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FORM 10-Q
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 5, 1997 COMMISSION FILE NO. 1-9196
THE LESLIE FAY COMPANY, INC.
DELAWARE 13-3197085
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1412 BROADWAY
NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [_]
There were 3,400,000 shares of Common Stock outstanding at August 2, 1997.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet at July 5, 1997 . . . . . . . . . . . .3
Consolidated Statement of Operation for the Five Weeks
Ended July 5, 1997. . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statement of Cash Flows for the Five Weeks
Ended July 5, 1997. . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Balance Sheets at June 4, 1997 and
December 28, 1996 . . . . . . . . . . . . . . . . . . . . . . .6
Consolidated Statements of Operations for the Twenty-Two
and Eight Weeks Ended June 4, 1997 and the Twenty-One
and Eight Weeks Ended May 25, 1997 . . . . . . . . . . . . . . 7
Consolidated Statements of Cash Flows for the Twenty-Two
and Eight Weeks Ended June 4, 1997 and the Twenty-One
and Eight Weeks Ended May 25, 1997 . . . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 33
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 33
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . .33
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 33
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . .33
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 33
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
INDEX TO EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
(UNAUDITED)
July 5,
ASSETS 1997
Current Assets: ------
Cash and cash equivalents ................................ $35,065
Accounts receivable- net of allowances for possible
losses of $4,465 ........................................ 11,430
Inventories .............................................. 22,960
Prepaid expenses and other current assets ................ 5,436
Total Current Assets ................................. 74,891
-------
Property, Plant and Equipment, at cost ................... 140
Deferred Charges and Other Assets ........................ 249
-------
Total Assets ............................................. $75,280
-------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable ......................................... $ 9,018
Accrued expenses and other current liabilities ........... 25,348
Income taxes payable ..................................... 2,188
Total Current Liabilities ............................. 36,554
Excess of Revalued Net Assets Acquired over
Equity under Fresh-Start Reporting .................. 13,327
Long Term Debt-Capitalized Lease ......................... 325
Total Liabilities ..................................... 50,206
Stockholders' Equity:
Common stock, $.01 par value; 3,500 shares authorized;
3,400 shares issued and outstanding ................ 34
Capital in excess of par value ........................... 24,966
Accumulated retained earnings ............................ 74
Total Stockholders' Equity ........................... 25,074
-------
Total Liabilities and Stockholders' Equity ............... $75,280
=======
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
Five
Weeks Ended
July 5,
1997
-----------
Net Sales ....................................................... $ 5,535
-----------
Cost of Sales ................................................... 4,410
-----------
Gross profit ................................................. 1,125
-----------
Operating Expenses:
Selling, warehouse, general and
administrative expenses .................................. 1,514
Amortization of excess revalued net assets ac ................ (381)
-----------
Total operating expenses ..................................... 1,133
-----------
Operating income ............................................. (8)
Interest (Income) Expense, net and Financing Cos ................ (102)
-----------
Net Income before taxes ...................................... 94
Taxes ........................................................... 20
-----------
Net Income ................................................... $ 74
===========
Net Income per Common Share - Basic ........................... $ 0.02
===========
- Assuming Dilution ............... $ 0.02
===========
Weighted Average Common Shares Outstanding - Basic............. 3,400,000
===========
- Assuming Dilution ............... 4,146,212
===========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
Five
Weeks Ended
July 5,
1997
----
Cash Flows from Operating Activities:
Net income .................................................... $ 74
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization .............................. --
Amortization of excess purchase price over
net assets acquired ...................................... (381)
Provision for possible losses on account receivable ........ (99)
Decrease (increase) in:
Accounts receivable ...................................... 5,079
Inventories .............................................. (3,845)
Prepaid expenses and other current expenses .............. (4,252)
Deferred charges and other assets ........................ (249)
(Decrease) increase in:
Accounts payable, accrued expenses and other
current liabilities ................................... (2,172)
Income taxes payable ..................................... (11)
Deferred credits and other noncurrent liabilities ........ (19)
Total adjustments ..................................... (5,949)
--------
Net cash (used in) by operating activities ............ (5,875)
--------
Cash Flows from Investing Activities:
Capital expenditures .......................................... (140)
Net cash (used in) by investing activities ............ (140)
--------
Cash Flows from Financing Activities:
Proceeds from borrowings ...................................... --
Repayment of borrowings ....................................... --
Net cash provided by financing activities ............. --
Net (decrease) in cash and cash equivalents ..................... (6,015)
Cash and cash equivalents, at beginning of period ............... 41,080
--------
Cash and cash equivalents, at end of period ..................... $ 35,065
========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
- 5 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
June 4, December 28,
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................. $ 41,080 $ 21,977
Accounts receivable- net of allowances for possible losses
of $5,447 and $24,353, respectively .................... 16,410 63,456
Inventories ................................................ 19,115 104,383
Prepaid expenses and other current assets .................. 1,184 2,290
Assets of divisions held for sale or disposition ........... -- 3,003
Total Current Assets .................................... 77,789 195,109
--------- ---------
Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $0 and $19,549 ........ -- 17,575
Excess of Purchase Price over Net Assets Acquired-net of
accumulated amortization of $0 and $10,848, respectively -- 23,795
Deferred Charges and Other Assets ........................... -- 1,182
Total Assets ............................................... $ 77,789 $ 237,661
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable ........................................... 9,407 20,341
Accrued expenses and other current liabilities ............. 27,131 23,154
Income taxes payable ....................................... 2,199 634
Direct liabilities of divisions held for sale or disposition -- 1,577
Total Current Liabilities ............................... 38,737 45,706
Excess of Revalued Net Assets Acquired over
Equity under Fresh-Start Reporting ..................... 13,708 --
Long Term Debt - Capitalized Lease .......................... 344 --
Liabilities Subject to Compromise ........................... -- 337,433
--------- ---------
Total Liabilities ....................................... 52,789 383,139
--------- ---------
Commitments and Contingencies
Stockholders' Deficit:
Common stock, $.01 and $1.00 par value; 3,500 and
50,000 shares authorized 3,400 and 18,772 shares
issued and outstanding, respectively .................... 34 20,000
Preferred Stock, $.01 par value; 500 shares
authorized; none issued ................................. -- --
Capital in excess of par value ............................. 24,966 49,012
Accumulated retained earning ............................... -- 202,105
Foreign currency translation adjustment .................... -- 581
Subtotal ............................................. 25,000 (132,512)
Treasury stock, at cost - 0 and 1,228 shares, respectively . -- (12,966)
Total Stockholders' Deficit ............................ 25,000 (145,478)
--------- ---------
Total Liabilities and Stockholders' Deficit ................ $ 77,789 $ 237,661
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
- 6 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Two Twenty-One Eight Eight
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 4, May 25, June 4, May 25,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ........................................... $ 197,984 $ 173,452 $ 55,229 $ 52,886
Cost of Sales ....................................... 147,276 131,981 41,289 40,473
------------ ------------ ------------ ------------
Gross profit ..................................... 50,708 41,471 13,940 12,413
------------ ------------ ------------ ------------
Operating Expenses:
Selling, warehouse, general and
administrative expenses ...................... 35,880 33,632 12,772 12,289
Amortization of intangibles ...................... 473 483 189 213
------------ ------------ ------------ ------------
Total operating expenses ......................... 36,353 34,115 12,961 12,502
Operating income ................................. 14,355 7,356 979 (89)
Interest and Financing Costs (excludes contractual
interest of $7,513, $7,513, $3,005 and
$3,005, repectively ............................ 1,372 837 504 335
Income (Loss) before, reorganiuzation costs,
taxes, gain on sale, fresh-start revaluation
and extraordinary item ......................... 12,983 6,519 475 (424)
Reorganization Costs ................................ 3,379 1,560 2,911 857
Income (Loss) before taxes, gain on sale
fresh-start revaluation and extraordinary
item ......................................... 9,604 4,959 (2,436) (1,281)
Taxes ............................................... 451 435 135 119
Net Income (Loss) before gain on sale, fresh-start
revaluation and extraordinary items ........... 9,153 4,524 (2,571) (1,400)
Gain on Sale/Transfer of the Sassco Fashions
Division (net of $3,728 of income tax ......... 99,810 -- 99,810 --
Revaluation of Assets and Liabilities Pursuant
to the Adoption of Fresh-Start Reporting ...... (27,010) -- (27,010) --
Extraordinary Item - Gain on Debt Discharge ......... 63,541 -- 63,541 --
Net Income (Loss) ................................ $ 145,494 $ 4,524 $ 133,770 ($ 1,400)
============ ============ ============ ============
Net Income (Loss) per Share of Common S ........... * $ 0.24 * ($ 0.07)
------------ ------------ ------------ ------------
Weighted Average Common Shares Outstand ........... * 18,771,836 * 18,771,836
------------ ------------ ------------ ------------
</TABLE>
* Earnings per share is not presented for the twenty-two and eight weeks
ended June 4, 1997 because such presentation would not be meaningful.
The old stock was cancelled under the plan of reorganization and the
new stock was not issued until the consummation date.
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
- 7 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Two Twenty-One Eight Eight
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
June 4, May 25, June 4, May 25,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income ............................................................ $ 145,494 $ 4,524 $ 133,770 ($ 1,400)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ...................................... 1,749 1,420 705 564
Amortization of excess purchase price over
net assets acquired ............................................. 473 483 189 213
Provision for possible losses on accounts receivable ............... 199 492 (325) 52
(Gain) on sale of fixed assets ..................................... (347) -- -- --
(Increase) decrease in:
Accounts receivable .............................................. (1,248) (17,158) 28,489 30,666
Inventories ...................................................... 25,538 13,251 (2,748) (691)
Prepaid expenses and other current assets ........................ (66) 1,810 (51) 765
Income taxes refundable .......................................... -- 10,345 -- --
Deferred charges and other assets ................................ 125 99 983 31
(Decrease) increase in:
Accounts payable, accrued expenses and other
current liabilities .............................................. (4,167) (14,131) 543 (10,533)
Income taxes payable ............................................. (1,515) 60 (1,524) 32
Deferred credits and other noncurrent liabilities ................ 374 384 238 289
Changes due to reorganization activities:
Fresh-start revaluation charge ................................... 27,010 -- 27,010 --
Extraordinary gain on sale/transfer of Sassco Fashions Division .. (99,810) -- (99,810) --
Extraordinary gain on debt discharge ............................. 63,541) -- (63,541) --
Reorganization costs ............................................. 3,379 1,560 2,911 857
Payment of reorganization costs .................................. (917) (3,196) 81 (2,031)
--------- --------- --------- ---------
Total adjustments ............................................. (112,764) (4,581) (106,850) 20,214
--------- --------- --------- ---------
Net cash provided by (used in) operating activities ........... 32,730 (57) 26,920 18,814
--------- --------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures .................................................. (3,731) (2,155) (1,705) (1,149)
Proceeds from sale of assets .......................................... 467 -- -- --
Proceeds from sale of Castleberry ..................................... 600 -- 600 --
Cash paid to sell/transfer the Sassco Fashions division ............... (10,963) -- (10,963) --
--------- --------- --------- ---------
Net cash (used in) investing activities ...................... (13,627) (2,155) (12,068) (1,149)
--------- --------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from borrowings .............................................. -- 993 -- 993
Repayment of borrowings ............................................... -- (993) -- (993)
--------- --------- --------- ---------
Net cash provided by financing activities ..................... -- -- -- --
--------- --------- --------- ---------
Net increase in cash and cash equivalents ..................................... 19,103 (2,212) 14,852 17,665
--------- --------- --------- ---------
Cash and cash equivalents, at beginning of period ............................. 21,977 32,324 26,228 12,447
========= ========= ========= =========
Cash and cash equivalents, at end of period................................... $ 41,080 $ 30,112 $ 41,080 $ 30,112
========= ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
- 8 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included herein have
been prepared by The Leslie Fay Company, Inc. (formerly The Leslie Fay
Companies, Inc.) and subsidiaries (The Leslie Fay Company, Inc. being sometimes
individually referred to, and together with its subsidiaries collectively
referred to, as the "Company" as the context may require), pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from this report, as is permitted by such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the Fiscal Year ended December 28, 1996 (the "1996 Form
10-K").
As a result of the consummation of the Joint Plan of Reorganization
("the Plan" - see Note 2) and the adoption of fresh-start reporting under the
American Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), the Company was required to report its financial results for the
twenty-seven weeks and thirteen weeks ended July 5, 1997 in two separate periods
in this Form 10-Q. One period contains financial statements and notes for the
twenty-two weeks and eight weeks ended June 4, 1997, including the effects of
the adoption of fresh-start reporting and consummation of the Plan. The
significant fresh-start reporting adjustments are summarized in Note 2. The
other period contains financial statements and notes for the five weeks ended
July 5, 1997 for the reorganized Company.
In addition to the above adjustments, interim taxes were provided
based on the Company's estimated effective tax rate for the year.
