senior Notes as Interest. If Reorganized Salant exercises the option at any time to make a semi-annual interest payment in the form of New PIK Senior Notes (at a 15% annual rate), such issuance will not be treated as a payment on the New PIK Senior Notes for tax purposes. Instead, the New PIK Senior Notes will, solely for purposes of computing the accrual of OID, be treated as reissued on such date for an amount equal to their adjusted issue price on such date. Corresponding adjustments will be made to the stated redemption price at maturity, yield to maturity, and subsequent accrual of OID on such New PIK Senior Notes. The net effect of the issuance of New PIK Senior Notes as interest will be to increase the amount of OID taken into income over the life of the New PIK Senior Notes, reflecting the increased amount of cash to be ultimately received over the life of these instruments as a result of such issuance. 4. Disposition of New Common Stock and New PIK Senior Notes -------------------------------------------------------- Upon a sale, exchange or other disposition of the New Common Stock or New PIK Senior Notes, if applicable, a holder will, subject to the discussion of "Market Discount" under "Federal Income Tax Consequences to Noteholders," recognize a capital gain or loss in an amount equal to the difference between the amount realized on such disposition and the holder's adjusted tax basis in the New Common Stock and New PIK Senior Notes. A holder's adjusted tax basis in a New PIK Senior Note will generally equal the issue price of such note, as described above under "Application of Original Issue Discount Rules to New PIK Senior Notes", increased by the amount of any OID previously includible in income by such holder with respect to such New PIK Senior Note, and reduced by any principal and interest payments received by such holder with respect to such note. Any such gain or loss recognized with respect to shares of New Common Stock and, if applicable, New PIK Senior Notes will be long-term (and, in the case of individual holders, subject to taxation at reduced rates) if the shares of New Common Stock or New PIK Senior Notes, if applicable, have a holding period of more than one year. C. FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS 1. General ------- In general, the receipt of New Common Stock by Stockholders pursuant to the Plan will not be a taxable event, except that Stockholders will recognize gain or loss to the extent of any cash received in lieu of a fractional share. Each stockholder will have an aggregate tax basis in its shares of New Common Stock equal to its aggregate tax basis in the shares of Old Common Stock exchanged therefor (reduced by any basis apportionable to any fractional share settled in cash as described above). Such aggregate amount shall be allocated ratably among the shares of New Common Stock received by each such Stockholder. The holding period of the New Common Stock will include the holding period of the Old Common Stock. 2. Disposition ----------- Upon a sale, exchange, or other disposition of the New Common Stock a Stockholder will recognize a capital gain or loss in an amount equal to the difference between the amount realized and the Stockholder's adjusted tax basis in such New Common Stock. Such gain or loss will be long-term (and, in the case of individual Stockholders, subject to taxation at reduced rates) if the shares of New Common Stock have been held for more than one year. XIII. REQUIREMENTS FOR CONFIRMATION OF PLAN A. CONFIRMATION HEARING Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a hearing on confirmation of a plan. As promptly as practicable after the commencement by the Debtor of the Chapter 11 Case, the Debtor will request the Bankruptcy Court to schedule a Confirmation Hearing. Notice of the Confirmation Hearing will be provided to all known creditors and equity holders or their representatives. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for an announcement of the adjourned date made at the Confirmation Hearing or any subsequent adjourned confirmation hearing. Section 1128(b) of the Bankruptcy Code provides that any party-in-interest may object to confirmation of the Plan. Pursuant to the Bankruptcy Rules, any objection to confirmation of the Plan must be in writing, must conform to the Bankruptcy Rules, must set forth the name of the objector and, the nature and amount of claims or interests held or asserted by the objector and against the Debtor's estate or property, and the basis for the objection and the specific grounds therefor, and must be filed with the Bankruptcy Court, with a copy to Chambers, together with proof of service thereof, and served upon (i) Fried, Frank, Harris, Shriver & Jacobson, Attorneys for the Debtor and Debtor-in-Possession, One New York Plaza, New York, New York 10004, Attention: Brad Eric Scheler, Esq. and Lawrence A. First, Esq., (ii) The United States Trustee for the Southern District of New York, 33 Whitehall Street, Twenty-First Floor, New York, New York 10004, Attention: Carolyn S. Schwartz, Esq., [and (iii) the attorneys for any official committee of unsecured creditors that may be appointed in the Debtor's Chapter 11 Case,] so as to be received no later than the date and time designated in the notice of the Confirmation Hearing. Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT. At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if all of the following requirements of section 1129(a) of the Bankruptcy Code are met: 1. The Plan complies with the applicable provisions of the Bankruptcy Code. 2. The Debtor has complied with the applicable provisions of the Bankruptcy Code. 3. The Plan has been proposed in good faith and not by any means forbidden by law. 4. Any payment made or to be made by the Debtor, or by an entity issuing securities, or acquiring property under the Plan, for services or for costs and expenses in, or in connection with, the Chapter 11 Case or in connection with the Plan and incident to the Chapter 11 Case has been approved by, or is subject to the approval of, the Bankruptcy Court as reasonable. 5. The Debtor has disclosed the identity and affiliations of any individual proposed to serve, after confirmation of the Plan, as a director or officer of Reorganized Salant, or a successor to the Debtor under the Plan, and the appointment to or continuance in such office by such individual must be consistent with the interests of creditors and interest holders and with public policy. The Debtor has disclosed the identity of any "insider" who will be employed or retained by Reorganized Salant and the nature of any compensation for such "insider." 6. With respect to each Impaired Class of Claims or Interests, each Holder of a Claim or Interest in such Class has either accepted the Plan or will receive or retain under the Plan on account of such Claim or Interest property of a value, as of the Effective Date, that is not less than the amount that such holder would receive or retain if the Debtor was liquidated on the Effective Date under Chapter 7 of the Bankruptcy Code. 7. With respect to each Class of Claims or Interests, such Class has either accepted the Plan or is not Impaired by the Plan. If this requirement is not met, the Plan may still be confirmed pursuant to section 1129(b) of the Bankruptcy Code. See Section XIII.E. herein, entitled "REQUIREMENTS FOR CONFIRMATION OF PLAN -- NONCONSENSUAL CONFIRMATION." 8. Except to the extent that the Holder of a particular Claim has agreed to a different treatment of its Claim, the Plan provides that (i) allowed Administrative Expenses will be paid in full in Cash on the Effective Date, (ii) Allowed Priority Claims will be paid in full in Cash on the Effective Date, or if the Class of such Claims accepts the Plan, the Plan may provide for deferred Cash payments, of a value as of the Effective Date, equal to the Allowed amount of such Claims, and (iii) the holder of an Allowed Priority Tax Claim will receive on account of such Claim deferred Cash payments over a period not exceeding six years after the date of assessment of such Claim, of a value, as of the Effective Date, equal to the Allowed amount of such Claim. 9. If a Class of Claims is Impaired under the Plan, at least one Class of Claims that is Impaired by the Plan has accepted the Plan, determined without including any acceptance of the Plan by any "insider." 10. Confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtor or any successor of the Debtor under the Plan. 11. All fees payable under Section 1930 of title 28 as determined by the Bankruptcy Court at the Confirmation Hearing have been paid or the Plan provides for the payment of all such fees on the Effective Date. 12. The Plan provides for the continuation after the Effective Date of payment of all Retiree Benefits (as defined in section 1114 of the Bankruptcy Code), at the level established pursuant to subsection 1114(e)(1)(B) or 1114(g) of the Bankruptcy Code at any time prior to confirmation of the Plan, for the duration of the period the Debtor has obligated itself to provide such benefits. The Debtor believes that the Plan satisfies all of the statutory requirements of Chapter 11 of the Bankruptcy Code. Certain of these requirements are discussed in more detail below. B. FEASIBILITY OF THE PLAN In connection with confirmation of the Plan, section 1129(a)(11) requires that the Bankruptcy Court find that confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of the Debtor. This is the so-called "feasibility" test. [DISCUSSION OF PROJECTIONS TO BE PROVIDED PRIOR TO THE DISCLOSURE STATEMENT HEARING] C. BEST INTERESTS TEST As described above, the Bankruptcy Code requires that each holder of an impaired claim or equity interest either (a) accepts the plan or (b) receives or retains under the plan property of a value, as of the effective date of the plan, that is not less than the value such holder would receive or retain if the Debtor was liquidated under Chapter 7 of the Bankruptcy Code on the Effective Date. The first step in meeting this test is to determine the dollar amount that would be generated from the liquidation of the Debtor's assets and properties in the context of a Chapter 7 liquidation case. The total cash available would be the sum of the proceeds from the disposition of the Debtor's assets and the cash held by the Debtor at the time of the commencement of the Chapter 7 case. The next step is to reduce that total by the amount of any claims secured by such assets, the costs and expenses of the liquidation, and such additional administrative expenses and priority claims that may result from the termination of the Debtor's business and the use of Chapter 7 for the purposes of liquidation. Next, any remaining cash would be allocated to creditors and shareholders in strict priority in accordance with section 726 of the Bankruptcy Code (see discussion below). Finally, the present value of such allocations (taking into account the time necessary to accomplish the liquidation) is compared to the value of the property that is proposed to be distributed under the Plan on the Effective Date. The Debtor's costs of liquidation under Chapter 7 would include the fees payable to a trustee in bankruptcy, as well as those which might be payable to attorneys and other professionals that such a trustee may engage, plus any unpaid expenses incurred by the Debtor during a Chapter 11 case and allowed in a Chapter 7 case, such as compensation for attorneys, financial advisors, appraisers, accountants and other professionals, and costs and expenses of members of any committee of unsecured creditors appointed by the United States Trustee pursuant to section 1102 of the Bankruptcy Code and any other committee so appointed. In addition, claims would arise by reason of the breach or rejection of obligations incurred and executory contracts entered into by the Debtor both prior to, and during the pendency of, the Chapter 11 Case. The foregoing types of claims, costs, expenses, and fees and such other claims which may arise in a liquidation case or result from a pending Chapter 11 case would be paid in full from the liquidation proceeds before the balance of those proceeds would be made available to pay pre-Chapter 11 priority and unsecured claims. In applying the "best interests test," it is possible that claims and equity interests in the Chapter 7 case may not be classified according to the seniority of such claims and equity interests as provided in the Plan. In the absence of a contrary determination by the Bankruptcy Court, all pre-Chapter 11 unsecured claims which have the same rights upon liquidation and would be treated as one class for purposes of determining the potential distribution of the liquidation proceeds resulting from the Debtor's Chapter 7 case. The distributions from the liquidation proceeds would be calculated ratably according to the amount of the claim held by each creditor. Creditors who claim to be third-party beneficiaries of any contractual subordination provisions might be required to seek to enforce such contractual subordination provisions in the Bankruptcy Court or otherwise. Section 510 of the Bankruptcy Code specifies that such contractual subordination provisions are enforceable in a Chapter 7 liquidation case. The Debtor believes that the most likely outcome of liquidation proceedings under Chapter 7 would be the application of the rule of absolute priority of distributions. Under that rule, no junior creditor receives any distribution until all senior creditors are paid in full, with interest, and no equity holder receives any distribution until all creditors are paid in full with interest. Consequently, the Debtor believes that in a Chapter 7 case, Holders of Senior Note Claims would likely receive less than they would receive under the Plan and Holders of General Unsecured Claims, PBGC Claims, Old Common Stock Interests and Other Interests would receive no distributions of property. After consideration of the effects that a Chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors in a Chapter 11 case, including (i) the increased costs and expenses of a liquidation under Chapter 7 arising from fees payable to a trustee in bankruptcy and professional advisors to such trustee, (ii) the erosion in value of assets in a Chapter 7 case in the context of the expeditious liquidation required under Chapter 7 and the "forced sale" atmosphere that would prevail, (iii) the adverse effects on the salability of the capital stock of the subsidiaries as a result of the departure of key employees and the loss of major customers and suppliers, and (iv) substantial increases in claims which would be satisfied on a priority basis or on a parity with creditors in a Chapter 11 case, the Debtor has determined that confirmation of the Plan will provide each creditor and equity holder with a recovery that is not less than it would receive pursuant to a liquidation of the Debtor under Chapter 7 of the Bankruptcy Code. Moreover, the Debtor believes that the value of any distributions from the liquidation proceeds to each class of allowed claims in a Chapter 7 case would be the same or less than the value of distributions under the Plan because such distributions in a Chapter 7 case may not occur for a substantial period of time. In this regard, it is possible that distribution of the proceeds of the liquidation could be delayed for a year or more after the completion of such liquidation in order to resolve the claims and prepare for distributions. In the event litigation were necessary to resolve claims asserted in the Chapter 7 case, the delay could be further prolonged. D. LIQUIDATION ANALYSIS [TO BE PROVIDED PRIOR TO THE DISCLOSURE STATEMENT HEARING] UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS [TO BE PROVIDED PRIOR TO THE DISCLOSURE STATEMENT HEARING] DISTRIBUTION OF NET PROCEEDS ($ IN THOUSANDS) [TO BE PROVIDED PRIOR TO THE DISCLOSURE STATEMENT HEARING] As illustrated by the foregoing, the Debtor believes that under the Plan, each Holder of an Impaired Claim in Class 3 and each Holder of an Impaired Interest will receive on account of such Claim or Interest, property of a value, as of the Effective Date, that is not less than the value such Holder would receive if the Debtor was liquidated under Chapter 7 of the Bankruptcy Code on the Effective Date. Accordingly, the Debtor believes the Plan satisfies the requirements of the best interests test set forth in section 1129(a)(7) of the Bankruptcy Code. D. NONCONSENSUAL CONFIRMATION In the event that any Impaired Class of Claims or Interests does not accept the Plan, the Bankruptcy Court may nevertheless confirm the Plan if all other requirements under section 1129(a) of the Bankruptcy Code are satisfied, and if, with respect to each Impaired Class which has not accepted the Plan, the Bankruptcy Court determines that the Plan does not "discriminate unfairly" and is "fair and equitable" with respect to such Class. Confirmation under section 1129(b) of the Bankruptcy Code requires that at least one Impaired Class of Claims accepts the Plan, excluding any acceptance of the Plan by an "insider" (as that term is defined in section 101 of the Bankruptcy Code). In the event Class 3 accepts the Plan, the Debtor intends to seek confirmation of the Plan notwithstanding the nonacceptance of one or more other Impaired Classes. 1. No Unfair Discrimination ------------------------ A plan of reorganization does not "discriminate unfairly" with respect to a nonaccepting Class if the value of the cash and/or securities to be distributed to the nonaccepting Class is equal or otherwise fair when compared to the value of distributions to other Classes whose legal rights are the same as those of the nonaccepting Class. The Debtor believes that the Plan would not discriminate unfairly against any nonaccepting Class of Claims or Interests. 2. Fair and Equitable Test ----------------------- The "fair and equitable" test of section 1129(b) of the Bankruptcy Code requires absolute priority in the payment of claims and interests with respect to any nonaccepting Class or Classes. The "fair and equitable" test established by the Bankruptcy Code is different for secured claims, unsecured claims and equity interests, and includes the following treatment: SECURED CLAIMS. A plan is fair and equitable with respect to a nonaccepting class of secured claims if (1) the holder of each claim in such class will retain its lien or liens and receive deferred cash payments totaling the allowed amount of its claim, of a value, as of the effective date of the plan, equal to the value of such holder's interest in the collateral, (2) the holder of each claim in such class will receive the proceeds from any sale of such collateral or (3) the holder of each claim in such class will realize the indubitable equivalent of its allowed secured claim. UNSECURED CLAIMS. A plan is fair and equitable with respect to a nonaccepting class of unsecured claims if (1) the holder of each claim in such class will receive or retain under the plan property of a value, as of the effective date of the plan, equal to the allowed amount of its claim, or (2) holders of claims or interests that are junior to the claims of such creditors will not receive or retain any property under the plan on account of such junior claim or interest. EQUITY INTERESTS. A plan is fair and equitable with respect to a nonaccepting class of interests if the plan provides that (1) each member of such class receives or retains on account of its interest property of a value, as of the effective date of the plan, equal to the greatest of the allowed amount of any fixed liquidation preference to which such holder is entitled, any fixed redemption price to which such holder is entitled, or the value of such interest, or (2) holders of interests that are junior to the interests of such class will not receive or retain any property under the plan on account of such junior interests. In the event that Class 7 does not accept the Plan, and notwithstanding that Class 8 is deemed not to have accepted the Plan, the Debtor believes and will be prepared to demonstrate at the Confirmation Hearing that the Plan is "fair and equitable" with respect to all Impaired Classes of Claims and Interests, because, in each case, no class that is junior to such a dissenting class will receive or retain any property on account of the claims or equity interests in such class. XIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN If the Plan is not confirmed, the alternatives include (a) continuation of the Chapter 11 Case and formulation of an alternative plan or plans of reorganization or (b) liquidation of the Debtor under Chapter 7 or Chapter 11 of the Bankruptcy Code. A. CONTINUATION OF THE CHAPTER 11 CASE If the Debtor remains in Chapter 11, the Debtor could continue to operate its businesses and manage it properties as Debtor-in-possession, but it would remain subject to the restrictions imposed by the Bankruptcy Code. It is not clear whether the Debtor could survive as a going-concern in a protracted Chapter 11 case. The Debtor could have difficulty sustaining the high costs, operating financing, and the confidence of the Debtor's and its subsidiaries' and/or customers and trade vendors, of the Debtor remaining in Chapter 11. Ultimately, the Debtor (or other parties in interest) could propose another plan or attempt to liquidate the Debtor under Chapter 7 or Chapter 11. Such plans might involve either a reorganization and continuation of the Debtor's business, or an orderly liquidation of its assets, or a combination of both. B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11 If the Plan is not confirmed, the Debtor's Chapter 11 Case could be converted to a liquidation case under Chapter 7 of the Bankruptcy Code. In a Chapter 7 case, a trustee would be appointed to liquidate promptly the assets of the Debtor. The Debtor believes that in liquidation under Chapter 7, before creditors received any distributions, additional administrative expenses involved in the appointment of a trustee and attorneys, accountants, and other professionals to assist such trustee, along with an increase in expenses associated with an increase in the number of unsecured claims that would be expected, would cause a substantial diminution in the value of the estates. The assets available for distribution to creditors would be reduced by such additional expenses and by Claims, some of which would be entitled to priority, which would arise by reason of the liquidation and from the rejection of leases and other executory contracts in connection with the cessation of the Debtor's operations and the failure to realize the greater going-concern value of the Debtor's assets. The Debtor could also be liquidated pursuant to the provisions of a Chapter 11 plan of reorganization. In a liquidation under Chapter 11, the Debtor's assets could be sold in a more orderly fashion over a longer period of time than in a liquidation under Chapter 7. Thus, Chapter 11 liquidation might result in larger recoveries than in a Chapter 7 liquidation, but the delay in distributions could result in lower present values received and higher administrative costs. Because a trustee is not required in a Chapter 11 case, expenses for professional fees could be lower than in a Chapter 7 case, in which a trustee must be appointed. Any distribution to the holders of Claims under a Chapter 11 liquidation plan probably would be delayed substantially. The Debtor's liquidation analysis, prepared with their financial advisors and included above in this Disclosure Statement, is by law premised upon a liquidation in a Chapter 7 case. In that analysis, the Debtor has taken into account the nature, status, and underlying value of its assets, the ultimate realizable value of its assets, and the extent to which such assets are subject to liens and security interests. XV. VOTING AND CONFIRMATION OF THE PLAN A. VOTING DEADLINE IT IS IMPORTANT THAT THE HOLDERS OF CLAIMS IN CLASS 3 AND CLASS 5, AND THE HOLDERS OF EQUITY INTERESTS IN CLASS 7, EXERCISE THEIR RIGHTS TO VOTE TO ACCEPT OR REJECT THE PLAN. All known holders of claims and equity interests entitled to vote on the Plan have been sent a Ballot together with this Disclosure Statement. Such holders should read the Ballot carefully and follow the instructions contained therein. Please use only the Ballot that accompanies this Disclosure Statement. The Debtor has engaged [ ] as its Voting Agent to assist in the transmission of voting materials and in the tabulation of votes with respect to the Plan. FOR YOUR VOTE TO COUNT, YOUR VOTE MUST BE RECEIVED AT THE FOLLOWING ADDRESS BEFORE THE VOTING DEADLINE OF 5:00 P.M., EASTERN TIME, ON [_________, 1999]: SALANT CORPORATION c/o [ ] IF YOU HAVE BEEN INSTRUCTED TO RETURN YOUR BALLOT TO YOUR BANK, BROKER, OR OTHER NOMINEE, OR TO THEIR AGENT, YOU MUST RETURN YOUR BALLOT TO THEM IN SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN IT TO THE VOTING AGENT AT THIS ADDRESS BEFORE THE VOTING DEADLINE. IF A BALLOT IS DAMAGED OR LOST, OR FOR ADDITIONAL COPIES OF THIS DISCLOSURE STATEMENT, YOU MAY CONTACT THE DEBTORS' VOTING AGENT, [ ]. ANY BALLOT WHICH IS EXECUTED AND RETURNED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN WILL NOT BE COUNTED. IF YOU HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE VOTING AGENT AT THE ADDRESS SPECIFIED ABOVE OR BY TELEPHONING: [ ]. B. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE The Claims and equity Interests in the following Classes are Impaired under the Plan and entitled to receive a distribution; consequently, each Holder of such Claim or equity Interest, as of the Record Date established by the Debtor for purposes of this Solicitation, may vote to accept or reject the Plan: Class 3 -- Senior Note Claims (Holders of the Senior Notes) Class 5 -- PBGC Claims (Holders of the PBGC Claims) Class 7 -- Old Common Stock Interests (Holders of Old Common Stock Interests) C. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS The Bankruptcy Code defines acceptance of a plan by a class of claims as acceptance by holders of at least two-thirds in dollar amount and more than one-half in number of the claims of that class which cast ballots for acceptance or rejection of the plan. Thus, acceptance by a class of claims occurs only if holders of at least two-thirds in dollar amount and a majority in number of the claims in such class which actually vote cast their Ballots in favor of acceptance. HOLDERS OF CLAIMS IN CLASS 3 SHOULD VOTE THE AGGREGATE FACE AMOUNT OF THEIR SENIOR NOTES. The Bankruptcy Code defines acceptance of a plan by a class of equity interests as acceptance by holders of at least two-thirds in amount of interests of that class which cast ballots for acceptance or rejection of the plan. Thus, acceptance by a class of equity interests occurs only if the holders of at least two-thirds in amount of equity interests voting cast their Ballots in favor of acceptance. A vote may be disregarded if the Bankruptcy Court determines, after notice and a hearing, that such acceptance or rejection was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code. D. VOTING PROCEDURES The Debtor is providing copies of this Disclosure Statement, Ballots, and where appropriate, Master Ballots, to all registered holders (as of the Record Date) of Senior Notes in Class 3, PBGC Claims in Class 5 and Old Common Stock Interests in Class 7. Registered holders may include brokers, banks, and other nominees. If such registered holders do not hold for their own accounts, they or their agents (collectively with such registered holders, "Nominees") should provide copies of this Disclosure Statement and appropriate Ballots to their customers and to beneficial owners. Any beneficial owner who has not received a Ballot should contact his, her, or its Nominee, or the Voting Agent. Holders of Class 3 Senior Note Claims and Class 7 Old Common Stock Interests ------------------------------------------------------------ Beneficial Owners. Any beneficial owner, as of the Record Date, of Senior Notes or Old Common Stock in his, her, or its own name can vote by completing and signing the enclosed Ballot and returning it directly to the Voting Agent (using the enclosed pre-addressed postage-paid envelope) so as to be RECEIVED by the Voting Agent before the Voting Deadline. If no envelope was enclosed, contact the Voting Agent for instructions. Any beneficial owner holding, as of the Record Date, Senior Notes or Old Common Stock in "street name" through a Nominee can vote by completing and signing the Ballot (unless the Ballot has already been signed, or "prevalidated," by the Nominee), and returning it to the Nominee in sufficient time for the Nominee to then forward the vote so as to be RECEIVED by the Voting Agent before the Voting Deadline of 5:00 p.m. (Eastern Time) on [________ __, 1999]. Any Ballot submitted to a Nominee will not be counted until such Nominee properly completes and timely delivers a corresponding Master Ballot to the Voting Agent. IF YOUR BALLOT HAS ALREADY BEEN SIGNED (OR "PREVALIDATED") BY YOUR NOMINEE, YOU MUST COMPLETE THE BALLOT AND RETURN IT DIRECTLY TO THE VOTING AGENT SO THAT IT IS RECEIVED BY THE VOTING AGENT BEFORE THE VOTING DEADLINE. NOMINEES. A Nominee which is the registered holder for a beneficial owner, as of the Record Date, of Senior Notes or of Old Common Stock, can obtain the votes of the beneficial owners of such securities, consistent with customary practices for obtaining the votes of securities held in "street name," in one of the following two ways: The Nominee may "prevalidate" a Ballot by (i) signing the Ballot, (ii) indicating on the Ballot the name of the registered holder, the amount of securities held by the Nominee for the beneficial owner, and the account numbers for the accounts in which such securities are held by the Nominee, and (iii) forwarding such Ballot, together with the Disclosure Statement, return envelope, and other materials requested to be forwarded, to the beneficial owner for voting. The beneficial owner must then indicate his, her or its vote on the Plan, review the certifications contained in the Ballot, and return the Ballot directly to the Voting Agent in the pre-addressed, postage-paid envelope so that it is received by the Voting Agent before the Voting Deadline. A list of the beneficial owners to whom "prevalidated" Ballots were delivered should be maintained by Nominees for inspection for at least one year from the Voting Deadline. OR If the Nominee elects not to "prevalidate" Ballots, the Nominee may obtain the votes of beneficial owners by forwarding to the beneficial owners the unsigned Ballots, together with the Disclosure Statement, a return envelope provided by, and addressed to, the Nominee, and other materials requested to be forwarded. Each such beneficial owner must then indicate his, her or its vote on the Plan, review the certifications contained in the Ballot, execute the Ballot, and return the Ballot to the Nominee. After collecting the Ballots, the Nominee should, in turn, complete a Master Ballot compiling the votes and other information from the Ballots, execute the Master Ballot, and deliver the Master Ballot to the Voting Agent so that it is received by the Voting Agent before the Voting Deadline. All Ballots returned by beneficial owners should be retained by Nominees for inspection for at least one year from the Voting Deadline. Please note: The Nominee should advise the beneficial owners to return their Ballots to the Nominee by a date calculated by the Nominee to allow it to prepare and return the Master Ballot to the Voting Agent so that the Master Ballot is received by the Voting Agent before the Voting Deadline. Securities Clearing Agencies. The Debtor expects that each of The Depository Trust Company and The Philadelphia Depository Trust Company, as the nominee holder of the Senior Notes and the Old Common Stock will arrange for its respective participants to vote by executing an omnibus proxy in favor of such participants. As a result of the omnibus proxy, each participant will be authorized to vote its position as of the Record Date held in the name of such securities clearing agencies. Other. If a Ballot is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should indicate such capacity when signing, and unless otherwise determined by the Debtor, must submit proper evidence satisfactory to the Debtor of their authority to so act. For purposes of voting to accept or reject the Plan, the beneficial owners of such securities will be deemed to be the "holders" of such claims or equity interests, as the case may be, represented by such securities. All claims in a Class that are voted by a beneficial owner must be voted either to accept or to reject the Plan and may not be split by the beneficial owner within such Class. Unless otherwise ordered by the Bankruptcy Court, Ballots or Master Ballots which are signed, dated, and timely received, but on which a vote to accept or reject the Plan has not been indicated, will not be counted. The Debtor, in its discretion, may request that the Voting Agent attempt to contact such voters to cure any such defects in the Ballots or Master Ballots. Except as provided below, unless the Ballot or Master Ballot is timely submitted to the Voting Agent before the Voting Deadline together with any other documents required by such Ballot or Master Ballot, the Debtor may, in its sole discretion, reject such Ballot or Master Ballot as invalid, and therefore, decline to utilize it in connection with seeking confirmation of the Plan by the Bankruptcy Court. In the event of a dispute with respect to a claim or equity interest, any vote to accept or reject the Plan cast with respect to such claim or equity interest will not be counted for purposes of determining whether the Plan has been accepted or rejected, unless the Bankruptcy Court orders otherwise. The Debtor is not at this time requesting the delivery of, and neither the Debtor nor the Voting Agent will accept, certificates representing any notes or equity securities. Prior to the Effective Date, the Debtor will furnish all such holders with appropriate letters of transmittal to be used to remit such securities in exchange for the distribution under the Plan. Information regarding such remittance procedure (together with all appropriate materials) will be distributed by the Debtor after confirmation of the Plan. XVI. CONCLUSION AND RECOMMENDATION BASED ON ALL OF THE FACTS AND CIRCUMSTANCES, THE DEBTOR CURRENTLY BELIEVES THAT CONFIRMATION OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTOR, ITS CREDITORS, ITS INTEREST HOLDERS, AND ITS ESTATE. The Plan provides for an equitable and early distribution to creditors and stockholders, and preserves the going concern value of the Debtor. The Debtor believes that alternatives to confirmation of the Plan could result in significant delays, litigation, and costs, as well as a reduction in the going concern value of the Debtor and a loss of jobs by many of the Debtor's employees. FOR THESE REASONS, THE DEBTOR URGES YOU TO RETURN YOUR BALLOT AND VOTE TO ACCEPT THE PLAN. DATED: New York, New York December 29, 1998 SALANT CORPORATION Debtor and Debtor-in-Possession By: /s/ Todd Kahn ---------------------------- Name: Todd Kahn Title: Executive Vice President and General Counsel FRIED, FRANK, HARRIS, SHRIVER & JACOBSON (A Partnership Including Professional Corporations) Attorneys for the Debtor and Debtor-in-Possession One New York Plaza New York, New York 10004 (212) 859-8000 By:/s/ Brad Eric Scheler ----------------------- Brad Eric Scheler, Esq. EX-10.50 4 EXHIBIT 10.50 [EXECUTION COPY] RATIFICATION AND AMENDMENT AGREEMENT ------------------------------------ RATIFICATION AND AMENDMENT AGREEMENT (this "Agreement") dated as of December 29, 1998, made by and among SALANT CORPORATION ("Borrower" and sometimes hereinafter referred to as "Debtor") as Debtor and Debtor-in-Possession, CLANTEXPORT, INC., DENTON MILLS, INC., VERA LICENSING, INC., J.J. FARMER CLOTHING, INC., FROST BROS. ENTERPRISES, INC., SLT SOURCING, INC. and SALANT CANADA INC. (individually, "Guarantor", collectively "Guarantors" and together with Borrower sometimes hereinafter referred to individually as "Obligor" and collectively as "Obligors") and THE CIT GROUP/COMMERCIAL SERVICES, INC. ("Lender"). W I T N E S S E T H: -------------------- WHEREAS, Borrower has commenced a case under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), and Borrower has retained possession of its assets and is authorized under the Bankruptcy Code to continue the operation of its business as debtor-in-possession; and WHEREAS, prior to the commencement of the Chapter 11 Case (as hereinafter defined) by Borrower, Lender made loans and advances and caused to be issued letters of credit to the Borrower secured by substantially all of the personal and real property of the Borrower and the guaranties by the Guarantors of the present and future obligations of the Borrower, which guaranties are secured by substantially all of the personal property of the Guarantors, all as set forth in the Financing Agreements (as hereinafter defined); and WHEREAS, the Bankruptcy Court has entered an Order Authorizing Interim Financing, Granting Senior Liens and Priority Administrative Expense, Modifying Automatic Stay and Authorizing Debtor to Enter into Agreements with The CIT Group/Commercial Services, Inc. and Authorizing the Assumption of Existing Financing Agreements with Debtor (the "Interim Financing Order") pursuant to which Lender will, upon the terms and subject to the conditions thereof, make post-petition loans and advances and cause to be issued letters of credit to the Borrower secured by all assets and properties of the Obligors; and WHEREAS, the Interim Financing Order provides that as a condition to the making of such post-petition loans and advances and such other financial accommodations, Borrower shall execute and deliver and cause the Guarantors to execute and deliver this Agreement; and WHEREAS, the Obligors desire to reaffirm their respective obligations pursuant to the Financing Agreements, and acknowledge their continuing liabilities to Lender thereunder in order to induce Lender to make such post-petition loans and advances and such other financial accommodations to Borrower; and WHEREAS, the Borrower has also requested that Lender make amendments to the Credit Agreement (as hereinafter defined) and Lender is willing to do so subject to the terms and conditions contained herein. NOW THEREFORE, in consideration of the foregoing, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Obligors mutually covenant, warrant and agree as follows: 1. DEFINITIONS ----------- 1.1 Additional Definitions. As used herein, the following terms shall have the respective meanings given to them below and the Financing Agreements shall be deemed and are hereby amended to include, in addition and not in limitation, each of the following definitions: (a) "Budget" shall mean the operating forecast dated November 19, 1998 setting forth Borrower's projected sales, expenditures and cash flow for the periods covered thereby or any other projections or forecasts prepared by or on behalf of Borrower and delivered by Borrower to Lender, which are acceptable to Lender at the time of delivery thereof. (b) "Chapter 11 Case" shall mean the Chapter 11 case of the Debtor under the Bankruptcy Code referred to as In re Salant Corporation, Chapter 11 Case No. ________________, currently pending in the Bankruptcy Court. (c) "Credit Agreement" shall mean the Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, by and between Lender and Borrower, and any and all amendments thereto, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (d) "Existing Valid Liens" shall have the meaning set forth in Section 2.2 of this Agreement. (e) "Financing Agreements" shall mean, collectively, the Credit Agreement, together with all amendments thereto, including, without limitation, this Agreement, supplements, agreements, documents, instruments, guarantees, security agreements and mortgages at any time executed and/or delivered by any of the Obligors in connection therewith or related thereto, including, but not limited to, the documents comprising Exhibits "A" and "B" to the Debtor's Motion for the Interim Financing Order, as all of the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (f) "Financing Order" shall mean and include the Interim Financing Order and such other orders relating thereto or authorizing the granting of credit by Lender to the Borrower on an emergency, interim or permanent basis (the "Final Financing Order") pursuant to Section 364 of the Bankruptcy Code as may be entered by the Bankruptcy Court, each in form and substance satisfactory to Lender. (g) "Petition Date" shall mean the date of the commencement of the Chapter 11 Case. (h) "Pre-Petition Collateral" shall mean, collectively, all "Collateral" as such term may be defined in any of the Financing Agreements and all other security for the Pre-Petition Obligations (as hereinafter defined) as provided in the Financing Agreements immediately prior to the Petition Date. (i) "Pre-Petition Obligations" shall mean all loans, advances, debts, obligations, liabilities, indebtedness, covenants and duties of Obligors to Lender of every kind and description, however evidenced, whether direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not due, primary or secondary, liquidated or unliquidated, arising before the Petition Date and whether arising under or related to the Financing Agreements, by operation of law or otherwise and whether incurred by any of the Obligors as principal, surety, endorser, guarantor or otherwise and including, without limitation, all principal, interest, letter of credit guaranty fees, forbearance fees, other fees of Lender, factoring commissions, costs, expenses and attorneys' and accountants' fees and expenses incurred in connection with any of the foregoing and all indebtedness of Borrower to Lender arising from Borrower's purchase of goods or services from any concern whose accounts receivable are factored or financed by Lender. (j) "Post-Petition Collateral" shall mean, collectively, all now existing or hereafter acquired personal and real property and fixtures of the estate of the Debtor, wherever located, of any kind or nature, including, without limitation, all of the types or items of property described as Collateral in the Financing Agreements, all other security for the Pre-Petition Obligations and Post-Petition Obligations as provided in the Financing Agreements and all property of the Debtor's estate upon which Lender is granted a security interest or lien pursuant to a Financing Order or by any United States Bankruptcy or District Court Judge. (k) "Post-Petition Obligations" shall mean all now existing and hereafter arising loans, advances, debts, obligations, liabilities, covenants and duties of Debtor to Lender of every kind and description, however evidenced, whether direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not due, primary or secondary, liquidated or unliquidated, arising on and after the Petition Date and whether arising on or after the conversion or dismissal of the Chapter 11 Case, or before, during and after the confirmation of any plan of reorganization in the Chapter 11 Case, and whether arising under or related to this Agreement, the other Financing Agreements, a Financing Order, by operation of law or otherwise, and whether incurred by the Debtor as principal, surety, endorser, guarantor or otherwise and including, without limitation, all principal, interest, facility continuation fees, early termination fees, letter of credit guaranty fees, collateral management fees, other fees of Lender, factoring commissions, costs, expenses and attorneys' and accountants' fees and expenses incurred in connection with any of the foregoing and all indebtedness of Debtor to Lender arising from the purchase by Debtor of goods or services from any concern whose accounts receivable are factored or financed by Lender. 1.2 Amendments to Definitions in Financing Agreement. ------------------------------------------------ (a) All references to the term "Collateral" in any of the Financing Agreements or any other similar term referring to the security for the Pre-Petition Obligations in any of the Financing Agreements are hereby amended to mean, collectively, the Pre-Petition Collateral and the Post-Petition Collateral. (b) All references to the Debtor, including, without limitation, to the terms "Borrower", "Debtor", "us", "we" or "our" in any of the Financing Agreements shall be deemed and each such reference is hereby amended to mean the Debtor as defined herein, and its successors and assigns (including any trustee or other fiduciary hereafter appointed as its legal representatives or with respect to the property of the estate of Debtor whether under Chapter 11 of the Bankruptcy Code or any subsequent Chapter 7 case and its successors upon conclusion of the Chapter 11 Case). (c) All references to the term "Financing Agreements" in any of the Financing Agreements shall be deemed and each such reference is hereby amended to include, in addition and not in limitation, this Agreement, all of the Financing Agreements as ratified, assumed and adopted by the Debtors pursuant to the terms hereof, as amended and supplemented hereby, and the Financing Order, as each of the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (d) All references to the term "Credit Agreement" in any of the Financing Agreements shall be deemed and each such reference is hereby amended to mean the Credit Agreement, as defined herein and amended hereby and ratified, assumed and adopted by Borrower pursuant to the terms hereof and the Financing Order, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (e) All references to the term "Obligations" in this Agreement and in any of the Financing Agreements shall be deemed to mean and each such reference in the Financing Agreements is hereby amended to mean, both the Pre-Petition Obligations and the Post-Petition Obligations. 1.3 Interpretation. -------------- (a) All references to the terms "Lender", the "Debtor" the "Obligors" or any other person pursuant to the definitions in the recitals hereto or otherwise shall include their respective successors and assigns (and including as to the Debtor, any trustee or other fiduciary hereafter appointed as its legal representatives or with respect to the property of the estate of Debtor whether under Chapter 11 of the Bankruptcy Code or any subsequent Chapter 7 case and its successor upon conclusion of the Chapter 11 Case). (b) All references to any term in the singular shall include the plural and all references to any term in the plural shall include the singular. (c) All terms not specifically defined herein which are defined in the Uniform Commercial Code ("UCC") shall have the meaning set forth therein, except that the term "Lien" or "lien" shall have the meaning set forth in ss.E101(37) of the Bankruptcy Code. 2. ACKNOWLEDGMENT -------------- 2.1 Pre-Petition Obligations. Each Obligor hereby acknowledges, confirms and agrees that it is indebted to Lender for the Pre-Petition Obligations, both absolute and contingent, as of December 28, 1998, in respect of the loans and advances made to Borrower and letters of credit caused to be issued for the account of Borrower pursuant to the Financing Agreements and for the indebtedness of Borrower to Lender arising from the purchase by Borrower of goods or services from any concern whose accounts receivables are factored or financed by Lender in the aggregate principal amount of approximately $70,547,401, together with interest accrued and accruing thereon, letter of credit guaranty fees, and costs, expenses, fees (including attorneys' fees) and other charges now or hereafter owed by Obligors to Lender, all of which is unconditionally owing by Obligors to Lender, without offset, defense or counterclaim of any kind, nature and description whatsoever. 2.2 Acknowledgment of Security Interests. Each Obligor hereby acknowledges, confirms and agrees that, subject only to the prior liens on its property existing on the Petition Date, but only to the extent that such liens are valid, perfected and non-voidable in accordance with applicable law ("Existing Valid Liens"), Lender has and shall continue to have valid, enforceable and perfected first priority and senior liens upon and security interests in all Pre-Petition Collateral heretofore granted to Lender pursuant to the Financing Agreements as in effect prior to the date hereof to secure all of the Obligations, as well as valid and enforceable first priority and senior liens upon and in all Post-Petition Collateral granted to Lender under the Financing Order or hereunder or under any other Financing Agreements or otherwise granted to or held by Lender. 2.3 Binding Effect of Documents. Each Obligor hereby acknowledges, confirms and agrees that: (a) the Financing Agreements to which it is a party have been duly executed and delivered to Lender by it and are in full force and effect as of the date hereof, (b) the agreements and obligations of each Obligor contained in the Financing Agreements to which it is a party constitute the legal, valid and binding obligation of such Obligor enforceable against it in accordance with their respective terms and such Obligor has no valid defense, offset or counterclaim to the enforcement of such obligations, and (c) Lender is and shall be entitled to all of the rights, remedies and benefits provided for in the Financing Agreements. 2.4 No Release. Nothing contained herein shall be deemed to terminate, modify or release any obligations of any Obligor or any non-debtor guarantor or any other obligor to Lender with respect to the Pre-Petition Obligations, the Post-Petition Obligations or otherwise. 3. ADOPTION AND RATIFICATION ------------------------- Each of the Obligors hereby (a) ratifies, assumes, adopts and agrees to be bound by the Financing Agreements and (b) agrees to pay all of the Pre-Petition Obligations. All of the Financing Agreements are hereby incorporated herein by reference and hereby are and shall be deemed adopted and assumed in full by each of the Obligors party thereto, and considered as agreements between the respective Obligors and Lender. Each of the Obligors hereby ratifies, affirms and confirms all of the terms and conditions of the Financing Agreements to which it is a party, as amended and supplemented pursuant hereto and the Financing Order, and each of the Obligors agrees to be fully bound by the terms of the Financing Agreements to which it is a party. 4. GRANT OF SECURITY INTEREST -------------------------- As collateral security for the prompt performance, observance and payment in full of all of the Obligations (including the Pre-Petition Obligations and the Post-Petition Obligations), Debtor, as Debtor-in-Possession, hereby grants, pledges and assigns to Lender (subject to Existing Valid Liens), and also confirms and reaffirms the prior grant to Lender of, a continuing security interest in and liens upon, and rights of setoff against, all of the Collateral (subject, as to priority only, only to the fees of the United States Trustee and the Fee Carve-Out (as defined in the Financing Order), wherever located, of any kind or nature, including without limitation, the Pre-Petition Collateral, and all now existing and hereafter acquired personal and real property of the estate of the Debtor effective from the Petition Date, including, but not limited to, the following: (a)(i) all of Debtor's present and future accounts, including without limitation, all of Debtor's rights to payment for goods sold or leased or for services rendered, whether now existing or hereafter arising, whether or not earned by performance, and whether invoiced under the name of Debtor or any tradename or division of Debtor, (collectively, "Accounts"); (ii) all right, title and interest in, to and in respect of 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, and (iii) 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; (b) all of Debtor's now owned or hereafter acquired chattel paper instruments and documents; (c) all of Debtor's general intangibles, rights, interests, choses in action, causes of action (exclusive of causes of action and recoveries under ss.ss. 510, 545, 547, 548, 549, 550 and 553 of the Bankruptcy Code) 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, tax refund claims, rights to indemnification, reversionary interests in pension and profit sharing plans and reversionary, beneficial, and residual interests in trusts (collectively, "General Intangibles"); (d) all of Debtor's inventory, or every kind and description, now or hereafter owned or acquired by or in the custody or possession, actual or constructive, of Debtor, 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 or 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 (collectively, "Inventory"); (e) all of Debtor'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 Debtor relating thereto, whether in the possession and control of Debtor or in the possession and control of a third person for the account of Debtor and all claims to the proceeds of insurance thereon and all maintenance and warranty records relating thereto (collectively, "Equipment"); (f) all of Debtor's now owned and hereafter acquired real property, wherever located, of every kind and description, including, but not limited to, all fee interests and leasehold interests, together with all buildings, structures and other improvements located thereon and all licenses, easements and appurtenances relating thereto (collectively, "Real Estate"); (g) 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 the possession or control of Debtor, any computer service bureau or other third Person (collectively, "Books and Records"); and (h) all products and proceeds of the foregoing, in any form, including, without limitation, any insurance proceeds ("Insurance Proceeds") and any claims against third persons for loss or damage to or destruction of any or all of the foregoing. 5. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS ---------------------------------------------------- In addition to the continuing representations, warranties and covenants heretofore and hereafter made by Borrower to Lender, whether pursuant to the Financing Agreements or otherwise, and not in limitation thereof, Borrower hereby represents, warrants and covenants to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which, or compliance with, being a continuing condition of the making of loans by Lender: 5.1 Financing Order. The Interim Financing Order has been duly entered, is valid, subsisting and continuing and has not been vacated, modified, reversed on appeal, or vacated or modified by any Bankruptcy Judge or District Court Judge and is not subject to any pending appeal or stay. 5.2 Use of Proceeds. Except as otherwise provided by order of a court of competent jurisdiction or in this Section 5.2, all loans and advances and letters of credit provided by Lender to Borrower pursuant to a Financing Order, the Financing Agreements or otherwise, shall be used exclusively for general operating and working capital purposes of Borrower in the ordinary course of its business and as set forth in the Budget. No portion of any administrative expense claim or other claim relating to the Chapter 11 Case shall be paid with the proceeds of such loans provided by Lender to Borrower, other than those administrative expense claims and other claims relating to the Chapter 11 Case directly attributable to the operation of the business of the Borrower. Upon entry of the Final Financing Order, in form and substance satisfactory to Lender, Borrower shall pay the Pre-Petition Obligations in full or to the extent available from the proceeds of the first loan thereafter made by Lender to Borrower, it being understood that the amount of such loan may not exceed limitations contained in the Financing Agreement or the Final Financing Order. 5.3 Budget. The Budget has been prepared by Borrower and presented to Lender. The Budget has been thoroughly reviewed by Borrower and its management and sets forth the working capital requirements of Borrower for the period covered thereby. The Borrower will act in accordance with the Budget and Lender has relied upon the Budget in determining to enter into the post-petition financing arrangements provided for herein. The Borrower shall provide Lender with a new Budget and projections not less than thirty (30) business days prior to the end of the period covered by any prior Budget or at Lender's request. 6. AMENDMENTS ---------- 6.1 Amendments to Section 1. Section 1 of the Credit Agreement is amended as follows: (a) Section 1.5A of the Credit Agreement is amended and restated in its entirety as follows: "1.5A. 'Applicable Margin' shall mean (a) for the initial 150 day term of this Agreement, 1.00%, (b) for the next 90 day term of this Agreement, 1.25%, and (c) thereafter, 1.75%." (b) The following is added to Section 1 of this Credit Agreement as Section 1.7A thereof: "1.7A 'Availability Reserve' shall mean, at any time of determination, Bankruptcy Court fees and expenses incurred by professionals retained by Borrower and by the Committee, as defined in the Interim Financing Order, equal to the maximum amount of the Fee Carve-Out, as defined in the Financing Order, but in no event less than $2,000,000." (c) Section 1.18 of the Credit Agreement is amended and restated in its entirety to read as follows: "1.18 'Collateral' shall mean, collectively, the Pre-Petition Collateral and the Post-Petition Collateral." (d) Sections 1.28(a) through (e) are amended and restated in their entirety to read as follows: "1.28 'Eligible Inventory' shall mean that Inventory consisting of first quality finished goods held for sale in the ordinary course of business of Borrower and domestic raw materials for Perry Ellis Inventory and belts held for sale by Borrower's Accessories Division 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 Lender 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 Borrower; (e) Inventory consisting of finished goods that meets the following criteria (and all other requirements for Eligible Inventory): Made for Sale In Season Indicated Eligibility ------------------- ----------- Prior to Fall 1998 No eligibility. Fall 1998 Eligible through 3/31/99 and ineligible thereafter with the exception that such Inventory related to the Childrenswear Division of Borrower will be eligible through 2/28/99. Holiday 1998 Eligible through 3/31/99 and ineligible thereafter with the exception that such Inventory related to the Childrenswear Division will be eligible through 2/28/99. Spring 1999 Eligible through 9/30/99 and ineligible thereafter. Transition/Summer 1999 Eligible through 9/30/99 and ineligible thereafter. Fall 1999 Eligible through 12/31/99 and ineligible thereafter. Holiday 1999/ Spring 2000 Eligible through 12/31/99 and ineligible thereafter. Notwithstanding the foregoing, all Childrenswear Division Inventory will be ineligible after 2/28/99. In addition, all Inventory of Non-Perry Ellis Business Units will be ineligible after 7/31/99;" (e) Section 1.62A of the Credit Agreement is amended and restated in its entirety to read as follows: "1.62A 'Non-Notification Accounts' shall mean Accounts of Borrower arising from sales made by Borrower's Non-Perry Ellis Business Units from January 1, 1999 through May 31, 1999." (f) The following is added to Section 1 as Section 1.62A-1 thereof: "1.62A-1 'Non-Perry Ellis Business Unit' shall mean a division, subsidiary or other business unit of Borrower which does not sell Perry Ellis Inventory." (g) The following is added to Section 1 of the Credit Agreement as Section 1.62A-2 thereof: "1.62A-2 'Non-Perry Ellis Eligible Inventory' shall mean all Eligible Inventory other than Perry Ellis Eligible Inventory." (h) Section 1.62B of the Credit Agreement is amended and restated in its entirety to read as follows: "1.62B 'Notification Accounts' shall mean Accounts of Borrower arising from sales made by Borrower's Non-Perry Ellis Business Units after June 1, 1999." (i) The following is added to Section 1 of the Credit Agreement as Section 1.65A thereof: "1.65A 'Perry Ellis Business Unit' shall mean a division, subsidiary or other business unit of Borrower which sells Perry Ellis Inventory." (j) The following is added to Section 1 of the Credit Agreement as Section 1.65B thereof: "1.65B 'Perry Ellis Eligible Inventory' shall mean Eligible Inventory subject to any license agreement between Perry Ellis International Inc. and Borrower, including, without limitation, Eligible Inventory bearing any trademark licensed to Borrower by Perry Ellis International Inc. and held for sale by a Perry Ellis Business Unit of Borrower and Eligible Inventory consisting of belts held for sale by Borrower's Accessories Division and domestic raw materials for such belts." (k) The following is added to Section 1 of the Credit Agreement as Section 1.65C thereof: "1.65C 'Perry Ellis Inventory' shall mean Inventory subject to any license agreement between Perry Ellis International Inc. and Borrower, including, without limitation, Inventory bearing any trademark licensed to Borrower by Perry Ellis International Inc." 6.2 Amendment of Section 3.1(a)(iii). Section 3.1(a)(iii) of the Credit Agreement is amended and restated in its entirety to read as follows: (iii) Sixty percent (60%) of Perry Ellis Eligible Inventory, plus (iv) (x) for the first 120 days of the initial term of this Agreement, fifty-five percent (55%) of Non-Perry Ellis Eligible Inventory and (y) after such 120 day period, fifty percent (50%) of Non-Perry Ellis Eligible Inventory, provided, however, at no time shall sum of (x) the outstanding amount of all Obligations plus (y) the Availability Reserve exceed the lesser of (A) the aggregate amount of Revolving Loans and Letter of Credit Accommodations available to Borrower under the Advance Formulas and (B) the Maximum Credit. 6.3 Amendment of Section 3.1(c). Section 3.1(c) of the Credit Agreement is amended and restated in its entirety to read as follows: "(c) Notwithstanding anything to the contrary contained herein or in any of the other Financing Agreements, except in Lender's discretion, the aggregate unpaid principal amount of Revolving Loans outstanding at any time based on the value of all Eligible Inventory shall not exceed (i) $40,000,000 for the first 120 days of the initial term of this Agreement and (ii) $25,000,000 at all times after such 120 period (the 'Inventory Sublimit')." 6.4 Amendment of Section 3.1(e). Section 3.1(e) of the Credit Agreement is amended and restated in its entirety to read as follows: "(e) Notwithstanding anything to the contrary contained in this Agreement or in any of the other Financing Agreements, at the request of Borrower, Lender may, in its sole discretion, subject to the Maximum Credit, make Revolving Loans and Letter of Credit Accommodations to Borrower in excess of the aggregate amount available under the Advance Formulas, which excess shall be repayable in full upon demand." 6.5 Addition of Section 3.1B. The Credit Agreement is hereby amended by adding thereto the following Section 3.1B thereto: "3.1B. No New Eurodollar Loans; Conversion of Eurodollar Loans to Prime Rate Loans. Notwithstanding anything to the contrary contained in this Agreement, as of the Petition Date all Eurodollar Loans shall be converted to Prime Rate Loans, and from and after the Petition Date Borrower shall not have the right to request, and Lender shall have no obligation to make, Eurodollar Loans." 6.6 Amendment of Section 3.2(f). Section 3.2(f) of the Credit Agreement is amended and restated in its entirety to read as follows: "(f) Notwithstanding anything to the contrary contained herein or in any of the other Financing Agreements, except in Lender's discretion, the aggregate amount of all Letter of Credit Accommodations pursuant hereto and all other commitments and obligations made or incurred by lender pursuant hereto for the account or benefit of Borrower in connection therewith outstanding at any time shall not exceed $30,000,000 (the 'Letter of Credit Sublimit'." 6.7 Amendment of Section 3.3. Section 3.3 of the Credit Agreement is amended and restate in its entirety to read as follows: "3.3 Maximum Credit -------------- The aggregate principal amount of Revolving Loans and Letter of Credit Accommodations at any time outstanding shall not exceed $85,000,000 (the "Maximum Credit")." 6.8 Addition of Section 3.4A. Section 3.4A is added to the Credit Agreement as follows: "3.4A Collateral Management Fee ------------------------- Borrower shall pay to Lender on the first day of each month a collateral management fee in the amount of $4,167 per month. The collateral management fee provided for herein shall be in addition to all other amounts payable by Borrower under this Agreement and shall constitute part of the Obligations. Such fee may, at Lender's option, be charged directly to any account of Borrower maintained with Lender." 6.9 Addition of Section 3.4B. Section 3.4B is added to the Credit Agreement as follows: "3.4B Field Examination Fee --------------------- Borrower shall pay to Lender a per diem charge in the amount of $750 per day for each of Lender's field examiners, in the field and at any office of Borrower, plus all out-of-pocket expenses and costs incurred by Lender during the course of Lender's field examinations. The field examination fee provided herein shall be in addition to all other amounts payable by Borrower under this Agreement and the other Financing Agreements and shall constitute part of the Obligations. Such fee may, at Lender's option, be charged directly to any account of Borrower maintained with Lender." 6.10 Amendment of Section 3.6(h). Section 3.6(h) of the Credit Agreement is amended and restated in its entirety to read as follows: "(h) For providing factoring services hereunder, Borrower shall pay a factoring commission on the Factored Accounts created in each calendar month during the term of this Agreement in the amount seventy-five hundredths of one percent (.75%) of the gross face amount of such Factored Accounts, less trade and cash discounts thereon. Factoring commissions with respect to any calendar month shall be due and payable by Borrower and shall be charged to Borrower's account on such day that sales are assigned to Lender." 6.11 Amendment of Section 3.6(k). Section 3.6(k) of the Credit Agreement is deleted in its entirety and replaced with the following: "(k) [Intentionally Deleted]" 6.12 Amendment of Section 3.6A. Section 3.6A of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "3.6A [Intentionally Deleted]" 6.13 Amendment of Section 7.10. Section 7.10 is amended by adding the following at the end thereof: "In the event of (a) a sale of a Non-Perry Ellis Business Unit of Borrower or any part of the Accessories Division of Borrower, then all of the net proceeds from such sale shall, subject to Existing Valid Liens on the assets sold, be remitted by Borrower to Lender for application to the Obligations or (b) a sale of Inventory of a Non-Perry Ellis Business Unit or the Accessories Division of Borrower made other than in the ordinary course of business, then the Person (including an employee of Borrower) who sells such inventory for or on behalf of Borrower shall be satisfactory to Lender. No such sale shall be made without the prior written consent of Lender." 6.14 Addition of Section 7.17(f). Section 7.17(f) is added to the Credit Agreement as follows: "(f) Borrower shall deliver to Lender copies of all financial reports, schedules and other materials and information at any time furnished by Borrower to the Bankruptcy Court, any creditors' committee, the U.S. Trustee or any of Borrower's shareholders, concurrently with the delivery thereof to the Bankruptcy Court, creditors' committee, U.S. Trustee or shareholders, as the case may be." 6.15 Amendment of Section 8.1. Section 8.1 of the Credit Agreement is amended and restated in its entirety to read as follows: "8.1 Events of Default. The occurrence of any one or more of the following event shall constitute an "Event of Default" hereunder: (a) Borrower shall fail to pay any of the Obligations when due; or (b) any present or future representation, warranty or statement of fact, other than as set forth in Section 6.11 above, when made by or on behalf of Borrower or any Guarantor to Lender is false or misleading in any material respect; or (c) any present or future representation, warranty or statement of fact made by Borrower as set forth in Section 6.11 above when made by or on behalf of Borrower is false or misleading in a respect or to an extent that materially and adversely affects the business, properties, operations or condition, financial or otherwise, of Borrower; or (d) Borrower or any Guarantor shall fail to observe or perform any covenant or agreement contained in this Agreement, the other Financing Agreements (other than a Financing Order) 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 Lender has notified borrower thereof; or (e) an "event of default" (as defined in any of the other Financing Agreements) shall occur; or (f) there is a Change or Control; or (g) after the commencement of the Chapter 11 Case Borrower or any Guarantor shall default in the payment of any amounts at any time due on any Indebtedness in excess of $500,000 at any time owing to any one person other than Lender or in the performance of any other term or covenant or any evidence of same or other agreement relating thereto or securing same or with respect to any contract, lease, license or other obligation owed to any person other than lender, which default continues beyond the applicable cure period, if any, with respect thereto; or (h) after the commencement of the Chapter 11 Case a judgement is rendered against Borrower or any Guarantor in excess of $250,000 in any one case or in excess of $500,000 in the aggregate and the same shall remain undischarged for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed; or (i) Borrower shall suspend or discontinue doing business for any reason other than by reason of the sale of non-Perry Ellis Units or Perry Ellis Inventory of Borrower's Accessories Division; or (j) 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 (k) Conway DelGenio Gries & Co., LLC ceases to be business consultant to Borrower and is not replaced within five (5) days by a business consultant satisfactory to Lender; or (l) any event or circumstance occurs after entry of the Interim Financing Order that materially and adversely affects the business, properties, operations or condition, financial or otherwise, of Borrower; or (m) a violation of any Financing Order (other than as a result of a modification thereof as approved by the Bankruptcy Court, which modification, if initiated or supported by Borrower, shall have been approved by Lender) occurs during the pendency of the Chapter 11 Case; or (n) the Chapter 11 Case is converted to a proceeding under Chapter 7 of the Bankruptcy Code, or is terminated or dismissed prior to confirmation of a plan of reorganization; or (o) if Borrower or any Guarantor is enjoined, restricted or in any material way prevented by Court order from continuing to conduct all or any material part of its business affairs; or (p) the occurrence of any condition or event which permits Lender to exercise any of the remedies set forth in the Financing Order, including, without limitation, any 'Event of Default', as defined in the Financing Order; or (q) conversion of the Chapter 11 Case to a Chapter 7 case under the Bankruptcy Code; or (r) dismissal of the Chapter 11 Case or any subsequent Chapter 7 case either voluntarily or involuntarily; or (s) any failure by Borrower observe or perform any of the terms or conditions of any order or stipulation entered by the Bankruptcy Court in its Chapter 11 Case; or (t) the granting of a lien on or other interest in any of any of Borrower's property, or an administrative expense claim by any Bankruptcy or District Court Judge which is superior to or ranks in parity with Lender's security interest in or lien upon the Collateral or any part thereof, the other Financing Agreements or the Financing Order; or (u) the Financing Order shall be modified without consent of Lender reversed, revoked, remanded, stayed, rescinded, vacated or amended on appeal or by any Bankruptcy or District Court Judge; or (v) Borrower or any Guarantor shall fail to pay when due any post-petition rent, mortgage payment or charge of any nature or description pursuant to any real property lease, mortgage or contract with respect to premises at which any Inventory is located (subject to any applicable grace or cure period), including, but not limited to, any warehouse utilized by any Borrower or Guarantor and any and all other locations of the Borrower and Guarantors; or (w) entry of any Financing Order not consented to by Lender or any financing order with respect to another lender not consented to by Lender. 