In the opinion of management, the information furnished reflects all
additional adjustments, all of which are of a normal recurring nature, necessary
for a fair presentation of the results for the reported interim periods. Results
of operations for interim periods are not necessarily indicative of results for
the full year, and the seasonality of the business may make projections of full
year results based on interim periods unreasonable.
- 9 -
<PAGE>
Certain reclassifications have been made to the financial statements
for the twenty-one weeks and eight weeks periods ended May 25, 1996 and as of
December 28, 1996 to conform to the current quarterly presentation.
2. REORGANIZATION CASE AND FRESH-START REPORTING:
On April 5, 1993 (the "Filing Date"), The Leslie Fay Companies, Inc.
("Leslie Fay") and each of Leslie Fay Licensing Corp., Spitalnick Corp. and Hue,
Inc., wholly owned subsidiaries of Leslie Fay (collectively the "Debtors"),
filed a voluntary petition under chapter 11 of the Bankruptcy Code (the
"Bankruptcy Code"). In addition, on November 15, 1995, Leslie Fay Retail
Outlets, Inc.; Leslie Fay Factory Outlet (Alabama), Inc.; Leslie Fay Factory
Outlet (California), Inc.; Leslie Fay Factory Outlet (Iowa), Inc.; and Leslie
Fay Factory Outlet (Tennessee), Inc., all wholly-owned subsidiaries of Leslie
Fay (collectively referred to as the "Retail Debtors"), filed voluntary
petitions under chapter 11 of the Bankruptcy Code. From their respective filing
dates until June 4, 1997, the Debtors and Retail Debtors operated or liquidated
their businesses, as applicable, and as debtors in possession subject to the
jurisdiction and supervision of the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court").
On October 31, 1995, the Debtors and the Committee of Unsecured
Creditors (the "Creditors Committee") filed a Joint Plan of Reorganization ("the
Plan") pursuant to chapter 11 of the Bankruptcy Code. The Plan was subsequently
amended on March 13, 1996, December 5, 1996, February 3, 1997 and February 28,
1997. On December 5, 1996, the Debtors filed a Disclosure Statement for the
Amended Joint Plan of Reorganization pursuant to chapter 11 of the Bankruptcy
Code (the "Disclosure Statement"), which was also subsequently amended on
February 3, 1997 and February 28, 1997. The Debtors obtained Bankruptcy Court
approval of the Disclosure Statement on February 28, 1997. The Plan was approved
by the creditors and on April 21, 1997, the Bankruptcy Court confirmed the Plan.
- 10 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
On June 4, 1997, the Plan was consummated by the Company 1)
transferring the equity interest in both the Company and Sassco Fashions, Ltd.
("Sassco"), which anticipates changing its name to Kasper ASL, Ltd. as soon as
practical, to its creditors in exchange for relief from the aggregate amount of
the claims estimated at $338,000,000; 2) assigning to certain creditors the
ownership rights to notes aggregating $110,000,000 payable by Sassco; and 3)
transferring the assets (including $10,963,000 of cash) and liabilities of the
Company's Sassco Fashions division to Sassco and the assets and liabilities of
its Dress and Sportswear divisions to three wholly owned subsidiaries of the
Company. In addition, the Company retained approximately $41,080,000 in cash, of
which $23,580,000 will be used to pay administrative claims as defined in the
Plan. As provided for in the Plan, the Company has issued eighty (80%) percent
of its 3,400,000 of new shares to its creditors in July 1997. The remaining
twenty (20%) percent will be held back pending the resolutions of certain
litigation before the Bankruptcy Court. The existing stockholders of the Company
at June 4, 1997 did not retain or receive any value for their equity interest in
the Company. Reference is made to the Exhibits attached to, and Item 1 - Recent
Developments contained in the Company's Form 10-K for the fiscal year ended
December 28, 1996 for a copy of the Plan and a summary of Plan provisions,
respectively.
On June 4, 1997, as provided for in the Plan of Reorganization (the
"Plan") for the Company and its subsidiaries, the Company spun-off the assets
and liabilities of its Sassco Fashions division to Sassco. These assets and
liabilities included cash, accounts receivable, inventory, property, plant and
equipment, other assets (including the trade name Albert Nipon), accounts
payable, accrued expenses and other liabilities related to the Sassco Fashions
division. In addition, the Company transferred to Sassco its 100% equity
interest in several subsidiaries associated with the Sassco Fashions division.
As provided in the Plan, the creditors of the Company became the shareholders of
Sassco and of the reorganized Company.
The gain on the disposition of the assets and liabilities of the
Sassco Fashions division is a taxable event and a substantial portion of the net
operating loss carryforward available to the Company was utilized to offset a
significant portion of the taxes recognized on this transaction.
The Company recognized reorganization costs during the twenty-two and
eight week periods ended June 4, 1997 and the twenty-one and eight week periods
ended May 25, 1996, aggregating $3,379,000, $2,911,000, $1,560,000 and $857,000,
respectively, which is comprised of professional fees and other costs of
$2,151,000, $1,545,000, $1,806,000 and $950,000; costs accrued to re-engineer
the business processes, review and revise the technology requirements and other
related costs to the downsizing and separation of the businesses of $800,000,
$800,000, $0 and $0; and plan administration costs of $1,000,000, $1,000,000, $0
and $0; offset by interest income of $572,000, $434,000, $246,000 and $93,000,
respectively. No reorganization costs were recognized in the five weeks ended
July 5, 1997.
- 11 -
<PAGE>
Fresh-Start Reporting
- ---------------------
Pursuant to the guidelines provided by SOP 90-7, the Company adopted
fresh-start reporting and reflected the consummation distributions under its
Plan of Reorganization (the "Plan") in the balance sheet as of June 4, 1997 (the
effective date of the consummation of the Plan for accounting purposes). Under
fresh-start reporting, the Company's reorganization value of $25,000,000 was
allocated to its net assets on the basis of the purchase method of accounting.
The significant fresh-start reporting adjustments are summarized as
follows:
1. Cancellation of the old common stock pursuant to the Plan against
the accumulated deficit.
2. Allocation of the fair market value of the identifiable net assets
in excess of the reorganization value (negative goodwill) in
accordance with the purchase method of accounting. The negative
goodwill amount remaining after reducing non-current assets to
zero was recorded as a deferred credit, "Excess of revalued net
assets over equity" and will be amortized over three (3) years.
The resulting charge of $27,010,000 from all the fresh-start
adjustments, including the write-off of all revalued noncurrent assets (but
excluding the write-off of the old stock for $56,611,000), is presented as
"Revaluation of assets and liabilities pursuant to the adoption of fresh-start
reporting" in the consolidated statement of operations for the twenty-two and
eight weeks ended June 4, 1997.
The fresh-start reporting reorganization value of $25,000,000 was
established as the midpoint of a range ($20,000,000 - $30,000,000) established
by the Company's financial advisors. The calculation of the range was based on a
five-year analysis of the Company's projected operations for the remaining
operating divisions (fiscal years ended 1996 - 2001), which was prepared by
management, and a discounted cash flow methodology was applied to those numbers.
The five-year cash flow projections were based on estimates and
assumptions about circumstances and events that have not yet taken place. Such
estimates and assumptions are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of the Company,
including, but not limited to, those with respect to the future course of the
Company's business activity.
Under fresh-start reporting, the final consolidated balance sheet as
of June 4, 1997, will become the opening consolidated balance sheet of the
reorganized Company. Since fresh-start reporting has been reflected in the
accompanying consolidated balance sheet as of June 4, 1997, the consolidated
balance sheet as of that date is not comparable in material respects to any such
balance sheet as of any prior date or for any prior period since the balance
sheet as of June 4, 1997 is that of a reorganized entity.
- 12 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(UNAUDITED)
The effect of the Plan on the Company's consolidated balance sheet as
of June 4, 1997, after accounting for the sale and transfer of the Sassco
Fashions division, was as follows:
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS TO RECORD PLAN REORGANIZED
AS OF DEBT FRESH AS OF
JUNE 4, 1997 DISCHARGE START JUNE 4, 1997
--------- --------- --------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 41,080 -- -- $ 41,080
Accounts receivable - net of allowances for possible losses
16,410 -- -- 16,410
Inventories 19,115 -- -- 19,115
Prepaid expenses and other current assets 1,184 -- -- 1,184
--------- --------- --------- ---------
Total Current Assets 77,789 -- -- 77,789
Property, Plant And Equipment, at cost less accumulated depreciation and
amortization 5,392 -- (5,392) --
Excess of Purchase Price over Net Assets Acquired 7,260 -- (7,260) --
Deferred Charges and Other Assets 893 (243) (650) --
Total Assets $ 91,334 ($ 243) ($ 13,302) $ 77,789
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 9,407 -- -- $ 9,407
Accrued expenses and other current liabilities 18,482 8,649 -- 27,131
Income taxes payable 2,199 -- -- 2,199
--------- --------- --------- ---------
Total Current Liabilities: 30,088 8,649 -- 38,737
Excess of Revalued Net Assets Acquired over
Equity under FResh-start Reporting -- -- 13,708 13,708
Long Term Debt - Capitalized Lease 344 -- -- 344
Liabilities Subject to Compromise 97,433 (97,433) -- --
--------- --------- --------- ---------
Total Liabilities 127,865 (88,784) 13,708 52,789
Commitments and Contingencies
Stockholders' Equity
Common Stock 20,000 34 (20,000) 34
Preferred Stock -- -- -- --
Capital in excess of par value 49,012 24,966 (49,012) 24,966
Accumulated retained earnings (deficit) (93,142) 63,541 29,601 --
Foreign currency translation adjustment 565 -- (565) --
--------- --------- --------- ---------
Subtotal (23,565) 88,541 (39,976) 25,000
Treasury stock (12,966) -- 12,966 --
--------- --------- --------- ---------
Total Stockholders' Equity (36,531) 88,541 (27,010) 25,000
--------- --------- --------- ---------
Total Liabilities and Stockholders' Equity $ 91,334 ($ 243) ($ 13,302) $ 77,789
========= ========= ========= =========
</TABLE>
The Company stated its liabilities at June 4, 1997 at the present
value of the amounts to be paid pursuant to the Plan. The resulting gain of
$63,541 from the debt discharge has been presented as an "Extraordinary Item" in
the accompanying consolidated statement of operations. See Note 9 for additional
discussion regarding the reorganized Company's capitalization.
-13-
<PAGE>
3. DISPOSITIONS:
As discussed in Note 2, in connection with the consummation of the
Plan, the Company sold or transferred all the assets and liabilities of its
Sassco Fashions division on June 4, 1997 for an estimated exchange value of
$240,000,000. This value was the estimated reorganization value of the Sassco
Fashions Division which was calculated in a manner similar to the Company's
reorganization value (see Note 2). A complete valuation study is currently being
performed to establish a book and tax basis of the new Sassco entity. The
resulting gain of $99,810,000, net of taxes of $3,728,000, recorded from these
transactions is reflected as a Gain from the sale of the Sassco Fashions
division in the statement of operations. Any adjustments from the $240,000,000
valuation will be recorded in the appropriate subsequent period as a purchase
price adjustment to the gain and will have a corresponding offset to gain on the
debt discharge.
In addition, on May 26, 1997, the Company sold the assets and
liabilities of its Castleberry Division for $600,000. The resulting loss of
$1,398,000 on the sale was previously recorded as reorganization expense in
fiscal 1996 and therefore, was applied against Accrued expenses and other
current liabilities at the time of the sale.
Unaudited pro forma consolidated statements for the twenty-two and
eight weeks ended June 4, 1997 and for the fiscal year ended December 28, 1996
are presented below and include adjustments to give effect to the sales and the
Plan (see Note 2) as if they occurred as of the beginning of the periods
presented. A pro forma consolidated balance sheet as of June 4, 1997 is not
presented because the transactions recording the Plan and the sale transactions
are already reflected in the balance sheet.
The unaudited pro forma financial statements have been prepared in
accordance with guidelines established by the SEC. The historical balances were
derived from the statement of operations for the twenty-two and eight weeks
ended June 4, 1997 or from the financial statements of the Company included in
the December 28, 1996 Form 10-K. All significant intercompany transactions have
been eliminated. The unaudited pro forma financial statements should be read in
conjunction with the financial statements and notes thereto included in the
December 28, 1996 Form 10-K.
- 14 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
The unaudited pro forma adjustments presented in the statements are
as follows:
1. The operating results of the Sassco Fashions division have been
eliminated to give effect to the disposition as of the beginning
of the period presented, including depreciation expense on its
fixed assets, an allocated corporate charge based on workload by
department related to the Sassco Fashions division and direct
interest charges associated with financing fees on its factoring
agreement and fees incurred on letters of credit issued on its
behalf, and reverse the gain recorded on the sale and transfer of
the division.
2. The operating results of the Castleberry division have been
eliminated to give effect to the disposition as of the beginning
of the period presented, including depreciation expense on its
fixed assets and an allocated corporate charge based on workload
by department related to the Castleberry division.
3. To record the estimated effect of the Plan as if it had been
effective as of the beginning of the period presented. This
included adjustments for the following items:
a) The elimination of the historical depreciation and
amortization, including the amounts in cost of sales, on the
beginning-of-the-period asset balances for the remaining divisions
and the recording of the amortization credit from the "Excess of
revalued net assets over equity value under fresh-start reporting"
(assuming a three-year amortization period).
b) The elimination of historical reorganization expense that
will not be incurred subsequent to the Consummation Date.
c) The elimination of the fresh-start revaluation charge and
the reversal of the gain on debt discharge pursuant to the Plan.
- 15 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-TWO WEEKS ENDED JUNE 4, 1997
PRO FORMA
HISTORICAL PRO-FORMA ADJUSTMENTS PER NOTE 3 ADJUSTED
OPERATIONS (1) (2) (3) BALANCE
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 197,984 $(136,107) $ (2,808) -- $ 59,069
Cost of Sales 147,276 (101,573) (2,262) -- 43,409
--------- --------- --------- --------- ---------
Gross profit 50,708 (34,534) (546) 32 15,660
Operating Expenses:
Selling, warehouse, general and
administrative expenses 35,880 (24,228) (1,043) (756) 9,853
Amortization of intangibles 473 (256) -- (2,122) (1,905)
--------- --------- --------- --------- ---------
Total operating expenses 36,353 (24,484) (1,043) (2,878) 7,948
--------- --------- --------- --------- ---------
Operating income 14,355 (10,050) 497 2,910 7,712
Interest and Financing Costs (excludes contractual interest) 1,372 (595) -- -- 777
--------- --------- --------- --------- ---------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and extraordinary items 12,983 (9,455) 497 2,910 6,935
Reorganization Costs 3,379 -- 14 (3,393) --
--------- --------- --------- --------- ---------
Income (Loss) before taxes and extraordinary items 9,604 (9,455) 483 6,303 6,935
Taxes 451 (343) -- -- 108
--------- --------- --------- --------- ---------
Net Income (Loss) before extraordinary items 9,153 (9,112) 483 6,303 6,827
Extraordinary Item - Gain on Sale/Transfer of Sassco
Fashions Division 99,810 (99,810) -- -- --
Revaluation of Assets and Liabilities Pursuant to the
Adoption of Fresh-Start Reporting (27,010) -- -- 27,010 --
Extraordinary Item - Gain on Debt Discharge 63,541 -- -- (63,541) --
--------- --------- --------- --------- ---------
Net Income (Loss) $ 145,494 $(108,922) $ 483 $ (30,228) $ 6,827
========= ========= ========= ========= =========
</TABLE>
* Earnings per share is not presented for the twenty-two
weeks ended June 4, 1997 because such presentation would
not be meaningful. The old stock was cancelled under the
plan of reorganization and the new stock was not issued
until the consummation date.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
-16-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-ONE WEEKS (FIVE MONTHS) ENDED MAY 25, 1996
PRO FORMA
HISTORICAL PRO-FORMA ADJUSTMENTS PER NOTE 3 ADJUSTED
OPERATIONS (1) (2) (3) BALANCE
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 173,452 ($ 127,056) ($ 3,850) -- $ 42,546
Cost of Sales 131,981 (96,425) (2,755) (35) 32,766
------------ ------------ ------------ ------------ ------------
Gross profit 41,471 (30,631) (1,095) 35 9,780
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Selling, warehouse, general and
administrative expenses 33,632 (19,947) (1,163) (865) 11,657
Amortization of intangibles 483 (257) (10) (2,121) (1,905)
------------ ------------ ------------ ------------ ------------
Total operating expenses 34,115 (20,204) (1,173) (2,986) 9,752
------------ ------------ ------------ ------------ ------------
Operating income 7,356 (10,427) 78 3,021 28
Interest and Financing Costs (excludes
contractual interest) 837 (541) -- -- 296
------------ ------------ ------------ ------------ ------------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and
extraordinary items 6,519 (9,886) 78 3,021 (268)
Reorganization Costs 1,560 -- -- (1,560) --
------------ ------------ ------------ ------------ ------------
Income (Loss) before taxes and extraordinary items 4,959 (9,886) 78 4,581 (268)
Taxes 435 (370) -- -- 65
------------ ------------ ------------ ------------ ------------
Net Income (Loss) before extraordinary items 4,524 (9,516) 78 4,581 (333)
Extraordinary Item - Gain on Sale/Transfer of Sassco
Fashions Division -- -- -- -- --
Revaluation of Assets and Liabilities Pursuant to the
Adoption of Fresh-Start Reporting -- -- -- -- --
Extraordinary Item - Gain on Debt Discharge -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net Income (Loss) $ 4,524 ($ 9,516) $ 78 $ 4,581 $ 333
Net Income (Loss) per Share of Common Stock $ 0.24 $ (0.02)
============ ============
Weighted Average Common Shares Outstanding 18,771,836 18,771,836
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
-17-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
EIGHT WEEKS (TWO MONTHS) ENDED JUNE 4, 1997
PRO FORMA
HISTORICAL PRO-FORMA ADJUSTMENTS PER NOTE 3 ADJUSTED
OPERATIONS (1) (2) (3) BALANCE
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 55,229 $ (36,876) $ (679) -- $ 17,674
Cost of Sales 41,289 (27,349) (682) (14) 13,244
--------- --------- --------- --------- ---------
Gross profit 13,940 (9,527) 3 14 4,430
Operating Expenses:
Selling, warehouse, general and
administrative expenses 12,772 (8,739) (461) (324) 3,248
Amortization of intangibles 189 (103) -- (848) (762)
--------- --------- --------- --------- ---------
Total operating expenses 12,961 (8,842) (461) (1,172) 2,486
--------- --------- --------- --------- ---------
Operating income 979 (685) 464 1,186 1,944
Interest and Financing Costs (excludes contractual interest) 504 (173) -- -- 331
--------- --------- --------- --------- ---------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and extraordinary items 475 (512) 464 1,186 1,613
Reorganization Costs 2,911 -- 64 (2,975) --
--------- --------- --------- --------- ---------
Income (Loss) before taxes and extraordinary items (2,436) (512) 400 4,161 1,613
Taxes 135 (143) -- -- 8
--------- --------- --------- --------- ---------
Net Income (Loss) before extraordinary items (2,571) (369) 400 4,161 1,621
Extraordinary Item - Gain on Sale/Transfer of Sassco
Fashions Division 99,810 (99,810) -- -- --
Revaluation of Assets and Liabilities Pursuant to the
Adoption of Fresh-Start Reporting (27,010) -- -- 27,010 --
Extraordinary Item - Gain on Debt Discharge 63,541 -- -- (63,541) --
--------- --------- --------- --------- ---------
Net Income (Loss) $ 133,770 ($100,179) $ 400 ($ 32,370) $ 1,621
========= ========= ========= ========= =========
</TABLE>
* Earnings per share is not presented for the eight weeks
ended June 4, 1997 because such presentation would not be
meaningful. The old stock was cancelled under the plan of
reorganization and the new stock was not issued until the
consummation date.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
-18-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
EIGHT WEEKS (TWO MONTHS) ENDED MAY 25, 1996
PRO FORMA
HISTORICAL PRO-FORMA ADJUSTMENTS PER NOTE 3 ADJUSTED
OPERATIONS (1) (2) (3) BALANCE
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 52,886 ($ 37,120) ($ 855) -- $ 14,911
Cost of Sales 40,473 (27,981) (681) (14) 11,797
------------ ------------ ------------ ------------ ------------
Gross profit 12,413 (9,139) (174) 14 3,114
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Selling, warehouse, general and
administrative expenses 12,289 (7,402) (381) (334) 4,172
Amortization of intangibles 213 (122) (4) (849) (762)
------------ ------------ ------------ ------------ ------------
Total operating expenses 12,502 (7,524) (385) (1,183) 3,410
------------ ------------ ------------ ------------ ------------
Operating income (89) (1,615) 211 1,197 (296)
Interest and Financing Costs (excludes
contractual interest) 335 (216) -- -- 119
------------ ------------ ------------ ------------ ------------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and
extraordinary items (424) (1,399) 211 1,197 (415)
Reorganization Costs 857 -- -- (857) --
------------ ------------ ------------ ------------ ------------
Income (Loss) before taxes and extraordinary items (1,281) (1,399) 211 2,054 (415)
Taxes 119 (87) -- -- 32
------------ ------------ ------------ ------------ ------------
Net Income (Loss) before extraordinary items (1,400) (1,312) 211 2,054 (447)
Extraordinary Item - Gain on Sale/Transfer of Sassco
Fashions Division -- -- -- -- --
Revaluation of Assets and Liabilities Pursuant to the
Adoption of Fresh-Start Reporting -- -- -- -- --
Extraordinary Item - Gain on Debt Discharge -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net Income (Loss) $ 1,400 ($ 1,312) $ 211 $ 2,054 $ 447
Net Income (Loss) per Share of Common Stock $ 0.07 $ (0.02)
------------ ------------
Weighted Average Common Shares Outstanding 18,771,836 18,771,836
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
-19-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
4. ACCOUNTS RECEIVABLE:
On June 2, 1997, a wholly-owed subsidiary of the Company entered into
a Factoring Agreement with The CIT Group/Commercial Services, Inc. ("CIT").
Under this agreement, CIT began purchasing the accounts receivable of the
Company and will remit the proceeds received to the Company as collected. In
exchange for collecting the receivables, CIT earns a factoring fee of 0.4% of
receivables purchased and assumes the credit risk for these receivables.
5. INVENTORIES:
Inventories consist of the following:
July 5, June 4, December 28,
1997 1997 1996
(In thousands)
Raw materials $ 7,739 $ 8,341 $ 33,151
Work in process 3,530 3,429 2,711
Finished goods 11,691 7,345 68,521
-------- -------- --------
Total inventories $ 22,960 $ 19,115 $104,383
======== ======== ========
The balances at December 28, 1996 still include the inventories
related to the Sassco Fashions and Castleberry divisions which were subsequently
sold.
6. DEBT:
On June 2, 1997, in preparation for the consummation of the Plan, a
wholly-owned subsidiary of the Company entered into a two-year financing
agreement (the "CIT Credit Agreement") with CIT to provide direct borrowings and
the issuance of letters of credit on Company's behalf in an aggregate amount not
exceeding $30,000,000, with a sublimit on letters of credit of $20,000,000. The
CIT Credit Agreement became effective on June 4, 1997 with the consummation of
the Plan. Direct borrowings bear interest at prime plus 1.0% (9.5% at July 5,
1997 and June 4, 1997) and the CIT Credit Agreement requires a fee, payable
monthly, on average outstanding letters of credit at a rate of 2% annually.
There were no direct borrowings outstanding under the CIT Credit Agreement and
approximately $11,048,000 was committed under unexpired letters of credit as of
July 5, 1997.
- 20 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
The CIT Credit Agreement, as amended, contains certain reporting
requirements, as well as financial and operating covenants related to capital
expenditures and the attainment of a current assets to current liabilities
ratio, an interest to earnings ratio and minimum earnings. As collateral for
borrowings under the CIT Credit Agreement, the Company has granted to CIT a
security interest in substantially all of its assets. In addition, the CIT
Credit Agreement contains certain restrictive covenants, including limitations
on the incurrence of additional liens and indebtedness and a prohibition on
paying dividends. The Company is currently in compliance with all requirements
contained in the CIT Credit Agreement.
The Company previously had a facility for an $60,000,000 credit
agreement with The First National Bank of Boston ("FNBB") and BankAmerica
Business Credit, Inc. ("BABC"), as Facility Agents and FNBB as Administrative
Agent (the "FNBB Credit Agreement"). In connection with the consummation of the
Plan, the Company entered into an agreement (the "Paydown Agreement") with its
lenders under the FNBB Credit Agreement to paydown any remaining obligations
under the FNBB Credit Agreement and terminate the FNBB Credit Agreement on June
4, 1997. The FNBB Credit Agreement had expired on May 31, 1997, but continued in
effect until the consummation of the Plan with the consent of both the lenders
and the Company.
The FNBB Credit Agreement provided for post-petition direct
borrowings and the issuance of letters of credit on the Debtors' behalf in an
aggregate amount not exceeding $60,000,000, subject to being permanently reduced
on a dollar-for-dollar basis for any net cash proceeds received from the sale of
assets after March 20, 1995 for which the proceeds exceed $20,000,000 in the
aggregate up to a maximum of $40,000,000 on a cumulative basis. No qualifying
asset sales were made which would have reduced the facility borrowing limits.
Beginning January 1, 1997, the sublimit on the revolving line of credit was
$20,000,000 and the sublimit for letters of credit was $50,000,000.