6.16 Amendment of Section 8.2(d). Section 8.2(d) of the Credit Agreement is amended by adding the following after the first sentence thereof: "Without limiting the generality of the foregoing, Lender may, in its discretion, apply proceeds of Collateral, first to the Pre-Petition Obligations, until such Pre-Petition Obligations are paid and satisfied in full." 6.17 Amendment of Section 9.1(b). The first three sentences of Section 9.1(b) of the Credit Agreement are amended in their entirety to read as follows: "(b) Any checks or other forms of remittance which may be received directly by Borrower in respect of the Non-Notification Accounts, the Non-Factored Accounts and other Collateral shall not be commingled with Borrower's property, but shall be segregated, held by Borrower in trust for Lender as Lender's exclusive property and immediately deposited by Borrower, in the identical form received, with proper endorsements, into such account or accounts as Lender may designate from time to time. All amounts received by Lender in respect of Non-Notification Accounts, Non-Factored Accounts or other Collateral in immediately available funds will be credited to any account or accounts maintained by Lender pursuant to this Agreement when received by Lender, provided that solely for the purpose of the calculation of interest, such immediately available funds shall be deemed received two (2) business days after receipt thereof, calculated at a per annum rate of Prime Rate plus the Applicable Margin. All amounts received by Lender in respect of Non-Notification Accounts, Non-Factored Accounts or other Collateral in remittances which are not immediately available, will be credited to any account or accounts maintained by Lender pursuant to this Agreement two (2) business days after such remittances have been collected, calculated at a per annum interest rate of Prime Rate plus the Applicable Margin." 6.18 Amendment of Section 10.1(a). Section 10.1(a) of the Credit Agreement is amended and restated in its entirety to read as follows: "Section 10.1 (a) Term; Termination. This Agreement and the other Financing Agreements shall become effective as of the date the initial Financing Order is entered and shall continue in full force and effect for a term ending one hundred fifty (150) days after the initial Financing Order is entered unless sooner terminated pursuant to the terms of this Agreement or pursuant to the terms of the Financing Order, or unless extended upon the written consent of Lender, at its sole option, for an additional ninety (90) day term and thereafter, at Lender's sole option, for an additional one hundred twenty (120) day term. Notwithstanding the foregoing, Lender may terminate this Agreement at any time without notice upon the occurrence of an Event of Default. All Obligations shall become due and payable as of any termination of this Agreement and, pending a final accounting, Lender may withhold any balances in the Borrower's account (unless supplied with an indemnity satisfactory to Lender) to cover all of the Borrower's Obligations, whether absolute or contingent. All of Lender's rights, liens and security of interests shall continue notwithstanding any such termination until all Obligations have been paid and satisfied in full." 6.19 Amendment of Section 10.1(b). Section 10.1(b) of the Credit Agreement is amended and restated in its entirety to read as follows: "(b) If an order confirming a plan of reorganization with respect to Borrower has not been entered by the end of the initial 150 day term of this Agreement and Lender elects to renew the Agreement for an additional ninety (90) term after such initial 150 day term, then Borrower shall pay to Lender a facility continuation fee in the amount of $250,000 in consideration of Lender's renewal of this Agreement for such additional ninety (90) day term. If an order confirming a plan of reorganization with respect to Borrower has not been entered by the end of such additional ninety (90) day term of this Agreement and Lender elects to renew this Agreement for an additional one hundred twenty (120) day term, then Borrower shall pay to Lender an additional facility continuation fee in the amount of $250,000 in consideration of Lender's renewal of this Agreement for such additional one hundred twenty (120) day term. The facility continuation fee and the additional facility continuation fee provided for herein shall be in addition to all other amounts payable by Borrower under this Agreement and the Other Financing Agreements and shall constitute part of the Obligations. Such fees may, at Lender's option, be charged directly to any account of Borrower maintained with Lender. 6.20 Addition of Section 10.1(g). Section 10.1(g) is added to the Credit Agreement as follows: "(g) In the event that prior to consummation of a plan of reorganization in the Chapter 11 Case, all Obligations of Borrower to Lender are paid in full from the proceeds of a loan or loans made to Borrower by one or more other lenders, then Borrower shall pay to Lender an early termination fee in the amount of $250,000. Such early termination fee shall be in addition to all other amounts payable by Borrower under this Agreement and constitute part of the Obligations. Such fee may, at Lender's option, be charged directly to any account of Borrower maintained with Lender." 6.21 Amendment of Section 10.8. Section 10.8 of the Credit Agreement is amended and restated in its entirety to read as follows: "10.8 This Agreement and the other Financing Agreements and all other documents referred to herein or therein have been executed and delivered in New York, New York and, together with all transactions and the obligations and rights hereunder and thereunder, shall be governed by, construed and interpreted in accordance with the laws of the State of New York, except to the extent that the provisions of the Bankruptcy Code are applicable and specifically conflict with the foregoing." 7. CONDITIONS PRECEDENT -------------------- The following are conditions to Lender's extending further revolving loans and letters of credit accommodations to Borrower pursuant to the Credit Agreement and are in addition to such conditions contained in the Credit Agreement: (a) Borrower shall furnish to Lender all financial information, projections, budgets, business plans, cash flows and such other information as Lender shall reasonably request from time to time; (b) no trustee or examiner with expanded powers (beyond those set forth in Section 1106(a)(3) and (4) of the Bankruptcy Code) shall have been appointed or designated with respect to Borrower, as Debtor or Debtor-in-Possession, or any of the Guarantors, as Debtors or Debtors-in-Possession, or their respective businesses, properties and assets and no motion or proceeding shall be pending seeking such relief; (c) the execution and/or delivery of this Agreement and all other Financing Agreements to be delivered in connection herewith by Borrower and Guarantors, in form and substance satisfactory to Lender; (d) all Bankruptcy Court Orders shall be satisfactory to Lender's counsel; (e) Debtor shall comply in full with the notice and other requirements of the Bankruptcy Code and applicable Bankruptcy Rules with respect to any relevant Financing Order in a manner reasonably acceptable to Lender and its counsel; (f) no material impairment of the value or priority of Lender's security interests in the Collateral shall have occurred from the date of the latest field examinations of Lender to the Petition Date; and (g) each Financing Order shall be satisfactory to Lender. 8. MISCELLANEOUS ------------- 8.1 Amendments and Waivers. Neither this Agreement nor any other instrument or document referred to herein or therein may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 8.2 Further Assurances. Each Obligor shall, at its expense, at any time or times duly execute and deliver, or cause to be duly executed and delivered, such further agreements, instruments and documents and do or cause to be done such further acts as may be necessary or proper in Lender's opinion to evidence, perfect, maintain and enforce Lender's security interest and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement, any of the other Financing Agreements or the Financing Order. Upon the request of Lender, at any time and from time to time, each Obligor shall, at its cost and expense, do, make, execute, deliver and record, register or file, financing statements, and other instruments, acts, pledges, assignments and transfers (or cause the same to be done) and will deliver to Lender such instruments evidencing items of Collateral as may be requested by Lender. 8.3 Headings. The headings used herein are for convenience only and do not constitute matters to be considered in interpreting this Agreement. 8.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which shall together constitute one and the same agreement. 8.5 Costs and Expenses. Borrower shall pay to Lender on demand all reasonable costs and expenses that Lender pays or incurs in connection with the negotiation, preparation, consummation, administration, enforcement, and termination of this Agreement and the other Financing Agreements and the Financing Order, including, without limitation: (a) attorneys' and paralegals' fees and disbursements of counsel to Lender; (b) costs and expenses (including attorneys' and paralegals' fees and disbursements) for any amendment, supplement, waiver, consent, or subsequent closing in connection with this Agreement, the other Financing Agreements, the Financing Order and the transactions contemplated thereby; (c) costs and expenses of lien and title searches and title insurance; (d) taxes, fees and other charges for recording any agreements or documents with the Office of Patents and Trademarks 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 Lender in the Collateral; (e) sums paid or incurred to pay any amount or take any action required of the Borrower under the Financing Agreements or the Financing Order that the Borrower fails to pay or take; (f) costs of appraisals, environmental audits, inspections and verifications of the Collateral and including travel, lodging, and meals for inspections of the Collateral and the Borrower's operations by Lender or its agent and to attend court hearings or otherwise in connection with the Chapter 11 Case; (g) costs and expenses of forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining payment accounts and lock boxes; (h) costs and expenses of preserving and protecting the Collateral; and (i) costs and expenses (including attorneys' and paralegals' fees and disbursements) paid or incurred to obtain payment of the Obligations, enforce the security interests and liens of Lender, sell or otherwise realize upon the Collateral, and otherwise enforce the provisions of this Agreement, the other Financing Agreements and the Financing Order, or to defend any claims made or threatened against 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 the Obligors. All sums provided for in this Section 8.5 shall be part of the Obligations, shall be payable on demand, and shall accrue interest after demand for payment thereof at the highest rate of interest then payable under the Financing Agreements. Lender is hereby irrevocably authorized to charge any amounts payable hereunder directly to any of the account(s) maintained by Lender with respect to Borrower. 8.6 Effectiveness. This Agreement shall become effective upon the execution hereof by Lender and the entry of the Financing Order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. SALANT CORPORATION Debtor and Debtor-in-Possession By: /s/ Todd Kahn -------------------------------- Title: Executive Vice President & General Counsel CLANTEXPORT, INC. By: /s/ Todd Kahn -------------------------------- Title: Executive Vice President DENTON MILLS, INC. By: /s/ Todd Kahn -------------------------------- Title: Executive Vice President VERA LICENSING, INC. By: /s/ Todd Kahn -------------------------------- Title: Executive Vice President J.J. FARMER CLOTHING, INC. By: /s/ Todd Kahn -------------------------------- Title: Executive Vice President FROST BROS. ENTERPRISES, INC. By: /s/ Todd Kahn -------------------------------- Title: Executive Vice President SLT SOURCING, INC. By: /s/ Todd Kahn -------------------------------- Title: Executive Vice President SALANT CANADA INC. By: /s/ Todd Kahn -------------------------------- Title: Executive Vice President THE CIT GROUP/COMMERCIAL SERVICES, INC. By: /s/ Anthony Lombardi -------------------------------- Title: Senior Vice President EX-99.1 5 EXHIBIT 99.1 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ----------------------------------x In re: Chapter 11 Case No. 98-10107 CB SALANT CORPORATION, Debtor. - ----------------------------------x ORDER AUTHORIZING INTERIM 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 ------------------------------------------------------------ Upon the Motion of Salant Corporation ("Salant" or the "Debtor"), as Debtor and Debtor-in-Possession, dated December 29, 1998, seeking, inter alia, (i) authority pursuant to Sections 364(c)(1), 364(c)(2) and 364(c)(3) of the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101, et seq. (the "Code") and Bankruptcy Rules 4001 and 9014, for the Debtor to obtain from The CIT Group/Commercial Services, Inc. ("CIT" or the "Lender") post-petition loans, advances, letters of credit and other credit accommodations in accordance with the advance formulas and the other terms and conditions set forth in the Financing Agreements (as hereinafter defined), as amended by the Ratification and Amendment Agreement (the "Amendment") of even date herewith by and between the Debtor and the Lender, to be secured by, in accordance with Sections 364(c)(2) and 364(c)(3) of the Code, security interests in and liens upon all of the Debtor's now existing and hereafter acquired personal and real property and the proceeds thereof, which such security interests and liens shall, except for liens on the Pre-Petition Collateral (as defined below) held by parties other than CIT as described in paragraphs 12 (a) and (b) below, be first priority security interests and liens, (ii) authority for the Debtor to ratify, adopt and amend the existing financing and security agreements by and between the Debtor and CIT, (iii) approval of the terms and conditions of the financing and security agreements by and between the Debtor and CIT as ratified, adopted and amended, (iv) the modification of the automatic stay, (v) the granting to CIT of super-priority administrative claim status pursuant to Section 364(c)(1) of the Code, and (vi) the setting of a Final Hearing on the Motion, and it further APPEARING, that at or prior to the hearing on the Motion, each of the parties set forth below received due notice of the Motion pursuant to Rules 4001(c)(1) and 1007(d) of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"): (a) the Office of the United States Trustee, (b) Otterbourg, Steindler, Houston & Rosen, P.C., the attorneys for CIT, (c) Kramer, Levin, Naftalis & Frankel, the attorneys for the Indenture Trustee for the Debtor's 10 1/2 Senior Secured Notes, due December 31, 1998 (the "Indenture Trustee"), (d) Hebb & Gitlin, the attorneys for Magten Asset Management Corp. ("Magten"), (e) the Securities and Exchange Commission (the "SEC"), and (f) the twenty (20) largest unsecured creditors of the Debtor; and it further APPEARING, that Salant, has filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code on December 29, 1998 (the "Petition Date") and has thereafter continued in the management and possession of its business and properties as debtor-in-possession pursuant to Sections 1107 