There were no direct borrowings outstanding under the FNBB Credit
Agreement and approximately $22,195,000 and $32,169,000 was committed under
unexpired letters of credit as of June 4, 1997 and December 28, 1996,
respectively (see Note 6 of Notes to Consolidated Financial Statements in the
1996 Form 10-K). In addition, there was approximately $3,853,000 of unexpired
letters of credit outstanding at July 5, 1997 which is collateralized by a
standby letter of credit under the CIT Credit Agreement.
- 21 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Direct borrowings boar interest at prime plus 1.5% (10.00% at June 4,
1997 and 9.75% at December 28, 1996) and the FNBB Credit Agreement required a
fee, payable monthly, on average outstanding letters of credit at a rate of 2%
annually. The FNBB Credit Agreement, as amended, contained certain reporting
requirements, as well as financial and operating covenants through December 28,
1996 related to minimum and maximum inventory levels, capital expenditures and
attainment of minimum earnings before reorganization, interest, taxes and
depreciation and amortization. As collateral for borrowings under the FNBB
Credit Agreement, the Company had granted to FNBB and BABC a security interest
in substantially all assets of the Company. In addition, the FNBB Credit
Agreement contained certain restrictive covenants, including limitations on the
incurrence of additional liens and indebtedness and a prohibition on paying
dividends.
In accordance with the Plan, the remaining Liabilities subject to
compromise were discharged and the Company recognized a gain of $63,541,000,
which is reflected as an Extraordinary Item in the statement of operations for
the twenty-two and eight weeks ended June 4, 1997.
7. INCOME TAXES:
The provision for Federal, state and foreign income taxes is $451,000
and $135,000 for the twenty-two and eight weeks ended June 4, 1997 compared to
state and foreign income taxes of $435,000 and $119,000 for the twenty-one and
eight weeks ended May 25, 1996, respectively. Although there is no Federal
income tax provision currently recognizable due to existing net operating loss
carryforwards and no Federal income tax benefit currently recognizable, the
Company provided $3,728,000 for federal and state income taxes based on the
alternative minimum tax regulations for the twenty-two weeks and eight weeks
ended June 4, 1997 related to the gain on the sale of the Sassco Fashions
division. These taxes are reflected net of the gain shown in the statement of
operations for the twenty-two and eight weeks ended June 4, 1997. For the five
weeks ended July 5, 1997, the Company recognized $20,000 for state and foreign
income tax.
8. COMMITMENTS AND CONTINGENCIES:
As discussed in Notes 1 and 2, on the Filing Dates, the Company and
several of its subsidiaries filed voluntary petitions in the Bankruptcy Court
under chapter 11 of the Bankruptcy Code. All civil litigation commenced against
the Company and those referenced subsidiaries prior to that date had been stayed
under the Bankruptcy Code. By an order dated April 31, 1997 (the "Confirmation
Order"), the Bankruptcy Court confirmed the Plan. The Plan was consummated on
June 4, 1997.
- 22 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
The Confirmation Order, inter alia, dismissed with prejudice all
pending litigation, and released all claims that could have been brought in
litigation. Both prior to and subsequent to the Filing Dates, various class
action suits were commenced on behalf of certain prior stockholders of the
Company. Any claims against the Company arising out of these suits were
discharged as part of, and in accordance with the terms of the Plan.
Accordingly, whatever the eventual outcome of these cases, there can be no
material financial impact on the Company based on the terms of the Plan.
In addition to, and concurrent with, the proceedings in the
Bankruptcy Court, the Company is involved in or settled during second quarter of
1997 the following legal proceedings of significance:
In November 1992, a class action entitled "Stephen Warshaw and
Phillis Warshaw v. The Leslie Fay Companies, Inc. et al." was instituted in the
United States District Court for the Southern District of New York. In January
1993 and February 1993, the plaintiffs served amended complaints and thereafter
twelve other similar actions were commenced against the Company, certain of its
officers and directors and its then auditors, BDO Seidman. The complaints in
these cases, which purported to be on behalf of all persons who purchased or
acquired stock of the Company during the period from February 4, 1992 to and
including February 1, 1993, alleged that the defendants knew or should have
known material facts relating to the sales and earnings which they failed to
disclose and that if these facts had been disclosed, they would have affected
the price at which the Company's common stock was traded. A pre-trial order was
entered which had the effect of consolidating all of these actions and, in
accordance therewith, the plaintiffs have served the defendants with a
consolidated class action complaint which, because of the Chapter 11 filing by
the Company, does not name the Company as a defendant. In March 1994, plaintiffs
filed a consolidated and amended class action complaint. This complaint added
certain additional parties as defendants, including Odyssey Partners, L.P.
("Odyssey"), and expanded the purported class period from March 28, 1991 to and
including April 5, 1993. In March 1995, BDO Seidman filed an answer and
cross-claims against certain of the officers and directors of the Company
previously named in this action and filed third-party complaints against
Odyssey, certain current and former division heads of the Company and certain
current and former directors of the Company. These cross-claims and third-party
complaints allege that the Company's senior management and certain of its
directors engaged in fraudulent conduct and negligent misrepresentation. BDO
Seidman sought contribution from certain of the defendants and each of the
third-party defendants if it were found liable in the class action, as well as
damages. On March 7, 1997, a stipulation and agreement was signed pursuant to
which all parties agreed to settle the above described litigation for an
aggregate sum of $34,700,000. The officers' and directors' share of the
settlement is covered by the Company's officers' and directors' liability
insurance. The settlement specifically provides that the officers and directors
deny any liability to the plaintiffs and have entered into the settlement solely
to avoid substantial expense and inconvenience of litigation. The Company has no
obligations under this settlement. The District Court approved this settlement
and signed the final order of dismissal on May 8, 1997.
- 23 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
In February 1993, the Securities and Exchange Commission obtained an
order directing a private investigation of the Company in connection with, among
other things, the filing by the Company of annual and other reports that may
have contained misstatements, and the purported failure of the Company to
maintain books and records that accurately reflected its financial condition and
operating results. The Company is cooperating in this investigation.
In February 1993, the United States Attorney for the Middle District
of Pennsylvania issued a Grand Jury Subpoena seeking the production of documents
as a result of the Company's announcement of accounting irregularities. In 1994,
Donald F. Kenia, former Controller of the Company, was indicted by a Federal
Grand Jury in the Middle District of Pennsylvania and pled guilty to the crime
of securities fraud in connection with the accounting irregularities. On or
about October 29, 1996, Paul F. Polishan, former Senior Vice President and Chief
Financial Officer of the Company, was indicted by the federal grand jury in the
Middle District of Pennsylvania for actions relating to the accounting
irregularities.
In March 1993, a stockholder derivative action entitled "Isidore
Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v. John J.
Pomerantz et al." (the "Derivative Action") was instituted in the Supreme Court
of the State of New York, County of New York, against certain officers and
directors of the Company and its then auditors. This complaint alleges that the
defendants knew or should have known material facts relating to the sales and
earnings of the Company which they failed to disclose. The time to answer, move
or otherwise respond to the complaint has not yet expired. The plaintiff seeks
an unspecified amount of monetary damages, together with interest thereon, and
costs and expenses incurred in the action, including reasonable attorneys' and
experts' fees. The Company cannot presently determine the ultimate outcome of
this litigation, but believes that it should not have any unfavorable impact on
the financial statements. Pursuant to the Modification of the Third Amended and
Restated Joint Plan of Reorganization filed on April 4, 1997, a Derivative
Action Board, comprised of three Persons or Entities appointed by the Bankruptcy
Court, upon nomination by the Creditors' Committee, shall determine by a
majority vote whether to prosecute, compromise and settle or discontinue the
Derivative Action.
On February 23, 1996, Albert Nipon and American Pop Marketing Group,
Inc. commenced an action against the Company in the United States Bankruptcy
Court, Southern District of New York seeking, inter alia, a declaratory judgment
with respect to the use of the Company's "Albert Nipon" trademark and tradename.
The Company has asserted counter claims. Upon a record of stipulated facts and
submissions of memorandum of law, an oral argument on this matter was heard on
May 9, 1997.
- 24 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
9. STOCKHOLDERS' EQUITY:
As provided under the Plan, the authorized common stock of the
reorganized Company consists of 3,500,000 shares of common stock with a par
value $.01 per share. At June 4, 1997, 3,400,000 were issued and outstanding and
were being held by the plan adminstrator in trust. In July 1997, 2,720,000 (80%)
of the shares were distributed. The remaining twenty (20%) percent will be held
back pending the resolution of certain disputed claims before the Bankruptcy
Court. The old common stock was extinguished at June 4, 1997 and the old
stockholders of the Company did not retain or receive any value for their equity
interest.
In addition, 500,000 shares of Preferred Stock of the reorganized
Company were authorized at June 4, 1997 with a par value of $.01. None of such
shares have been issued.
The Company has adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" effective as of Consummation Date. Under SFAS No. 128, the
presentation of both Basic and Dilutive Earnings per Share is required on the
Income Statement. Pursuant to the Plan, the Company has granted stock options to
certain senior management equal to ten (10%) percent of the reorganized
Company's common stock outstanding (assuming the exercise of all options),
one-third of which will vest on each of the first three anniversaries of the
Consummation Date. In addition, each outside director of the Company has been
granted 5,000 stock options for a total of 25,000 options. The options may be
exercised for $6.18 per share. Therefore, a total of 437,121 of options are
outstanding at June 4, 1997 and July 5, 1997. Additional options of another two
and one-half (2.5%) to seven and one-half (7.5%) percent of common stock (a
maximum of 309,091 options) may be issued upon the achievement of a defined
imputed enterprise value in excess of $37,500,000. The exercise of these options
would create the issuance of additional stock. The issuance of shares in excess
of 100,000 would require the Company to increase the authorized shares. The
Company anticipates seeking shareholder approval to amend its Certificate of
Incorporation to increase its authorized common stock.
10. OTHER EVENTS:
On June 2, 1997, a wholly-owned subsidiary of the Company and the
Union of Needle Trade and Industrial and Textile ("U.N.I.T.E.") reached an
agreement on a four-year collective bargaining agreement, which will run through
May 31, 2001 covering non-supervisory production, maintenance, packing and
shipping employees.
- 25 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- ---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
----------------------------------------------
(a) RESULTS OF OPERATIONS
FIVE WEEKS ENDED JULY 5, 1997 AS COMPARED TO
FIVE WEEKS ENDED JUNE 29, 1996
The Company recorded net sales of $5,535,000 for the five weeks ended
July 5, 1997, compared with $ 30,690,000 for the five weeks ended June 29, 1996,
a net decrease of $25,155,000, or 82.0%. The primary factor contributing to this
decrease was the sale of the Sassco Fashions and Castleberry divisions, which
generated $25,009,000 and $603,000, respectively, in net sales for the five
weeks ended June 29, 1996. On a comparable basis, after excluding the effect of
the above mentioned businesses, the remaining businesses had a net sales
increase of $457,000, or 9.0%, for the five weeks ended July 5, 1997 as compared
to the five weeks ended June 26, 1997.
Gross profit for the five weeks ended July 5, 1997 was 20.3% of net
sales compared with 25.2% for the five weeks ended June 29, 1996 (a decrease of
$6,621,000). The Sassco Fashions and Castleberry divisions generated $6,971,000
in gross profit for the five weeks ended June 26, 1996. The comparable remaining
businesses increased gross profit by $350,000 for the five weeks ended July 5,
1997 versus the prior year and the gross margin increased to 20.3% from 15.3%.
Selling, warehouse, general and administrative expenses were 27.4%
and 22.9% for the five weeks ended July 5, 1997 and June 29, 1996, respectively.
After excluding the costs associated with the divisions sold, the comparable
remaining business had expenses of 30.7% for the five weeks ended June 29, 1996.
The decrease in the comparable percentage is a result of the additional sales
volume during the five weeks ended July 5, 1997 without additional overhead
expenses.
Amortization of intangibles for the five weeks ended July 5, 1997
consists of $381,000 of income from amortization of the excess net assets
acquired over valuation (see Note 2). Amortization of intangibles for the five
weeks ended June 29, 1996 consists primarily of $95,000 of expense from
amortization of the excess purchase price over net assets acquired, including
$57,000 of amortization related to the divisions sold. This expense related to
the leveraged buyout of The Leslie Fay Company on June 28, 1984.
Interest expense (income), net and financing costs were $(102,000)
and $204,000 for the five weeks ended July 5, 1997 and June 29, 1996,
respectively. The financing fees under the new CIT Credit Agreement were offset
by income earned on the cash invested for the five weeks ended July 5, 1997. The
financing fees incurred were significantly below those incurred during the five
weeks ended June 29, 1996 due to the higher line needed to finance the
operations of Sassco Fashions and Castleberry.
- 26 -
<PAGE>
The provision for state and foreign income taxes was $20,000 and
$204,000 for the five weeks ended July 5, 1997 and June 29, 1996, respectively.
The charge in 1996 relates primarily to foreign taxes on a subsidiary of the
Sassco Fashions division.
TWENTY-TWO WEEKS ENDED JUNE 4, 1997 AS COMPARED TO
TWENTY-ONE WEEKS ENDED MAY 25, 1996
The Company recorded net sales of $197,985,000 for the twenty-two
weeks ended June 4, 1997, compared with $173,452,000 for the twenty-one weeks
ended May 25, 1996, a net increase of $24,533,000, or 14.1%. The additional week
accounted for $10,084,000 of the net sales increase. Additionally, in 1996, the
Sassco Fashions division began shipping a new product line under the Nina
Charles label and opened additional retail stores over the last 17 months, for a
total of 45 stores in operation at June 4, 1997. These new businesses achieved a
net sales volume of $17,843,000 for the twenty-two weeks ended June 4, 1997, or
$11,379,000 more than the twenty-one weeks ended May 25, 1996. On a comparable
basis, after excluding the effect of the above mentioned additional week and new
businesses, the Sassco Fashions division had a net sales decrease of $8,430,000,
or 7.0% for the twenty-two weeks ended June 4, 1997, compared with the
twenty-one weeks ended May 25, 1996. This was primarily a result of reducing its
production in 1997 to limit additional clearance markdowns. The remaining Leslie
Fay businesses accounted for an increase of $12,720,000, or 29.3%, primarily due
to increased volume for its Dress division. The net sales of the Castleberry
division declined by $1,220,000.
Gross profit for the twenty-two weeks ended June 4, 1997 was 25.6% of
net sales compared with 23.9% in the twenty-one weeks ended May 25, 1996 (an
increase of $9,237,000). The additional week accounted for $1,998,000 of the
increase in gross profit. The additional retail stores and new product lines of
the Sassco Fashions division accounted for $3,364,000 of the increase in gross
profit. The remaining gross profit of Sassco Fashions declined $461,000.
Although the gross margin for the division increased 1.3%, it did not offset the
impact of the net sales volume decrease on gross profit. Increased volume and
better initial pricing (gross margin increased from 22.9% to 26.5% on a
comparable basis) of the Leslie Fay Dress and Sportswear divisions also
accounted for $4,957,000 of additional gross profit. The Castleberry division
had a decrease in gross profit of $621,000.
- 27 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Selling, warehouse, general and administrative expenses for
twenty-two weeks ended June 4, 1997 decreased to 18.1% of net sales compared
with 19.4% for the twenty-one weeks ended May 25, 1996. The percentage decrease
is primarily due to the additional sales volume generated in the for twenty-two
weeks ended June 4, 1997 versus the twenty-one weeks ended May 25, 1996, without
a corresponding increase in expense. For the period, expenses increased
$2,248,000 over the prior year. Sassco Fashions expenses increased $4,118,000,
of which $1,100,000 is related to the extra week and the remainder is due to the
additional product lines and retail stores opened. The Leslie Fay business
reduced expenses by $1,749,000 or 14.1% below the prior year. This decrease was
offset by approximately $483,000 of expenses incurred in the extra week. The
Castleberry division decreased expenses by approximately $121,000 or 10.4% below
the comparable period in 1996 due to its reduced volume.
Amortization of intangibles consists primarily of the amortization of
the excess purchase price over net assets acquired and relates principally to
the leveraged buyout of The Leslie Fay Company on June 28, 1984.
Interest and financing costs increased to $1,372,000 for the
twenty-two weeks ended June 4, 1997 compared to $837,000 for the twenty-one
weeks ended May 25, 1996. The increase is due primarily to the fee to finance
the accounts receivable of the Sassco Fashions Division under an agreement begun
in February 1996.
While operating as a debtor in possession, the Company recognized
reorganization costs of approximately $3,379,000 and $1,560,000 during the
twenty-two weeks ended June 4, 1997 and twenty-one weeks ended May 25, 1996,
respectively, which is comprised of professional fees and other costs of
$2,151,000 and $1,806,000; costs accrued to re-engineer the business processes,
review and revise the technology requirements and other related costs to the
downsizing and separation of the businesses of $800,000 and $0; and plan
administration costs of $1,000,000 and $0; offset by interest income of $572,000
and $246,000.
The provision for Federal, state and foreign income taxes was
$451,000 and $435,000 for the twenty-two weeks ended June 4, 1997 and twenty-one
weeks ended May 25, 1996, respectively. There is no Federal income tax provision
currently recognizable, other than that based on the alternative minimum tax
regulations, due to existing net operating loss carryforwards.
- 28 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
EIGHT WEEKS ENDED JUNE 4, 1997 AS COMPARED TO
EIGHT WEEKS ENDED MAY 25, 1996
The Company recorded net sales of $55,229,000 for the eight weeks
ended June 4, 1997, compared with $52,886,000 for the eight weeks ended May 25,
1996 a net increase of $2,343,000, or 44.3%. In 1996, the Sassco Fashions
division began shipping a new product line under the Nina Charles label and
opened additional retail stores over the last 17 months, for a total of 45
stores in operation at June 4, 1997. These new businesses achieved a net sales
volume of $7,006,000 for the eight weeks ended June 4, 1997, or $3,908,000 more
than the eight weeks ended May 25, 1996. On a comparable basis, after excluding
the effect of the new businesses, the Sassco Fashions had a net sales decrease
of $4,152,000, or 12.2% for the eight weeks ended June 4, 1997, compared with
the eight weeks ended May 25, 1996. This was primarily a result of reducing its
production in 1997 to limit additional clearance markdowns. The remaining Leslie
Fay businesses accounted for an increase of $2,763,000, or 18.5%, primarily due
to increased volume for its Dress division. The net sales of the Castleberry
division declined by $176,000.
Gross profit for the eight weeks ended June 4, 1997 was 25.2% of net
sales compared with 23.5% in the eight weeks ended May 25, 1996 (an increase of
$1,527,000). The increase in gross profit resulted from better initial pricing
of its Dress and Sportswear divisions. The gross profit increased $1,316,000 for
Dress and Sportswear and the gross margin increased to 25.0% from 20.8%. The
additional retail stores and new product lines of the Sassco Fashions division
accounted for $1,573,000 of the increase in gross profit. The remaining gross
profit of Sassco Fashions declined $1,185,000. The Castleberry division had a
decrease in gross profit of $177,000.
Selling, warehouse, general and administrative expenses for eight
weeks ended June 4, 1997 were 23.1% of net sales compared with 23.2% for the
eight weeks ended May 25, 1996. On a comparable basis, after excluding the
effect of the new businesses, expenses were 25.3% and 24.7% of net sales for the
for eight weeks ended June 4, 1997 and May 25, 1996, respectively. The increase
is related primarily to the establishment of a separate administration center
for the Sassco Fashions division in anticipation of its spin-off.
Amortization of intangibles consists primarily of the amortization of
the excess purchase price over net assets acquired and relates principally to
the leveraged buyout of The Leslie Fay Company on June 28, 1984.
Interest and financing costs increased to $504,000 for the eight
weeks ended June 4, 1997 compared to $335,000 for the eight weeks ended May 25,
1996. The increase is due primarily to the fee to finance the accounts
receivable of the Sassco Fashions Division under an agreement entered into in
February 1996.
- 29 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
While operating as a debtor in possession, the Company recognized
reorganization costs of approximately $2,911,000 and $857,000 during the eight
weeks ended June 4, 1997 and May 25, 1996, respectively, which is comprised of
professional fees and other costs of $1,545,000 and $950,000; costs accrued to
re-engineer the business processes, review and revise the technology
requirements and other related costs to the downsizing and separation of the
businesses of $800,000 and $0; and plan administration costs of $1,000,000 and
$0; offset by interest income of $434,000 and $93,000.
The provision for Federal, state and foreign income taxes was
$135,000 and $119,000 for the eight weeks ended June 4, 1997 and May 25, 1996,
respectively. There is no Federal income tax provision currently recognizable,
other than that based on the alternative minimum tax regulations
(b) LIQUIDITY AND CAPITAL RESOURCES
On June 2, 1997, the Company obtained $30,000,000 of post-emergence
financing (see Note 5), which became effective with the consummation of the Plan
on June 4, 1997. The CIT Credit Agreement provides a working capital facility
commitment of $30,000,000, including a $20,000,000 sublimit on letters of
credit. As of August 2, 1997, there were no borrowings under the revolving line
of credit and the Company was utilizing approximately $9,499,000 of the CIT
Credit Agreement for the letters of credit.
At July 5, 1997, there were no cash borrowings outstanding under the
CIT Credit Agreement, and cash and cash equivalents amounted to $35,065,000. Of
this amount, $20,192,000 will be used to pay administrative claims as defined in
the Plan. Working capital decreased $716,000, to $37,748,000 for the five weeks
ended July 5, 1997. The primary changes in the components of working capital
were a decrease in accounts receivable of $5,079,000, an increase in inventories
of $3,845,000 and an increase of $4,252,000 in prepaid expenses and other
current assets. Accounts receivable decreased due to historically light June
shipments offset by collections. Inventories increased to meet anticipated third
quarter volume. Other current assets increased as the Company invested
$3,005,000 in a 1 Year US Treasury Note maturing on June 30, 1998, the proceeds
from which will be used to pay administrative claims.
- 30 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
At June 4, 1997, there were no cash borrowings outstanding under the
CIT Credit Agreement, and cash and cash equivalents amounted to $41,080,000. Of
this amount, $23,580,000 will be used to pay administrative claims as defined in
the Plan. The Company's working capital decreased $111,940,000, to $37,463,000
for the twenty two weeks ended June 4, 1997. The sale of the Sassco Fashions and
Castleberry divisions generated a decrease in working capital of $99,810,000 and
the reclass to current liabilities of the priority claims required to be paid
subsequent to Consummation Date decreased working capital further by $8,649,000.
Cash flow generated from the Sassco Fashions and Castleberry divisions was
$34,295,000 and $690,000, respectively. The primary changes in the remaining
components of working capital were an increase in cash and cash equivalents of
$19,103,000, an increase in accounts receivable of $1,248,000, a decrease in
inventories of $25,538,000, a decrease of $4,167,000 in accounts payable,
accrued expenses and other current liabilities and an increase in accrued
reorganization expenses of $3,379,000. Inventories decreased as Spring 1997 and
excess Fall 1996 Sassco Fashions product built up through December 1996 and was
sold in the first quarter of 1997.
Although, the Company's results of operations indicated an Operating
income of $14,355,000 for the twenty-two weeks and $4,000 for the five weeks
ended July 5, 1997, these results are not necessarily indicative of results for
an entire year. Due to the seasonality of the business and the sale of the
Sassco Fashions division, operating profits realized in the second half of the
year will be much less than the first half.
The Company's working capital decreased $122,359,000, to $37,463,000
for the eight weeks ended June 4, 1997. The sale of the Sassco Fashions and
Castleberry divisions generated a decrease in working capital of $99,810,000 and
the reclass to current liabilities of the priority claims required to be paid
subsequent to Consummation Date decreased working capital further by $8,649,000.
Cash flow generated from the Sassco Fashions and Castleberry divisions was
$22,417,000 and $493,000, respectively. The primary changes in the remaining
components of working capital were an increase in cash and cash equivalents of
$14,852,000, a decrease in accounts receivable of $28,489,000, an increase in
inventories of $2,748,000 and an increase in accrued reorganization expenses of
$2,911,000. Accounts receivable decreased as Spring 1997 receivables were
collected and replaced by the historically lower second quarter sales volume.
Capital spending was $140,000 for the five weeks ended July 5, 1997
and $3,730,000 for the twenty-two weeks ended June 4, 1997. Capital expenditures
are expected to be $4,866,000 for the fiscal year 1997, including $3,152,000 of
expenditures related to the Sassco Fashions Division. The anticipated post
emergence capital expenditures of $1,136,000 are primarily related to
improvements in management information systems. The Company believes that its
financing arrangements and anticipated level of internally generated funds will
be sufficient to finance its capital spending during 1997.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Other than the capital expenditures described above, no other
long-term investment or financing activities are anticipated throughout the
remainder of 1997. The Company has no plans to pay dividends in the foreseeable
future.
A number of statements contained herein are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in the applicable statements.
These risks and uncertainties include, but are not limited to, the uncertainty
of potential manufacturing difficulties, the dependence on key personnel, the
possible impact of competitive products and pricing, the Company's continued
ability to finance its operations, general economic conditions, pending legal
proceedings and the achievement and maintenance of profitable operations and
positive cash flow.
The Company's ability to continue as a going concern is dependent
upon the ability to maintain compliance with all debt covenants under the
financing and the maintenance of profitable operations and positive cash flow.
Management believes the continued availability of financing facilities, together
with the Company's available cash and expected cash flows from operations should
enable it to fund expected needs for working capital and capital spending for
the foreseeable future.
- 32 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has previously reported the proceedings under chapter 11
of the Bankruptcy Code and other pending legal proceedings in Item 3. - "Legal
Proceedings" in the 1996 Form l0-K. The Company's Plan of Reorganization was
approved by the creditors and on April 21, 1997, the Bankruptcy Court confirmed
the Plan. On June 4, 1997, the Plan was consummated and the Company no longer
operates under chapter 11. For information concerning legal proceedings at the
end of the second quarter of 1997, reference is made to Note 8 of the Notes to
Consolidated Financial Statements contained herein.