and 1108 of the Code; and it further APPEARING, that prior to the commencement of the Debtor's Chapter 11 Case, CIT made loans and advances and caused letters of credit to be issued to the Debtor secured by substantially all of the personal and real property of Salant, and that Clantexport Inc., Denton Mills, Inc., Vera Licensing, Inc., J.J. Farmer Clothing, Inc., Frost Bros. Enterprises, Inc., SLT Sourcing, Inc. and Salant Canada, Inc. (collectively, the "Non-Debtor Guarantors") delivered to CIT their written unconditional guarantees of payment and performance of the present and future obligations of Salant to CIT, which guaranties are secured by substantially all of the personal property of the Non-Debtor Guarantors (except for Salant Canada) (the "Non-Debtor Guarantees"); and it further APPEARING, that the loans and advances made by CIT to Salant and the letters of credit which CIT caused to be opened for Salant prior to the Debtor's Chapter 11 Case were made pursuant to or in reliance upon the Revolving Credit, Factoring and Security Agreement, dated September 20, 1993, by and between CIT and Salant, and amendments thereto, (collectively, the "Credit Agreement"), guarantees, security agreements and related agreements in favor of CIT, including, without limitation, each of the agreements described in paragraph 1.1(e) of the Amendment and the agreements and the Uniform Commercial Code financing statements filed by CIT set forth in the Exhibits accompanying the Motion (all of such financing agreements, security agreements, financing statements and related agreements, documents, notes and instruments creating or evidencing indebtedness of the Debtor or granting and perfecting collateral security of the Debtor in favor of CIT, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being referred to herein collectively as the "Financing Agreements"); and it further APPEARING, that the aggregate principal amount of all obligations, liabilities and indebtedness of Salant to CIT, both absolute and contingent, existing as of the commencement of the Chapter 11 Case, together with all interest, fees, commissions, costs and expenses accrued and accruing with respect thereto (collectively, the "Pre-Petition Debt"), the principal amount of which being approximately $70,547,401.91 as of December 28, 1998, is fully secured pursuant to the Financing Agreements by perfected, valid and, except for any liens on the pre-petition collateral held by parties other than CIT as described in paragraphs 12 (a) and (b) below, first priority, security interests in, and liens upon, the Debtor's assets as set forth in the Financing Agreements, including, but not limited to, Salant's present and future, now owned or hereafter acquired, accounts, chattel paper, instruments, documents, general intangibles, inventory, equipment, books and records and real property, together with all proceeds and products of all of the foregoing (collectively, the "Pre-Petition Collateral"); and it further APPEARING, that each of the Non-Debtor Guarantors has guaranteed the payment and performance of all present and future obligations, liabilities and indebtedness of Salant to CIT, including, without limitation, the Pre-Petition Debt, and any indebtedness authorized hereunder; and it further APPEARING, that Salant and each of the Non-Debtor Guarantors acknowledges and agrees that: (a) the Financing Agreements in favor of or for the benefit of the Lender are valid and binding agreements and obligations of Salant, (b) the security interests in and liens granted to or for the benefit of the Lender upon the Pre-Petition Collateral are valid, perfected, and, except for any liens on the Pre-Petition Collateral held by parties other than CIT as described in paragraphs 12 (a) and (b) below, senior to all other security interests and liens upon the Pre-Petition Collateral, (c) all of the Pre-Petition Debt constitutes allowable claims against the Debtor and is valid, enforceable and non-voidable in the amount of the Pre-Petition Debt, and (d) the Debtor does not possess and will not assert any claim, counterclaim, setoff or defense of any kind or nature, which would in any way affect the validity, enforceability and non-avoidability of any of the Pre-Petition Debt and the Lender's security interests in and liens upon the Pre-Petition Collateral or which would in any way reduce or affect the absolute and unconditional obligation of the Debtor to pay to the Lender all of the Pre-Petition Debt; and it further APPEARING, that without the proposed interim financing, Salant will not have the funds necessary to pay its post-petition payroll, payroll taxes, inventory suppliers, overhead and other expenses necessary to conduct its business and the management and preservation of its assets and properties; and it further APPEARING, that Salant has requested that CIT make loans and advances and cause letters of credit to be issued to it in order to provide funds to be used by Salant for its general operating, working capital and other business purposes to continue its business and remain a viable entity and thereafter reorganize under Chapter 11 of the Code; and it further APPEARING, that all such additional loans, advances, letters of credit and other financial accommodations by CIT will benefit the Debtor and its estate; and it further APPEARING, that CIT is willing to make such loans and advances and provide such other credit accommodations on a secured basis as more particularly described herein and subject to the terms and conditions contained herein and in the Amendment; and it further APPEARING, that the ability of the Debtor to continue its business and maximize the value of its assets under Chapter 11 of the Bankruptcy Code depends upon obtaining such financing from CIT; and it further APPEARING, that the relief requested in the Motion is necessary, essential, and appropriate for the continued operation of the Debtor's business and the management and preservation of the Debtor's assets and properties and is in the best interests of the Debtor, its estate and creditors; and it further APPEARING, that this is a core matter pursuant to 28 U.S.C. ss.ss. 157(b)(2)(A), (D), (G), (M) and (O) and that this Court has jurisdiction over this case and this Motion pursuant to 28 U.S.C. ss. 1334; NOW, THEREFORE, upon the Motion, the files and pleadings in this case, the record of the proceedings heretofore held before this Court with respect to the Motion and upon completion of such hearing and after due deliberation and sufficient cause appearing therefor, the Court finds as follows: A. The Debtor is unable to obtain unsecured credit allowable under Section 503(b)(1) of the Code, or pursuant to Sections 364(a) and (b) of the Code, except on the terms and conditions set forth herein. B. Under the circumstances, no other source of interim financing exists on terms more favorable than those offered by CIT. C. The Motion was filed on December 29, 1998 and the Debtor has provided notice of the terms of the Motion and the interim relief requested thereunder on or before December 29, 1998 to (i) the Office of the United States Trustee, (ii) Otterbourg, Steindler, Houston & Rosen, P.C., the attorneys for CIT, (iii) Kramer, Levin, Naftalis & Frankel, the attorneys for the Indenture Trustee, (iv) Hebb & Gitlin, the attorneys for Magten, (v) the twenty (20) largest unsecured creditors of the Debtor and (vi) the SEC. The expedited Notice pursuant to Bankruptcy Rule 4001(c) to such parties in interest is necessary to avoid immediate and irreparable harm to the Debtor's estate pending a Final Hearing (as defined below) for permanent financing. Sufficient and adequate notice of the Motion and the interim hearing with respect thereto has been given pursuant to Bankruptcy Rules 2002, 4001(c) and (d) and 9014 and Section 102(1) of the Code as required by Sections 364(c) and (d) of the Code and no further notice of, or hearing on the interim relief sought in the Motion is necessary or required. D. Consideration of the Motion constitutes a "core proceeding" as defined in 28 U.S.C. ss.ss. 157(b)(2)(A), (D), (G), (M) and (O). This Order is subject to, and CIT is entitled to the benefits of, the provisions of Sections 363(m) and 364(e) of the Code. This Court has jurisdiction over this proceeding and the parties and property affected hereby pursuant to 28 U.S.C. ss. 1334. E. The terms of the Financing Agreements between Salant and CIT, including, without limitation, the Amendment, pursuant to which post-petition loans, advances, letters of credit and other credit accommodations may be made or provided to Salant by CIT have been negotiated in good faith and at arm's length as that term is used at Section 364(e) of the Code and is in the best interests of the Debtor. F. Good, adequate and sufficient cause has been shown to justify the granting of the relief requested herein. IT IS HEREBY ORDERED, ADJUDGED AND DECREED, that: 1. The Motion is granted and it is hereby approved in all respects. (This Order may sometimes hereinafter be referred to as the "Interim Financing Order".) 2. Good and sufficient notice of the Motion's request for the entry of this Interim Financing Order and the hearing thereon has been provided in accordance with Sections 102(1) and 364(c)(1), (2) and (3) of the Code, Bankruptcy Rule 2002 and any requests for other and further notice shall be and is hereby dispensed with and waived. 3. The relief granted by this Court pursuant to this Interim Financing Order is necessary to avoid immediate and irreparable harm to the Debtor's estate. 4. Salant is hereby authorized and empowered for the period commencing on the date hereof and ending on the close of business on the date of the Final Hearing to obtain loans and advances from CIT, on an interim basis pursuant to the terms of this Order and the terms and conditions set forth in the Credit Agreement, sufficient to avoid immediate and irreparable harm to the Debtor's estate pending the Final Hearing, in such amount or amounts as may be made available to Salant from CIT in accordance with the terms of the Credit Agreement, which amount shall for such interim period not exceed the lesser of (i) the aggregate principal amount of $15,000,000, inclusive of all outstanding letters of credit CIT previously caused to be issued for the benefit of Salant prepetition to the extent that the same are paid, in whole or in part, during the period covered by this Interim Financing Order, and (ii) the aggregate amount available to Salant in accordance with the terms of the Credit Agreement. 5. The Debtor shall use the proceeds of the loans and advances made, and other credit accommodations provided by CIT to Salant for the payment of employee salaries, payroll, taxes, collection of accounts, and other general operating and working capital purposes in the ordinary course of the Debtor's business in accordance with the terms and conditions of the Financing Agreements, including without limitation, the Amendment. 6. Upon entry of a Final Order Authorizing Financing, Granting Senior Liens and Priority Administrative Expense, Modifying the Automatic Stay, and Authorizing the Debtor to Enter Into Agreements With The CIT Group/Commercial Services, Inc. and Authorizing the Assumption of the Existing Financing Agreements with the Debtor (the "Final Order"), in form and substance satisfactory to CIT, Salant shall be authorized and directed to apply loans, advances, letters of credit and other credit accommodations made by CIT to Salant under the Financing Agreements necessary to satisfy the Pre-Petition Debt as more fully described in the Amendment. 7. The Debtor is authorized and directed to execute, deliver, perform and comply with the terms, conditions and covenants of the Amendment, pursuant to which the Debtor shall (a) ratify, assume, adopt and amend the Financing Agreements and agree to be bound thereby and (b) perform and comply with the terms and covenants of the Financing Agreements, as amended by the Amendment. A copy of the Amendment is annexed as Exhibit "B" to the Motion, and upon execution thereof, it shall be deemed included in the definition herein of Financing Agreements. 8. The terms and conditions of the Financing Agreements as so ratified, assumed, adopted and amended shall be deemed to be incorporated into the terms and conditions of this Order and shall be sufficient and conclusive evidence of the borrowing arrangements between the Debtor and CIT and of the Debtor's assumption and adoption of the terms and conditions of the Financing Agreements, for all purposes, including the payment of all fees, interest, commissions and expenses as more fully set forth in the Financing Agreements. 9. The Debtor has acknowledged and agreed and this Court hereby finds for all purposes in this case, subject only to the rights as hereinafter set forth in paragraph 10 below of the Official Committee of Unsecured Creditors (the "Committee"), if one is formed in the Chapter 11 Case, that as of the Petition Date: (a) the Financing Agreements are valid and binding agreements and obligations of the Debtor, (b) the principal amount of the Pre-Petition Debt due and payable to CIT by the Debtor is approximately $70,547,401.91, including the aggregate face amount of letters of credit outstanding and undrawn as of December 28, 1998 of $23,654,308.39, (c) the security interests in and liens of CIT upon the Pre-Petition Collateral are valid, perfected, enforceable and non-voidable, (d) CIT's pre-petition claim against the Debtor and the Debtor's estate is allowable and is valid, enforceable and non-voidable in the amount of the Pre-Petition Debt as set forth in CIT's books and records, (e) the Debtor does not possess and may not assert any claim, counterclaim, setoff or defense of any kind or nature which would in any way affect the validity, enforceability and non-avoidability of the Pre-Petition Debt and CIT's security interests in and liens upon the Pre-Petition Collateral or which would reduce or affect the obligation of the Debtor to pay the Pre-Petition Debt and (f) CIT and its agents and employees are released and discharged from all claims and causes of action arising out of the Financing Agreements or CIT's relationship with the Debtor prior to the entry of this Order. 10. The extent, validity, perfection, enforceability of CIT's pre-petition liens or any other claims whatsoever against CIT, including claims based on the matters enumerated in paragraph 9, are for all purposes, as found by this Court in paragraph 9, subject only to the rights of the duly appointed Committee in the Debtor's Chapter 11 Case, for a period of sixty (60) days from the date of its formation (unless such period is extended by CIT in its sole and complete discretion), to file a complaint pursuant to Bankruptcy Rule 7001 to invalidate, satisfy or subordinate the Pre-Petition Debt and/or to object to the extent, validity or perfection of CIT's pre-petition security interests and liens. If such complaint is not so timely filed, the Pre-Petition Debt and CIT's security interests and liens in the Pre-Petition Collateral shall be recognized as valid, binding, allowed and in full force and effect with respect to all parties in this proceeding, including, without limitation, any Trustee or successor Trustee appointed hereafter, and as a fully secured claim pursuant to Sections 506(a) and (b) of the Code. 11. To secure the prompt payment and performance of any and all obligations, liabilities and indebtedness of the Debtor to CIT of whatever kind or nature or description now existing or hereafter arising, including, without limitation, the Pre-Petition Debt, all post-petition obligations, liabilities and indebtedness of the Debtor arising under the Financing Agreements (all of the foregoing collectively, the "Indebtedness"), CIT shall have and is hereby granted, effective on and after the date of this Order, valid and perfected first priority security interests and liens, superior to all other creditors of the estates of the Debtor, except as set forth in paragraph 12 (a) and (b) below, in and upon all now existing and hereafter acquired personal and real property of the Debtor and its bankruptcy estate, of whatever kind or nature, whether acquired prior to or after the filing of the petition commencing the Debtor's Chapter 11 Case, including, without limitation, and by way of general description, all Pre-Petition Collateral, accounts, contract rights, chattel paper, documents, instruments and books and records, including, without limitation, all obligations for the payment of money arising out of the sale, lease or other disposition of goods, merchandise or services which give rise thereto; all raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature and any other personal property held for sale, exchange or lease for use in the Debtor's business; furniture, machinery, fixtures and equipment; other personal property acquired for use in the Debtor's business; cash, cash equivalents, depository accounts, personal property leases, all causes of action whether arising in contract, tort, or otherwise and whether having accrued as of the date hereof or hereafter (exclusive, however, of causes of action and recoveries under Sections 545, 547, 548, 549, and 553 of the Code); general intangibles (including, without limitation, registered and unregistered patents, tradenames, trademarks, and the goodwill of the businesses symbolized thereby, copyrights, service marks, trade secrets, customer lists, open purchase orders, licenses and other rights and agreements, royalties arising from the licensing of any intellectual property, Federal, State and local tax refunds, franchise rights and annuity contracts); and all other claims and property recovered by or on behalf of the Debtor, or any Trustee of the Debtor, whether in the Debtor's Chapter 11 Case or any subsequent Chapter 7 case to which the Debtor's case is converted (except for any property recovered as a result of any avoidance action maintained under Sections 545, 547, 548, 549 and 553 of the Code as to which no such lien or security interest is granted); all real property and real property leasehold interests and leases, all property set forth in paragraph 4 of the Amendment, and all proceeds (including without limitation, insurance proceeds), products, rents and profits of all of the foregoing, whether cash or non-cash, and all property described as Collateral in the Financing Agreements (collectively, the "Collateral"). Notwithstanding anything to the contrary, Collateral does not include the rights under any license agreement covering personal property in respect of which a security interest requires the consent of the other party to such agreement and such consent has not been or is not obtained. 