No other legal proceedings were terminated during the second quarter
of 1997 or thereafter, other than ordinary routine litigation incidental to the
business of the Company and the settlement of the class action proceedings
described in Note 8 of the Notes to the Consolidated Financial Statements
contained herein.
ITEM 2. CHANGES IN SECURITIES.
Pursuant to the Plan of Reorganization, all theretofore outstanding
shares of Common Stock, $1.00 par value, were canceled. The Company filed an
Amended and Restated Certificate of Incorporation (the "Amended Certificate")
authorizing the issuance of 3,500,000 shares of common stock, par value $01 per
share, and 500,000 shares of preferred stock, par value of $.01 per share. Each
share of common stock has one vote in connection with the any matter presented
to shareholders. The common stock has no cumulative voting rights, pre-emptive
rights or sinking fund provisions. The Amended Certificate provides that a
Business Combination with an Interested Stockholder (as said terms are defined
therein) must be approved by the affirmative vote of the holders of at least 80%
of the outstanding voting stock including the affirmative vote of the holders of
at least 80% of the voting stock not owned by the Interested Stockholder or any
Affiliate thereof. Such provisions do not apply in the event the Business
Combination has been approved by a majority of the Continuing Directors or if
the consideration paid in the combination meets certain provisions as more
particularly set forth in the Amended Certificate. The CIT Credit Agreement
contains a prohibition on the payment of the dividends (see Note 8).
On June 4, 1997 in connection with the consummation of the Plan of
Reorganization, the Company issued to its creditors an aggregate of 3,400,000
shares of its common stock in cancellation of all obligations to such creditors
by the Company. The certificates evidencing such shares were actually delivered
in July 1997. An aggregate of $88,784,000 of indebtedness was canceled by the
Registrant in consideration for such stock. The shares were exempt from
registration under the Securities Act of 1933, as amended, by virtue of the
provisions of Section 3(a)(10) thereof.
- 33 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
In addition, the Company granted options to purchase an aggregate of
412,121 shares to five executives and options to purchase 25,000 shares to five
management directors, all exercisable at $6.18 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibits are set forth on the "Index to Exhibits" on page
34 hereof.
b) Reports on Form 8-K
Since the end of the first quarter of fiscal 1997, the
Company filed a Current Report on Form 8-K dated June 4,
1997, reporting on items 2, 3 and 5. Pro-Forma financial
statements are to be filed by amendment.
- 34 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 25, 1997 The Leslie Fay Company, Inc.
----------------------------
(Company)
By: /s/ Warren T. Wishart
-------------------------
Warren T. Wishart
Secretary and Chief Financial
Officer
- 35 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. Description
10.2 (a) Employment Agreement dated as of June 4, 1997 between The
Leslie Fay Company, Inc. and John J. Pomerantz.
10.2(b) Employment Agreement dated as of June 4, 1997 between The
Leslie Fay Company, Inc. and John Ward.
10.7(g) Lease Agreement dated August 1, 1997 between John J. Passan
and the Company for certain premises located at 1 Passan
Drive, Borough of Laflin, Luzerne County, Pennsylvania.
27 Financial Data Schedule
Execution Copy
--------------
EMPLOYMENT AGREEMENT
(John J. Pomerantz)
AGREEMENT, dated as of June 2, 1997, between The Leslie Fay Company,
Inc., a Delaware corporation, with its principal office at 1412 Broadway, New
York, New York (the "Corporation"), and John J. Pomerantz, residing at 885 Park
Avenue, Apartment 15A, New York, New York 10021 (the "Executive").
RECITAL
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A. On April 5, 1993, The Leslie Fay Companies, Inc. ("Leslie Fay')
and certain of its subsidiaries each filed a voluntary petition for relief under
chapter 11 of title 11 of the United States Code (the "Code") with the United
States Bankruptcy Court for the Southern District of New York (the "Court").
B. By order, dated April 21, 1997, the Court confirmed that certain
Fourth Amended and Restated Joint Plan of Reorganization for Debtors Pursuant to
Chapter 11 of the United States Bankruptcy Code (the "Plan").
C. Up to and including the Effective Date, the Executive has served
as the Chairman and Chief Executive Officer of Leslie Fay,
predecessor-in-interest to the Corporation.
D. The Corporation desires to secure the continued services of the
Executive, and the Executive desires to continue to furnish services to the
Corporation, on the terms and conditions hereinafter set forth.
E. In accordance with the Plan and the designations filed with the
Court in connection therewith, the Executive has been appointed to serve on the
Board from and after the Effective Date.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties hereto hereby agree as follows:
1. Definition. Unless otherwise defined herein, the following terms
shall have the respective meanings specified below and be equally applicable to
the singular and plural of terms defined:
(a) "Board" shall mean the Board of Directors of the
Corporation.
<PAGE>
(b) "Cause" shall mean (i) conviction by the Executive of a
felony, (ii) perpetration by the Executive of (x) an illegal act which causes
significant economic injury to the Corporation or (y) a common law fraud against
the Corporation, or (iii) willful violation by the Executive of a specific
written direction from the Board concerning one or more matters of a material
nature for the Corporation or its business or operations (following a warning in
writing in respect thereto from the Board).
(c) "Change of Control" shall mean the occurrence of any person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act)
acquiring "beneficial ownership" (as de fined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of fifty percent (50%) or more of the aggregate
voting power of the capital stock of the Corporation, except for any such person
or group that has such beneficial ownership on the Effective Date.
(d) "Corporation Senior Managers" shall mean, to the extent that
the following persons are employees of the Corporation during the applicable
fiscal year of the Corporation, John Pomerantz, John Ward, Cate Bandel, Dominic
Fellicetti and Warren Wishart.
(e) "Disabled" shall mean, with respect to the Executive, being
physically or mentally disabled, whether totally or partially, so that he is
substantially unable to perform his services hereunder for a consecutive period
of more than six (6) months or for shorter periods aggregating six months during
any twelve-month period.
(f) "EBITDA" shall mean for any fiscal year of the Corporation,
the consolidated earnings (including licensing revenues from the businesses or
products of Hue, Inc.) before interest, taxes, depreciation and amortization of
the Corporation and its consolidated subsidiaries, as determined pursuant to
generally accepted accounting principles in effect in the United States of
America from time to time, provided that for purposes of determining EBITDA
hereunder, EBITDA shall (i) be calculated before determination of the Cash Bonus
Pool (as hereinafter defined), (ii) exclude allocations to the Castleberry and
Sassco businesses and Transco (as defined in the financial reporting package
periodically presented to the Creditors' Committee in the Chapter 11 case of The
Leslie Fay Companies, Inc.) and (iii) be increased by $300,000.
(g) "Effective Date" shall mean June 2, 1997.
2
<PAGE>
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Good Reason" shall mean the continuation of any of the
following events for more than ten (10) days after the Corporation's receipt
from the Executive of written notice thereof:
(i) the Executive shall fail to be reelected as a Director of
the Corporation and as Chairman of the Board and Chairman of the
Executive Committee of the Board (if any) or shall be removed from any
such positions or from the position of Chief Executive Officer of the
Corporation at any time during the Term (other than for Cause), any
designee of the Executive pursuant to Section 4(b) hereof shall fail to
be reelected or shall be removed as a Director during the Term, or the
size of the Board shall be expanded and the Executive shall not be given
reasonable opportunity to designate one or more additional Directors
such that the Executive and all Directors designated by the Executive
shall comprise at least twenty eight percent (28%) of the membership of
the Board;
(ii) the Executive shall fail to be vested with the powers and
authority of Chief Executive Officer of the Corporation as described in
Section 4(a) hereof, or the powers and authority of such position or his
responsibilities with respect thereto shall be diminished in any
material respect;
(iii) the Executive shall have assigned to him without his
express written consent any duties, functions, authority or
responsibilities that are inconsistent with the Executive's positions
described in Section 4 hereof;
(iv) the Executive's principal place of employment is changed to
a location more than twenty-five (25) miles from the prior location
without the Executive's prior written consent;
(v) any material failure by the Corporation to fulfill any of
its obligations under this Agreement, including, without limitation, the
failure to make any material payment required to be made by the
Corporation pursuant to Sections 5 and 6 hereof within five ( 5)
business days after the date such payment is required to be made;
3
<PAGE>
(vi) any purported termination by the Corporation of the
Executive's employment otherwise than as expressly permitted by, and in
compliance with all conditions and procedures of, this Agreement;
(vii) the Corporation shall fail to comply with the provisions
of Section 14 or 19(a) hereof; or
(viii) there shall occur a Change of Control, other than a
Change of Control in connection with, or resulting in whole or part
from, the acquisition by the Ex ecutive or any Affiliate of the
Executive of "beneficial ownership" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of shares of capital stock of the
Corporation.
(j) "Target EBITDA" shall mean (a) for 1997, Five Million Four
Hundred Forty-Three Thousand Dollars ($5,443,000.00) and (b) for all years
thereafter, the targeted EBITDA for the Corporation as a whole established by
the Board in good faith.
2. Employment. The Corporation shall employ the Executive, and the
Executive shall serve the Corporation, upon the terms and conditions hereinafter
set forth.
3. Term. Subject to the terms and conditions hereinafter set forth,
the term of the Executive's employment hereunder shall commence on the Effective
Date and shall continue until the first anniversary of the Effective Date,
unless earlier terminated pursuant to the provisions of Section 8, 9 or 10
hereof (the "Term").
4. Duties and Extent of Services.
(a) Chief Executive Officer. During the Term, the Executive shall serve
as Chief Executive Officer of the Corporation faithfully and to the best of his
ability, and shall devote substantially all of his business time, energy and
skill to such employment, it being understood and agreed that the Executive may
serve on the boards of directors or equivalent governing bodies of other
business corporations or other business organizations; provided, however, that
(i) such other corporations or other organizations are not in direct competition
with the Corporation and/or its subsidiaries and (ii) such service does not
materially interfere with the performance by the Executive of his duties
hereunder. The Executive shall be invested with the duties and authority that
are customarily delegated to a chief executive officer of a corporation, and
shall
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report to and be subject to the direction of the Board of Directors of the
Corporation. The Executive shall also perform such specific duties and services
of a senior executive nature as the Board of Directors of the Corporation shall
request, including, without limitation, serving as a senior officer and/or
director of any of the Corporation's subsidiaries.
(b) Board Membership. Although it is understood that the right to elect
directors of the Corporation is by law vested in the stockholders of the
Corporation, in accordance with the Plan, the initial Board shall consist of
seven persons, and, during the Term, (i) the stockholders of the Corporation
will elect the Executive and a designee of the Executive to the Board, and (ii)
the Executive shall serve as Chairman of the Board and of the Executive
Committee of the Board (if any).
5. Base Salary. During the Term, the Corporation shall pay the
Executive a base salary ("Base Salary") of Four Hundred Thirty Thousand Dollars
($430,000.00), or such higher amount as the Board may from time to time
determine, payable in equal weekly installments.
6. Incentive Compensation. If the Corporation's EBITDA for the
fiscal year is greater than or equal to eightyfive percent (85%) (the "Minimum
Percentage") of Target EBITDA, the Corporation shall pay a bonus ("Cash Bonus
Pool") to the Corporation Senior Managers no later than one hundred twenty (120)
days after the end of the fiscal year, in an amount equal to the sum of (x) nine
and six-tenths percent (9.6%) of the Corporation's EBITDA plus (y) two-tenths
percent (0.2%) of the Corporation's EBITDA for each percentage point, if any, of
Target EBITDA by which the Corporation's EBITDA exceeds the Minimum Percentage;
provided, however, that in no event shall the Cash Bonus Pool exceed twelve and
one-half percent (12.5%) of the Corporation's EBITDA. Upon payment of the Cash
Bonus Pool, the Executive shall be entitled to receive a portion thereof in
accordance with the terms and provisions of the understanding by and among the
Corporation Senior Managers.
7. Employee Benefits.
(a) During the Term, the Executive shall receive coverage and/or
benefits under any and all medical insurance, life insurance, long-term
disability insurance and pension plans and other employee benefit plans of the
Corporation generally made available to senior executives of the Corporation
from time to time.
(b) During the Term, the Corporation shall provide (x) the Executive and
members of his immediate family with (i)
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supplemental disability coverage and (ii) medical insurance for all medical
costs and services incurred by the foregoing, including costs of dental, vision
and custodial care, and (y) the Executive with the services of an automobile
selected by him and a driver for his use.
(c) The Executive shall be entitled to paid vacations (taken
consecutively or in segments), in accordance with the standard vacation policy
of the Corporation for senior ex ecutives, but in no event less than four (4)
weeks each calendar year during the Term. Such vacations shall be taken at times
consistent with the effective discharge of the Executive's duties.
(d) During the Term, the Executive shall be accorded office facilities
and secretarial assistance commensurate with his position as Chief Executive
Officer of the Corporation and adequate for the performance of his duties
hereunder.
8. Termination -- Death or Disability.
(a) In the event of the termination of the Executive's employment
because of the death of the Executive during the Term, the Corporation shall pay
to any one or more beneficiaries designated by the Executive pursuant to notice
to the Corporation, or, failing such designation, to the Executive's estate, (i)
the unpaid Base Salary owing to the Employee through the end of the month of his
death, in a lump sum within five (5) business days after his death, and (ii) a
bonus for the year in which such termination occurs, equal to the bonus (if any)
that would have been paid for such year if no such termination had occurred,
times a fraction, the numerator of which is the number of months in such year
through the end of the month in which such termination occurs, and the
denominator of which is twelve (12) (such bonus to be computed and paid at the
time and in the manner specified in Section 6 hereof).
(b) In the event that the Executive shall become Disabled, the
Corporation shall have the right to terminate the Executive's employment
hereunder by giving him written notice of such termination. Upon receipt of such
notice, the Executive's employment hereunder shall terminate. In the event of
such termination, the Corporation shall pay to the Executive (i) the unpaid Base
Salary owing to the Executive through the end of the month of such termination,
in a lump sum within five (5) business days of such termination, and (ii) a
bonus for the year in which such termination occurs, equal to the bonus (if any)
that would have been paid for such year if no such termination had occurred,
times a fraction, the numerator of which is the number of months in such year
through the end of the
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month in which such termination occurs, and the denominator of which is twelve
(12) (such bonus to be computed and paid at the time and in the manner specified
in Section 6 hereof).
9. Termination for Cause by Corporation
(a) The Executive's employment hereunder may be terminated by the
Corporation for Cause upon compliance with the provisions of Section 9(b)
hereof. In the event that Executive's employment hereunder shall validly be
terminated by the Corporation for Cause pursuant to this Section 9(a), the
Corporation shall promptly pay accrued but unpaid Base Salary and reimburse or
pay any other accrued but unpaid amounts due under Sections 6 and 13 hereof as
of the date of termination, and thereafter shall have no further obligations
under this Agreement. Upon termination of the Executive's employment hereunder
for Cause, the Executive shall nonetheless remain bound by the obligations
provided for in Sections 11 and 12 hereof.
(b) Termination for Cause shall be effected only by action of a majority
of the Board then in office (excluding the Executive) at a meeting duly called
and held upon at least ten (10) days' prior written notice to the Executive
specifying the particulars of the action or inaction alleged to constitute
"Cause" (and at which meeting the Executive and his counsel were entitled to be
present and given reasonable opportunity to be heard).
10. Termination for Good Reason by the Executive; Severance Payment.
(a) The Executive's employment hereunder may be terminated by the
Executive for Good Reason by providing written notice to the Corporation to such
effect (such termination to be effective on the date specified in such notice,
which date shall not be more than sixty (60) days nor less than thirty (30) days
after date of such notice).
(b) If at any time (i) the Executive terminates his employment for Good
Reason (other than on the grounds of Section 1(i)(viii) hereof) or (ii) the
Corporation terminates the Executive's employment (or fails or declines to
extend the Term) without Cause, then the Corporation shall pay to the Executive,
in lieu of any other amounts that might otherwise have been payable hereunder
(other than pursuant to Sections 6 and 13 hereof), an amount ("Compensation")
equal to the greater of (i) the sum of (x) the aggregate amount which would have
been payable to the Executive had he continued to be employed by the Corporation
as Base Salary through the end of the Term (at the rate in effect as of the date
of termination), (y) the bonus
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(if any) through the end of the Term, such bonus to be calculated and paid in
the manner described in Section 6 (it being understood and agreed that, if the
end of the Term occurs before the end of a fiscal year, such bonus will be
prorated through the end of such Term), and (z) the automobile allowance
provided for hereunder and (ii) the aggregate amount (the "Minimum Severance
Amount") which would have been payable to the Executive had he continued to be
employed by the Corporation as Compensation for six (6) months following the
date of termination (at the rate in effect as of the date of termination, in the
case of Base Salary), which Compensation shall in the case of Base Salary be
payable within ten (10) days following such termination; provided, however ,
that, if the Executive terminates his employment for Good Reason solely on the
grounds of Section 1(i)(viii), then the Corporation shall pay to the Executive
within ten (10) days following such termination, in lieu of any other amounts
that might otherwise have been payable hereunder (other than pursuant to
Sections 6 and 13) the greater of (i) the Minimum Severance Amount and (ii) the
excess, if any, of (x), the aggregate amount which would have been payable to
the Executive had he continued to be employed by the Corporation as Compensation
for one (1) year following the date of termination (it being understood and
agreed that, the bonus portion of Compensation, in this instance, will be deemed
earned, based on Target EBITDA for the fiscal year in which the Change of
Control occurs, if, and only if, the Change of Control is a merger,
consolidation or sale of all or substantially all of the assets of the
Corporation) over (y) the profit (if any) realized by the Executive, in
connection with the Change of Control giving rise to such termination, on (aa)
options for capital stock of the Corporation or (bb) capital stock of the
Corporation issued upon exercise of such options.
11. Confidential Information. In addition to any other
confidentiality obligation the Executive may have to the date hereof, and until
the end of the original Term, the Executive shall keep secret and retain in
strictest confidence, and shall not use for his benefit or the benefit of
others, any and all confidential information relating to the Corporation and its
subsidiaries, including, without limitation, customer lists, financial plans or
projections, pricing policies, marketing plans or strategies, business
acquisition or divestiture plans, new personnel acquisition plans, designs, and,
except in connection with the performance of his duties hereunder, the Executive
shall not disclose any such information to anyone outside the Corporation and
any of its subsidiaries, except as required by law (provided prior written
notice thereof is given by the Executive to the Corporation) or except with the
Corporation's prior
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consent, unless such information is known generally to the public or the trade
through sources other than the Executive's unauthorized disclosure.
12. Competitive Activity. The Executive hereby agrees that, during
his employment hereunder, and, following a termination of his employment other
than termination by the Executive for Good Reason or by the Corporation with
Cause or without Cause, for the balance of the original Term (if any), the
Executive shall not, without the prior consent of the Board (i) directly or
indirectly, engage or be interested in (as owner, partner, shareholder,
employee, director, officer, agent, consultant or otherwise), with or without
compensation, any business wherever located in the world engaged in the
manufacture, distribution, design marketing or sale of women's apparel, if such
business is a material competitor of the Corporation, or (ii) induce or attempt
to persuade any employee of the Corporation or of any subsidiary of the
Corporation, or any person who was employed by the Corporation or any subsidiary
of the Corporation within the preceding six months, to leave the employ of the
Corporation or any subsidiary of the Corporation (but the foregoing shall not be
deemed to prevent the Executive in his capacity as Chief Executive Officer of
the Corporation from hiring or dismissing any employee of the Corporation or any
subsidiary for the benefit of the Corporation). Nothing in this Section 12 shall
prohibit the Executive from acquiring or holding not more than five percent (5%)
of any class of publicly traded securities of any business.
13. Expenses. The Corporation shall reimburse the Executive for all
reasonable, ordinary and necessary expenses incurred by the Executive in the
performance of the Executive's duties hereunder; provided, however, that, in
connection with such reimbursement, the Executive shall account to the
Corporation for such expenses in the manner customarily prescribed by the
Corporation for its senior executives.
14. Directors' and Officers' Insurance; Indemnification. Within
thirty (30) days after the execution and delivery hereof, the Executive shall be
provided with directors' and officers' insurance in connection with his
employment hereunder and service as a Director as contemplated hereby with such
coverage (including with respect to unpaid wages and taxes not remitted when
done) as shall be reasonably satisfactory to the Executive and with aggregate
limits of liability for all covered officers and directors of not less than
Twenty-Five Million Dollars ($25,000,000.00), and the Corporation shall maintain
such insurance in effect for the period of the Executive's employment hereunder
and for not less than five (5) years
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thereafter; provided, however, that, in the event that the Corporation shall not
obtain such insurance, it shall provide or cause the Executive to be provided
with indemnity (or a combination of indemnity and directors' and officers'
insurance) in connection with his employment hereunder with substantially
equivalent coverage and amounts, and the Corporation shall maintain such
indemnity (or combination of indemnity and directors' and officers' insurance)
or cause such indemnity (or such combination) to be maintained for the period of
the Executive's employment hereunder and for not less than five (5) years
thereafter.
15. No Duty to Mitigate. The Executive shall have no duty to
mitigate the severance amounts or any other amounts payable to the Executive
hereunder and such amounts shall not be subject to reduction for any
compensation received by the Executive from employment in any capacity or other
source following the termination of Executive's employment with the Corporation
and its subsidiaries.
16. Prior Agreements; Amendments; No Waiver. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof. This Agree ment may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. No failure on
the part of either party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any partial exercise of
any right hereunder preclude any further exercise thereof.
17. Survival of Provisions. The provisions of Sections 11, 12 and 25
shall survive the termination or expiration of this Agreement as provided
therein. Such provisions are unique and extraordinary, which give them a value
peculiar to the Corporation, and cannot be reasonably or adequately compensated
in damages for its loss and any breach by the Executive of such provisions will
cause the Corporation irreparable injury and damage. Therefore, the Corporation,
in addition to all other remedies available to it, shall be entitled to
injunctive and other available equitable relief in any court of competent
jurisdiction to prevent or otherwise restrain a breach of such provisions for
the purposes of enforcing such provisions.
18. Withholding. The Corporation shall be entitled to withhold from
any and all amounts payable to the Executive hereunder such amounts as may from
time to time be required to be withheld pursuant to applicable tax laws and
regulations.
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19. Succession, Assignability and Binding Effect.
(a) The Corporation will require any successor or successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such agreement
prior to the effectiveness of any such succession shall constitute Good Reason
for resignation by the Executive.
(b) This Agreement shall inure to the benefit of and shall be binding
upon the Corporation and its successors and permitted assigns and upon the
Executive and his heirs, executors, legal representatives, successors and
permitted assigns; provided, however, that without prejudice to the rights of
the Corporation under Section 19(a) hereof, neither party may assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of
its or his rights hereunder without the prior written consent of the other
party, and any such attempted assignment, transfer, pledge, encumbrance,
hypothecation or other disposition without such consent shall be null and void
and without effect.
20. Headings. The paragraph headings contained herein are included
solely for convenience of reference and shall not control or affect the meaning
or interpretation of any of the provisions of this Agreement.
21. Notices. Any notices or other communications hereunder by either
party shall be in writing and shall be deemed to have been duly given if
delivered personally to the other party or, if sent by registered or certified
mail, upon receipt, to the other party at his or its address set forth at the
beginning of this Agreement or at such other address as such other party may
designate in conformity with the foregoing.
22. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without giving effect to the principles thereof relating to the conflict of
laws.
23. Legal Fees and Expenses. In order to induce the Executive to
enter into this Agreement and to provide the Executive with reasonable assurance
that the purposes of this Agreement will not be frustrated by the cost of its
enforcement, the Corporation shall pay and be solely responsible for
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any attorneys' fees and expenses and court costs incurred by the Executive as a
result of the failure by the Corporation to perform this Agreement or any
provision hereof to be performed by it or in connection with any action which
may be brought, by or in the name or for the benefit of the Corporation or any
subsidiary contesting the validity or enforceability of this Agreement or any
provision hereof to be performed by the Corporation, which action shall have
been dismissed by a final, nonappealable court order.
24. Opportunity to Review. The Executive acknowledged that he has
been given the opportunity to discuss this Agreement, including this Section 25,
with his private legal counsel and has availed himself of that opportunity to
the extent he wishes to do so.
25. Arbitration.
(a) Disputes Subject to Arbitration. In the event that the Corporation
terminates the Executive's employment on the grounds set forth in clause (iii)
of the definition of "Cause", the Corporation and the Executive mutually consent
to the resolution by arbitration of any dispute between the Corporation and the
Executive as to whether such Cause has occurred (a "Dispute"). Unless the
Corporation and the Executive otherwise agree, no other disputes, issues, claims
or controversies arising out of the Executive's employment (or its termination),
or any other matter whatsoever, shall be submitted to or resolved by
arbitration.
(b) Arbitration Procedures. (i) The Corporation and the Executive agree
that, except as provided in this Agreement, any arbitration shall be in
accordance with the then current Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA") before an arbitrator who is licensed to
practice law in the state in which the arbitration is convened (the
"Arbitrator"). The arbitration shall take place in or near the city in which.the
Executive is or was last employed by the Corporation.
(ii) Upon designation as a Dispute, the AAA shall give each
party a list of eleven (11) arbitrators drawn from its panel of labor and
employment arbitrators. The Corporation and the Executive may strike all names
on the list which it deems unacceptable. If only one common name remains on the
lists of all parties, said individual shall be designated as the Arbitrator. If
more than one common name remains on the lists of all parties, the parties shall
strike names alternatively until only one remains. If no common name remains on
the lists of all parties, the AAA shall furnish an additional
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list and the parties shall alternate striking names on such second list until an
arbitrator is selected.