12. Notwithstanding anything to the contrary set forth in paragraph 11 hereof, the security interests in and liens of CIT (a) upon the pre-petition assets of the Debtor shall be subject to the terms and conditions of the Intercreditor Agreement, dated September 20, 1993, between CIT and the Indenture Trustee for the benefit of the holders of the 10 1/2% Senior Secured Notes due December 31, 1998 (the "Intercreditor Agreement"), and (b) otherwise shall not have priority over prior and senior liens, if any, on the Debtor's property held by parties other than CIT, provided, that (i) such liens are valid, perfected and non-voidable in accordance with applicable law and (ii) the foregoing is without prejudice to the rights of the Debtor or any party in interest, including without limitation CIT, to object to the allowance of such liens or institute any actions or adversary proceedings with respect thereto, and (c) shall be subject to the Court allowed fees, compensation and disbursements payable by the Debtor to the Office of the United States Trustee and to all attorneys, accountants and other professionals retained in the Debtor's Chapter 11 Case pursuant to Sections 327 or 1103 of the Code, as approved by the Court, in an amount not to exceed $2,000,000 in the aggregate (the "Fee Carve-Out"), the foregoing without prejudice to the rights of CIT to be heard with respect to the allowances or amount of such fees, compensation and disbursements. 13. Pursuant to Sections 363(b)(1) and 364(c)(2) of the Code, any provisions in any of leasehold interests of the Debtor that require the consent or approval of one or more of the Debtor's landlords in order for the Debtor to pledge or mortgage such leasehold interest, are and shall be deemed to be inconsistent with the provisions of the Code and are and shall have no force and effect with respect to the transactions granting the liens, security interests and mortgages by the Debtor in favor of the Lender in accordance with the terms of the Amendment. 14. CIT shall have all rights and remedies with respect to the Debtor, the Indebtedness and the Collateral as are set forth in the Financing Agreements and this Order. 15. The Financing Agreements shall be subject to termination in CIT's sole and complete discretion as to any future loans, advances, letters of credit and other credit accommodations to be made or provided by CIT to the Debtor immediately upon the occurrence of any Event of Default (as hereinafter defined) or the expiration or termination of the Debtor's authorization to borrow from CIT pursuant to this Order or any other order authorizing the granting of credit by CIT to the Debtor pursuant to Section 364 of the Code as may hereafter be entered by this Court. 16. CIT may, in its discretion, apply the proceeds of the Collateral or any other amounts received by CIT in respect of the Indebtedness, in such order or manner as CIT may deem appropriate, including, first to the Pre-Petition Debt, until such Pre-Petition Debt is paid and satisfied in full. 17. In accordance with Sections 552(b) and 361 of the Code, the value, if any, in any of the Collateral, in excess of the amount of the Indebtedness secured by such Collateral after satisfaction of the post-petition obligations, liabilities and indebtedness of the Debtor to CIT, shall constitute additional security for the repayment of the Pre-Petition Debt and adequate protection for the use by the Debtor of the Collateral. 18. This Order shall be sufficient and conclusive evidence of the priority, perfection and validity of all of the security interests in and liens upon the property of the Debtor's estate granted to CIT as set forth herein, without the necessity of filing, recording or serving any financing statements, mortgages or other documents which may otherwise be required under federal or state law in any jurisdiction or the taking of any other action to validate or perfect the security interests and liens granted to CIT in this Order and the Financing Agreements. Such security interests and liens granted to CIT shall be prior and senior to all security interests, liens, claims, and encumbrances of all other creditors in and to such property, except as otherwise set forth in paragraph 12 (a) or (b) of this Order. If CIT shall, in its discretion, elect for any reason to file any such financing statements or other documents with respect to such security interests and liens, the Debtor is authorized and directed to execute, or cause to be executed, all such financing statements or other documents upon CIT's reasonable request and the filing, recording or service thereof (as the case may be) of such financing statements or similar documents shall be deemed to have been made at the time of and on the Petition Date. CIT may, in its discretion, file a certified copy of this Order in any filing or recording office in any County or other jurisdiction in which the Debtor has real or personal property and, in such event, the subject filing or recording officer is authorized and directed to file or record such certified copy of this Order. 19. The Debtor is hereby authorized and directed to perform all acts, and execute and comply with the terms of such other documents, instruments, and agreements in addition to the above Financing Agreements, as CIT may reasonably require as evidence of and for the protection of the Indebtedness and the Collateral or which may be otherwise deemed necessary by CIT to effectuate the terms and conditions of this Order and the Financing Agreements, each of such documents, instruments, and agreements being included in the definition of "Financing Agreements" contained herein. 20. The Debtor is authorized and directed, at CIT's request to: (a) continue any existing Lock Box arrangements in favor of CIT and upon CIT's request, to enter into similar arrangements, satisfactory to CIT, with such other banks as may be designated for such purposes (the "Lock Boxes"); (b) deposit or cause to be deposited all proceeds of Collateral received by the Debtor into the Lock Boxes established for the benefit of CIT; (c) instruct all account debtors and other parties now or hereafter obligated to pay for goods and services provided by the Debtor to them or for inventory or other property of the Debtor's estate in which CIT has a security interest or lien to remit such payments to the Lock Boxes, or, after any Event of Default, at CIT's election, directly to CIT; and (d) enter into such agreements as may be necessary to effectuate the foregoing. 21. The Debtor is authorized and directed to deposit or cause to be deposited into the Lock Boxes, or to remit, in kind, immediately to CIT, all monies, checks and any other payments received from the Debtor's account debtors and other parties, now or hereafter obligated to pay the Debtor for inventory or other property of the Debtor's estate. CIT is authorized to apply such payments and proceeds received by CIT to the Indebtedness as set forth in this Order and the Amendment. 22. The Debtor is authorized and directed, without further order of this Court, promptly to pay or reimburse CIT for all present and future reasonable costs and expenses paid or incurred by CIT to effectuate the financing transactions as provided in this Order and the Financing Agreements, all of which unpaid fees, commissions, costs and expenses shall be and are included as part of the principal amount of the Indebtedness. 23. In making decisions to permit advances under the Financing Agreements or the collection of the Indebtedness of the Debtor, CIT shall not be deemed to be in control of the operations of the Debtor by virtue of the interests, rights and remedies granted to or conferred upon CIT under the Financing Agreements or this Order, including, without limitation, such rights and remedies as may be exercisable by CIT in the making (or causing to be made), administration or collection of the loans, advances, letters of credit and other financial accommodations to be provided thereunder. 24. Without in any way limiting the provisions of Paragraph 29 of this Order in connection with an Event of Default, the automatic stay provisions of Section 362 of the Code shall be, and hereby are, modified in all respects to the extent necessary to permit CIT implement the terms and conditions of the Financing Agreements and of this Order including, without limitation, to permit (i) collection of and realization by CIT upon all Pre-Petition Collateral that secures the Pre-Petition Debt, and CIT shall be allowed, as adequate protection of its Pre-Petition Collateral, to collect the Pre-Petition Collateral and apply the same to the Pre-Petition Debt and (ii) collection by CIT of the proceeds of the Collateral pursuant to the Financing Agreements and the creation, perfection and implementation of CIT's post-petition liens and security interests in the Collateral. 25. The Debtor is authorized and directed to provide to CIT, unless there is a written waiver by CIT in each instance, all of the documentation, reports, schedules, assignments, financial statements, insurance policies and endorsements, access, inspection, audits, information and other rights which the Debtor is required to provide to CIT under the Financing Agreements. 26. For all of the Debtor's Indebtedness now existing or hereafter arising pursuant to the Financing Agreements or otherwise, and in addition to the foregoing, CIT is granted an allowed super-priority administrative claim pursuant to Section 364(c)(1) of the Code, having priority in right of payment over any and all other obligations, liabilities and indebtedness of the Debtor, now in existence or hereafter incurred by the Debtor and over any and all administrative expenses or priority claims of the kind specified in, or ordered pursuant to, Sections 326, 330, 331, 503(b), 506(c) or 507(b) of the Code, provided, however, that CIT's super-priority administrative claim as provided herein shall be subordinate to the Fee Carve-out (not to exceed $2,000,000 in the aggregate). Except as provided in this paragraph, no other claim having priority superior or pari passu to that granted by this Order to CIT shall be allowed while any Indebtedness remains outstanding. 27. No costs or expenses of administration which have or may be incurred (a) in the Debtor's Chapter 11 Case or in any Chapter 7 case arising from the conversion of the Debtor's Chapter 11 Case pursuant to Section 1112 of the Code, or (b) pursuant to Section 506(c) of the Code, or (c) in any future proceedings or cases related hereto, shall be charged against CIT, its claims, or the Collateral, without the prior written consent of CIT, and no such consent shall be implied from any other action, inaction or acquiescence by CIT and, subject to the rights of the Committee set forth in paragraph 10 of this Order, no obligations incurred or payments or other transfers made by or on behalf of the Debtor on account of the financing arrangements with CIT shall be avoidable or recoverable from CIT under Sections 544, 547, 548, 550, 553 or any other provision of the Code. 28. Except for sales of inventory in the ordinary course of its business, the Debtor shall not sell, transfer, lease, encumber or otherwise dispose of any material portion of the property of its estate without the prior written consent of CIT, and no such consent shall be implied from any other action, inaction or acquiescence by CIT, or by Order of the Bankruptcy Court on prior notice to CIT. 29. In the event of the occurrence of any of the following: (a) the failure of the Debtor to perform in any material respect any of its obligations pursuant to this Order, (b) the occurrence of any "Event of Default" under the Financing Agreements as amended by the Amendment, (c) the termination of the Credit Agreement, (d) conversion of the Debtor's Chapter 11 Case to a case under Chapter 7 of the Code, (e) the appointment in the Debtor's Chapter 11 Case of a Trustee appointed pursuant to Sections 1104(a)(1) or 1104(a)(2) of the Code, or the appointment of an Examiner or other disinterested person with expanded powers (i.e., beyond those powers set forth in Sections 1106(a)(3) and (4) of the Code), (f) dismissal of the Debtor's Chapter 11 Case, (g) the entry of any order modifying, reversing, revoking, staying, rescinding, vacating or amending this Order without the express prior written consent of CIT (and no such consent shall be implied from any other action, inaction or acquiescence by CIT), or (h) the filing of a plan of reorganization which does not provide for the payment in full of the Indebtedness on or before the effective date of said plan (the foregoing being referred to in this Order, individually, as an "Event of Default" and collectively, "Events of Default"); then (unless such Event of Default is specifically waived in writing by CIT, which waiver shall not be implied from any other action, inaction or acquiescence by CIT) (a) all of the Indebtedness shall become immediately due and payable and (b) CIT shall be entitled to take custodial possession of the Collateral, to protect and preserve such assets, the costs of which shall be borne by the Debtor and become part of the Indebtedness, and upon or after the occurrence of any of the foregoing, CIT shall be entitled to a hearing on shortened notice on a motion (the "Stay Relief") seeking an order: (1) vacating and modifying the automatic stay provided for pursuant to Section 362 of the Code and any other restriction on the enforcement of CIT's liens and security interests or any other rights under the Financing Agreements granted to CIT or pursuant to this Order, and (2) permitting CIT without further notice, hearing or approval of the Court, in its discretion, to take any and all actions and remedies which CIT may deem appropriate to proceed against and realize upon the Collateral and any other property of the Debtor's estate upon which CIT has been or may hereafter be granted liens and security interests to obtain repayment of the Indebtedness and to exercise the rights and remedies granted to CIT under this Order. Unless the Court in connection with the Stay Relief Motion orders for good cause shown establishing the need therefor that a shorter or longer notice period is appropriate, the hearing on such Stay Relief Motion (the "Stay Relief Motion Hearing") shall be on four (4) business days notice to the Debtor, the Committee, if any, a Trustee, if appointed, the Office of the United States Trustee, the Indenture Trustee and Magten and such other parties in interest as the Court shall determine are appropriate. Nothing herein shall in any way limit any other rights CIT may have under the Code or the Bankruptcy Rules to enforce its rights and remedies, including without limitation, to obtain temporary or preliminary injunctive relief pending the Stay Relief Motion Hearing to protect against irreparable harm or for any other reason the Court deems appropriate. Under no circumstances shall CIT have any obligation to lend or advance any additional funds to the Debtor or provide other financial accommodations to the Debtor upon or after the occurrence of an Event of Default. 30. Upon the expiration of the term of the Credit Agreement as set forth in Section 6.18 of the Amendment (except by reason of an Event of Default in which case the provisions of Paragraph 29 of this Order shall apply), all of the Indebtedness shall immediately become due and payable and, after five (5) days notice by CIT to the Debtor (whether such notice is provided prior to or after such expiration) of CIT's intention to act in accordance with the terms of this Paragraph, CIT shall be automatically and completely relieved from the effect of any stay, including, without limitation, any stay under Section 362 of the Code or any other restriction on the enforcement of the liens and security interests or any other rights granted to CIT pursuant to the terms and conditions of the Financing Agreements or this Order, and CIT shall be and is hereby authorized, in its discretion, to take any and all actions and remedies which CIT may deem appropriate and to proceed against and realize upon the Collateral and any other property of the Debtor's estate upon which it has been or may hereafter be granted liens and security interests to obtain repayment of the Indebtedness including, without limitation, all such actions and remedies set forth in the Financing Agreements (except if the authority of the Debtor to borrow from CIT shall be extended with the prior written consent of CIT, which consent shall not be implied from any other action, inaction or acquiescence by CIT). Nothing herein shall in any way limit any rights CIT may have under the Code or the Bankruptcy Rules to enforce its rights and remedies, including without limitation, to obtain temporary or preliminary injunctive relief to protect against irreparable harm or for any other reason the Court deems appropriate. 31. Until all of the Indebtedness shall have been indefeasibly paid and satisfied in full and without further order of the Court: (a) no other party shall foreclose or otherwise seek to enforce any lien or other right such other party may have in and to any property of the Debtor's estate upon which CIT holds or asserts a lien or security interest and (b) subject to the terms of Paragraph 29 of this Order, upon and after the occurrence of an Event of Default, CIT, in its discretion, in connection with a liquidation of any of the Collateral (i) may, except as may otherwise be set forth in any agreement between CIT and any third party, use any real property, equipment, leases, trademarks, tradenames, copyrights, licenses, patents or any other assets of the Debtor which are owned by or subject to a lien of any third party and which are used by Debtor in its business, and, except as otherwise set forth in the Intercreditor Agreement or in any other agreement between CIT and any third party, the Lender shall be responsible for the payment of fees, charges or expenses incurred by the Debtor during the course of such usage by the Lender, without regard to prior unpaid fees, charges or expense and (ii) the Lender, in its discretion, shall be authorized to enter into each location where the Debtor conducts business, and use the same, all without interference from the Debtor's lessors or mortgagors, for the purpose of liquidating and/or securing its Collateral, and the Lender shall be responsible at each location to the Debtor's lessors or mortgagors, as the case may be, for the payment of the rent, mortgage payments and/or other charges (e.g. taxes, insurance, common area charges and utilities), on a pro-rated basis, incurred solely during the course of such liquidation by the Lender, without regard to prior unpaid rent, mortgage payments and other charges. 32. Upon the payment in full of all Indebtedness to CIT, or upon the termination or expiration of the Financing Agreements or of this Order, CIT shall be released from any and all obligations pursuant to the terms of this Order and/or the Financing Agreements. 33. CIT shall be entitled to the full protection of Section 364(e) of the Code with respect to debts, obligations, liens, security interests and other rights created or authorized in this Order in the event that this Order or any authorization contained herein is vacated, reversed or modified on appeal or otherwise by any court of competent jurisdiction. 34. All post-petition advances under the Financing Agreements are made in reliance on this Order and there shall not at any time be entered in the Debtor's Chapter 11 Case any order which (a) authorizes the use of cash collateral of the Debtor in which CIT has an interest, or the sale, lease, or other disposition of property of the Debtor's estate in which CIT has a lien or security interest or (b) under Section 364 of the Code authorizes the obtaining of credit or the incurring of indebtedness secured by a lien or security interest which is equal or senior to a lien or security interest in property in which CIT holds a lien or security interest, or which is entitled to priority administrative claim status which is equal or superior to that granted to CIT herein; unless, in each instance (x) CIT shall have given its express prior written consent thereto, no such consent being implied from any other action, inaction or acquiescence by CIT, or (y) such other order requires that the CIT Indebtedness shall first be indefeasibly paid in full, including all debts and obligations of the Debtor to CIT which arise or result from the obligations, loans, security interests and liens authorized herein. The security interests and liens granted to CIT hereunder and the rights of CIT pursuant to this Order with respect to the Indebtedness and the Collateral (x) shall not be altered, modified, extended, impaired, or affected by any plan of reorganization of the Debtor and, if (y) CIT shall expressly consent in writing that the Indebtedness shall not be repaid in full upon confirmation thereof, shall continue after confirmation and consummation of any such plan. 35. The provisions of this Order and any actions taken pursuant hereto shall survive entry of any order which may be entered converting the Debtor's Chapter 11 Case to a Chapter 7 case or any order which may be entered confirming or consummating any plan of reorganization of the Debtor, and the terms and provisions of this Order as well as the priorities in payment, liens, and security interests granted pursuant to this Order and the Financing Agreements shall continue in this or any superseding case under the Code, and such priorities in payment, liens and security interests shall maintain their priority as provided by this Order until all Indebtedness is indefeasibly satisfied and discharged; provided, that, all obligations and duties of CIT hereunder, under the Financing Agreements or otherwise with respect to any future loans and advances or otherwise shall terminate immediately upon the earlier of the date of any Event of Default or the date that a plan of reorganization of the Debtor becomes effective unless CIT has given its express prior written consent thereto, no such consent being implied from any other action, inaction or acquiescence by CIT. 36. The provisions of this Order shall inure to the benefit of the Debtor and CIT and shall be binding upon the Debtor and its successors and assigns, including any Trustee or other fiduciary hereafter appointed as a legal representative of the Debtor or with respect to property of the estate of the Debtor, whether under Chapter 11 or Chapter 7 of the Code, and shall also be binding upon all creditors of the Debtor and other parties in interest. 37. No order under Sections 305 or 1112 of the Code or otherwise (i) dismissing the Debtor's Chapter 11 Case shall be entered unless prior to the entry thereof, all obligations and indebtedness owing to CIT shall have been indefeasibly paid in full (including reimbursement to CIT for all outstanding letters of credit) in accordance with the provisions of the Financing Agreements, and CIT's obligation to make loans has been terminated or (ii) converting the Debtor's Chapter 11 Case shall be entered unless such Order expressly provides that the priority of the claims of CIT granted herein shall be senior in right of payment to any claim allowed under Section 503(b) of the Code which is incurred or arises on or after the date of such Order. If any or all of the provisions of this Order are hereafter modified, vacated or stayed, such modification, vacation or stay shall not affect (a) the validity of any obligation, indebtedness or liability incurred by the Debtor to CIT prior to the effective date of such modification, vacation or stay, or (b) the validity or enforceability of any security interest, lien, or priority authorized or created hereby or pursuant to the Financing Agreements. Notwithstanding any such modification, vacation or stay, any indebtedness, obligations or liabilities incurred by the Debtor to CIT prior to the effective date of such modification, vacation or stay shall be governed in all respects by the original provisions of this Order, and CIT shall be entitled to all the rights, remedies, privileges and benefits granted herein and pursuant to the Financing Agreements with respect to all such indebtedness, obligations or liabilities. The obligations and indebtedness of the Debtor to CIT under the Financing Agreements shall not be discharged by the entry of an order confirming a plan or reorganization in the Debtor's Chapter 11 Case and, pursuant to Section 1141(d)(4) of the Code, unless and until CIT is paid in full prior to or concurrently with the entry of such order, the Debtor has waived such discharge. 38. The Debtor irrevocably waives any right to seek any modifications or extensions of this Order without the prior written consent of CIT. 39. To the extent the terms and conditions of the Financing Agreements are in conflict with the terms and conditions of this Order, the terms and conditions of this Order shall control. 40. The terms of the interim financing arrangements between the Debtor and CIT were negotiated in good faith and at arm's length between the Debtor and CIT and any loans, advances, letters of credit or other financial accommodations which are caused to be made, continued or issued to the Debtor by CIT pursuant to the Financing Agreements are deemed to have been extended in good faith, as the term is used in Section 364(e) of the Code, and shall be entitled to the full protection of Section 364(e) of the Code in the event that this Order or any provision hereof is vacated, reversed or modified, on appeal or otherwise. 41. Nothing contained in this Order or the Amendment shall be deemed to terminate, modify or release any obligations of the Debtor to CIT with respect to the Pre-Petition Debt, the Indebtedness or otherwise. 42. Notice of the entry of this Order must be served upon (a) the Office of the United States Trustee, (b) Otterbourg, Steindler, Houston & Rosen, P.C., the attorneys for CIT, (c) Hebb & Gitlin, the attorneys for Magten, (d) Kramer, Levin, Naftalis & Frankel, the attorneys for the Indenture Trustee, (e) the attorneys for the Committee, if any, (f) all creditors known to the Debtor who may have liens against the Debtor's assets, (g) the twenty (20) largest unsecured creditors of the Debtor, (h) all landlords, owners, operators and mortgagees, if any, known to the Debtor, of the premises at which any Collateral is located, and licensors of any trademark or tradename used by the Debtor, (i) all other interested third parties in possession of any of the inventory of Salant, including, without limitation, sales agents or representatives and consignees, (j) the Office of the United States Attorney for this judicial district, (k) all parties in interest who have filed a Notice of Appearance, (l) the SEC, and (m) the Pension Benefit Guaranty Corporation. 43. This matter is set for a final hearing at 2:00 p.m. on January 19, 1999 ("Final Hearing"), in the Courtroom usually occupied by this Court, the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"), New York, New York, at which time any party-in-interest may appear and state its objections, if any, to the borrowings by the Debtor. All parties identified in Paragraph 42 shall immediately, and in no event later than December 30, 1998, be mailed copies of the Motion and of this Order or such written summary of this Order as the Court may approve. Objections shall be in writing and shall be filed with the Clerk of the Bankruptcy Court in Room 534 with a copy served upon the attorneys for the Debtor, Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004, Attention: Brad E. Scheler, Esq., and the attorneys for CIT, Otterbourg, Steindler, Houston & Rosen, P.C., 230 Park Avenue, New York, New York 10169, Attention: William M. Silverman, Esq. so as to be received on or before the close of business on January 15, 1999; any objections by creditors or other parties in interest to any of the provisions of this Order shall be deemed waived unless filed and served in accordance with the notice on or before the close of business on such date. Except as otherwise provided in this paragraph, the terms of this Order shall be valid and binding upon the Debtor, all creditors of the Debtor and all other parties in interest from and after the date of this Order by this Court. In the event this Court modifies any of the provisions of this Order and the Financing Agreements following such further hearing, such modifications shall not affect the rights and priorities of CIT pursuant to this Order with respect to the Collateral and any portion of the Indebtedness which arises, or is incurred or is advanced prior to such modifications (or otherwise arising prior to such modifications), and this Order shall remain in full force and effect except as specifically amended or modified at the Final Hearing. Dated: New York, New York December 29, 1998 /s/ Cornelius Blackshear - ------------------------------ UNITED STATES BANKRUPTCY JUDGE EX-99.2 6 EXHIBIT 99.2 [SALANT CORPORATION LOGO] FOR IMMEDIATE RELEASE --------------------- CONTACT: Kekst & Company James Fingeroth Molly Marse (212) 521-4800 SALANT CORPORATION FILES PRE-NEGOTIATED CHAPTER 11 PLAN TO IMPLEMENT RESTRUCTURING OF ITS SENIOR NOTES AND AGREES TO SELL ITS JOHN HENRY AND MANHATTAN BUSINESS TO FOCUS ON ITS PERRY ELLIS MEN'S BUSINESS New York, NY, December 29, 1998 -- Salant Corporation (NYSE: SLT) today announced that it has filed a petition under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York in order to implement a restructuring of its 10-1/2% Senior Secured Notes due December 31, 1998. Salant also filed its plan of reorganization with the Bankruptcy Court today in order to implement its restructuring. The Plan is supported by Salant's major note and equity holders. In addition, Salant has obtained an $85 million debtor-in-possession facility from its existing working capital lender, The CIT Group/Commercial Services, Inc., during the chapter 11 case. Salant also announced that post-restructuring, it intends to focus solely on its Perry Ellis men's apparel business and, as a result, intends to exit its other businesses, including its children's and menswear divisions. To that end, Salant has entered into an agreement with Supreme International Corporation to sell its John Henry and Manhattan businesses. These businesses include the John Henry, Manhattan and Lady Manhattan trade names, the John Henry and Manhattan dress shirt inventory, the leasehold interest in the dress shirt facility located in Valle Hermosa, Mexico, and the equipment located at the Valle Hermosa facility and at Salant's facility located in Andalusia, Alabama. To lead the new Salant, Michael Setola, the former President of Salant's Perry Ellis Menswear Group, has been appointed Chairman and Chief Executive Officer of Salant effective immediately. Jerald S. Politzer, Salant's former Chairman and Chief Executive Officer, will continue to serve on Salant's Board of Directors and be employed as a consultant during Salant's restructuring in order to assist in the transition of the Company's business. In addition, Salant has appointed Todd Kahn, its EVP of Corporate Affairs and General Counsel, as its new Chief Operating Officer. Salant intends to ask the Bankruptcy Court to schedule a hearing on its disclosure statement with respect to the Plan at the earliest possible time. Salant expects that its Plan, which leaves unimpaired Salant's general unsecured creditors (including trade creditors) and is designed to provide for the restructuring of its Senior Notes, will have the support of its debt and equity constituencies and trading partners. With such support, the Plan provides that (i) all of the outstanding principal amount of Senior Notes, plus all accrued and unpaid interest thereon, will be converted into 95% of Salant's new common stock, subject to dilution, and (ii) all of Salant's existing common stock will be converted into 5% of Salant's new common stock, subject to dilution. If such support is not forthcoming, then pursuant to the Plan (i) all of the outstanding principal amount of the Senior Notes, plus all accrued and unpaid interest thereon, will be converted into 40% of Salant's new common stock, subject to dilution, plus pay-in-kind notes to be issued by the reorganized company in the aggregate principal amount of $92 million, bearing interest at 15% per annum and with a maturity date on the eighth anniversary of issuance, and (ii) all of Salant's existing common stock will be converted into 60% of Salant's new common stock, subject to dilution. Magten Asset Management Corp., the representative of the beneficial owners of, approximately 70% of the aggregate principal amount of the Senior Notes, and Apollo Apparel Partners, L.P., the beneficial owner of approximately 40.1% of Salant's issued and outstanding common stock, support the Plan. Immediately prior to the filing of Salant's chapter 11 case, Robert Falk, Robert Katz, principals of Apollo Apparel Partners, L.P., and Edward Yorke, a former principal of Apollo Apparel Partners, L.P., resigned from Salant's board of directors. As previously announced, Salant has received and accepted an $85 million financing commitment from CIT that would be available upon completion of Salant's restructuring. Salant currently anticipates that it will be able to consummate its Plan and exit chapter 11 within 90 days. Mr. Politzer stated, "When I first joined the Company in April 1997, Salant was a multi-divisional apparel company pursuing numerous business opportunities. Given that during the last year the capital markets have not looked favorably upon investing in highly leveraged companies, especially apparel companies. Salant was unable to refinance its bond debt. As a result, Salant recognized that its designer brand business provided the greatest potential for long term growth and profitability, and has determined to focus solely on its Perry Ellis business. Mike Setola, who has been President of our Perry Ellis division for over four years, clearly has demonstrated the leadership skills and business acumen to lead the new Salant." Mr. Setola said: "On behalf of the Board of Directors and myself, I would like to express our sincere gratitude for Jerry Politzer's tireless efforts to improve Salant's business and lay the foundation for Salant's restructuring effort. I look forward to quickly transitioning our business through the restructuring processes to a Perry Ellis only businesses and to the emergence of a new and successful Salant." -----END PRIVACY-ENHANCED MESSAGE-----