(iii) The Arbitrator shall apply the law of the State of New
York applicable to contracts made and to be performed wholly in that state
(without giving effect to the principles thereof relating to conflicts of law).
The Federal Rules of Evidence shall apply. The Arbitrator, and not any federal,
state, or local court or agency, shall have exclusive authority to resolve any
dispute relating to the interpretation, applicability or formation of the term
"Cause". The Arbitrator shall render a decision within thirty (30) days of the
date upon which the Arbitrator is selected pursuant to Section 25(b)(ii), which
decision shall be final and binding upon the parties. In the event that the
Arbitrator decides that Material Insubordination has (x) occurred, then the
Executive's employment shall be deemed to have been terminated for cause
pursuant to Section 9(a) hereof or (y) not occurred, then the Executive's
employment shall be deemed to have been terminated without Cause pursuant to
Section 10(b) hereof.
(iv) The Arbitrator shall have jurisdiction to hear and rule on
pre-hearing disputes and is authorized to hold prehearing conferences by
telephone or in person as the Arbitrator deems necessary. The Arbitrator shall
have the authority to entertain a motion to dismiss and/or a motion for summary
judgment by any party and shall apply the standards governing such motions under
the Federal Rules of Civil Procedure.
(v) Either party, at its expense, may arrange for and pay the
costs of a court reporter to provide a stenographic report of proceedings.
(vi) Either party, upon request at the close of hearing, shall
be given leave to file a post-hearing brief. The time for filing such a brief
shall be set by the Arbitrator.
(vii) Either party may bring an action in any court of competent
jurisdiction to compel arbitration under this Section 25. Except as otherwise
provided in this Section 25, both the Corporation and the Executive agree that
neither such party shall initiate or prosecute any lawsuit or administrative
action in any way related to any Dispute covered by this Section 25.
(viii) The arbitrator shall render an opinion in the form
typically rendered in labor arbitrations.
(c) Arbitration Fees and Costs. The Corporation and the Executive shall
equally share the fees and costs of the
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Arbitrator. Each party will deposit funds or post other appropriate security for
its share of the Arbitrator's fee, in an amount and manner determined by the
Arbitrator, ten (10) days before the first day of hearing. Each party shall pay
for its own costs and attorneys' fees. if any. However, if any party prevails on
a statutory claim that affords the prevailing party attorneys' fees, the
Arbitrator may award reasonable fees to the prevailing party.
(d) Opportunity to Review. The Executive acknowledged that he has been
given the opportunity to discuss this Agreement, including this Section 25, with
his private legal counsel and has availed himself of that opportunity to the
extent he wishes to do so.
(e) Law Governing. The parties agree that the arbitration provisions set
forth in this Section 25 will be governed by the Federal Arbitration Act, 9
U.S.C.ss.ss. 1-16, ("FAA"). The parties further agree that all Disputes, whether
arising under state or federal law, will be subject to the FAA, notwithstanding
any state or local laws to the contrary.
26. Other Matters.
(a) So long as the annual cost thereof does not exceed Twenty Thousand
Dollars ($20,000.00), the Corporation shall continue in effect, for the rest of
the Executive's life, the health insurance provided for the Executive by Leslie
Fay as of the Effective Date.
(b) As of the Effective Date, the Executive hereby releases Leslie Fay,
the Corporation and all other Persons (as defined in the Plan) for all unpaid
amounts under the Executive's employment contract with Leslie Fay. Upon the
request, and at the expense, of the Corporation or any such other Person, the
Executive shall execute and deliver any written release or similar document
reasonably necessary to give effect to this Section 26 (b).
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
THE LESLIE FAY COMPANY, INC.
By: /s/ John A. Ward
-------------------------
Name: John A. Ward
Title: President
/s/ John J. Pomerantz
-------------------------
Executive
14
Execution Copy
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 2, 1997, between The Leslie Fay
Company, Inc., a Delaware corporation, with its principal office at 1412
Broadway, New York, New York (the "Corporation"), and John A. Ward, residing at
80 Glenville Road, Greenwich, CT 06831 (the "Executive").
RECITALS
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A. On April 5, 1993, The Leslie Fay Companies, Inc. ("Leslie Fay")
and certain of its subsidiaries each filed a voluntary petition for relief under
chapter 11 of title 11 of the United States Code (the "Code") with the United
States Bankruptcy Court for the Southern District of New York (the "Court").
B. By order, dated April 21, 1997, the Court confirmed that certain
Fourth Amended and Restated Joint Plan of Reorganization for Debtors Pursuant to
Chapter 11 of the United States Bankruptcy Code (the "Plan").
C. Up to and including the Effective Date, the Executive has served
as the Chairman, Leslie Fay Sportswear Group of Leslie Fay,
predecessor-in-interest to the Corporation.
D. The Corporation desires to secure the continued services of the
Executive, and the Executive desires to continue to furnish services to the
Corporation, on the terms and conditions hereinafter set forth.
E. In accordance with the Plan and the designations filed with the
Court in connection therewith, the Executive has been appointed to serve on the
Board from and after the Effective Date.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties hereto hereby agree as
follows:
1. Definitions. Unless otherwise defined herein, the following
terms shall have the respective meanings specified below and be equally
applicable to the singular and plural of terms defined:
(a) "Board" shall mean the Board of Directors of the Corporation.
<PAGE>
(b) "Cause" shall mean (i) conviction by the Executive of a felony,
(ii) perpetration by the Executive of (X) an in illegal act which causes
significant economic injury to the Corporation or (y) a common law fraud against
the Corporation, or (iii) willful violation by the Executive of a specific
written direction from the Board concerning one or more matters of a material
nature for the Corporation or its business or operations (following a warning in
writing in respect thereto from the Board).
(c) "Change of Control" shall mean the occurrence of any person or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) acquiring
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of fifty percent (50%) or more of the aggregate voting
power of the capital stock of the Corporation, except for any such person or
group that has such beneficial ownership on the Effective Date.
(d) Corporation Senior Managers" shall mean, to the extent that the
following persons are employees of the Corporation during the applicable fiscal
year of the Corporation, John Pomerantz, John Ward, Cate Bandel, Dominic
Fellicetti and Warren Wishart.
(e) "Disabled" shall mean, with respect to the Executive, being
physically or mentally disabled, whether totally or partially, so that he is
substantially unable to perform his services hereunder for a consecutive period
of more than six (6) months or for shorter periods aggregating six months during
any twelve-month period.
(f) "EBITDA" shall mean for any fiscal year of the Corporation, the
consolidated earnings (including licensing revenues from the businesses or
products of Hue, Inc.) before interest, taxes, depreciation and amortization of
the Corporation and its consolidated subsidiaries, as determined pursuant to
generally accepted accounting principles in effect in the United States of
America from time 'to time, provided that for purposes of determining EBITDA
hereunder, EBITDA shall (i) be calculated before determination of the Cash Bonus
Pool (as hereinafter defined), (ii) exclude allocations to the Castleberry and
Sassco businesses and Transco (as defined in the financial reporting package
periodically presented to the Creditors' Committee) in the Chapter 11 Case of
the Leslie Fay Companies, Inc. and (iii) be increased by $300,000.
(g) "Effective Date" shall mean June 2, 1997.
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(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(i) "Good Reason" shall mean the continuation of any of the
following events for more than ten (10) days after the Corporation's receipt
from the Executive of written notice thereof:
(i) the Executive shall be removed from the position of
President of the Corporation at any time during the Term (other than for
Cause);
(ii) the Executive shall fail to be vested with the powers and
authority of President of the Corporation as described in Section 4(a)
hereof, or the powers and authority of such position or his
responsibilities with respect thereto shall be diminished in any
material respect;
(iii) the Executive shall have assigned to him without his
express written consent any duties, functions, authority or
responsibilities that are inconsistent with the Executive's positions
described in Section 4 hereof;
(iv) the Executive's principal place of employment is changed to
a location more than twenty-five (25) miles from the prior location
without the Executive's prior written consent;
(v) any material failure by the Corporation to fulfill any of
its obligations under this Agreement, including, without limitation, the
failure to make any material payment required to be made by the
Corporation pursuant to Sections 5 and 6 hereof within five (5) business
days after the date such payment is required to be made;
(vi) any purported termination by the Corporation of the
Executive's employment otherwise than as expressly permitted by, and in
compliance with all condi tions and procedures of, this Agreement;
(vii) the Corporation shall fail to comply with the provisions
of Section 14 or 19(a) hereof; or
(viii) there shall occur a Change of Control, other than a
Change of Control in connection with, or resulting in whole or part
from, the acquisition by the Ex ecutive or any Affiliate of the
Executive of "beneficial ownership" (as defined in Rule 13d-3 of the
Exchange Act),
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directly or indirectly, of shares of capital stock of the Corporation.
(j) "Target EBITDA" shall mean (a) for 1997, Five Million Four
Hundred Forty-Three Thousand Dollars ($5,443,000.00) and (b) for all years
thereafter, the targeted EBITDA for the Corporation as a whole established by
the Board in good faith.
2. Employment. The Corporation shall employ the Executive, and the
Executive shall serve the Corporation, upon the terms and conditions hereinafter
set forth.
3. Term. Subject to the terms and conditions hereinafter set forth,
the term of the Executive's employment hereunder shall commence on the Effective
Date and shall continue until the first (1st) anniversary of the Effective Date,
unless earlier terminated pursuant to the provisions of Section 8, 9 or 10
hereof (the "Term").
4. Duties and Extent of Services. During the Term, the Executive
shall serve as President of the Corporation faithfully and to the best of his
ability, and shall devote substantially all of his business time, energy and
skill to such employment, it being understood and agreed that the Executive may
serve on the boards of directors or equivalent governing bodies of other
business corporations or other business organizations; provided, however, that
(i) such other corporations or other organizations are not in direct competition
with the Corporation and/or its subsidiaries and (ii) such service does not
materially interfere with the performance by the Executive of his duties
hereunder. The Executive shall be invested with the duties and authority that
are customarily delegated to a President of a corporation, and shall report to
and be subject to the direction of the Board of Directors of the Corporation.
The Executive shall also perform such specific duties and services of a senior
executive nature as the Board of Directors of the Corporation shall request,
including, without limitation, serving as a senior officer and/or director of
any of the Corporation's subsidiaries.
5. Base Salary. During the Term, the Corporation shall pay the
Executive a base salary ("Base Salary") of $400,000, or such higher amount as
the Board may from time to time determine, payable in equal weekly installments.
6. Incentive Compensation. If the Corporation's EBITDA for the
fiscal year is greater than or equal to eighty-five percent (85%) (the "Minimum
Percentage") of Target EBITDA, the Corporation shall pay a bonus ("Cash Bonus
Pool") to the
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Corporation Senior Managers no later than one hundred twenty (120) days after
the end of the fiscal year, in an amount equal to the sum of (x) nine and
six-tenths percent (9.6%) of the Corporation's EBITDA plus (y) two-tenths
percent (0.2%) of the Corporation's EBITDA for each percentage point, if any, of
Target EBITDA by which the Corporation's EBITDA exceeds the Minimum Percentage;
provided, however, that in no event shall the Cash Bonus Pool exceed twelve and
one-half percent (12.5%) of the Corporation's EBITDA. Upon payment of the Cash
Bonus Pool, the Executive shall be entitled to receive a portion thereof in
accordance with the terms and provisions of the understanding by and among the
Corporation Senior Managers.
7. Employee Benefits.
(a) During the Term, the Executive shall receive coverage and/or
benefits under any and all medical insurance, life insurance, long-term
disability insurance and pension plans and other employee benefit plans of the
Corporation generally made available to senior executives of the Corporation
from time to time.
(b) During the Term, the Corporation shall provide (x) the Executive and
members of his immediate family with (i) supplemental disability coverage and
(ii) medical insurance for all medical costs and services incurred by the
foregoing, including costs of dental, vision and custodial care, and (y) an
automobile allowance of $1,140 per month and a clothing allowance of $0 per
month.
(c) The Executive shall be entitled to paid vacations (taken
consecutively or in segments), in accordance with the standard vacation policy
of the Corporation for senior ex ecutives, but in no event less than four (4)
weeks each calendar year during the Term. Such vacations shall be taken at times
consistent with the effective discharge of the Executive's duties.
(d) During the Term, the Executive shall be accorded office facilities
and secretarial assistance commensurate with his position as President of the
Corporation and adequate for the performance of his duties hereunder.
8. Termination -- Death or Disability.
(a) In the event of the termination of the Executive's employment
because of the death of the Executive during the Term, the Corporation shall pay
to any one or more benefi ciaries designated by the Executive pursuant to notice
to the Corporation, or, failing such designation, to the Executive's
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estate, (i) the unpaid Base Salary owing to the Employee through the end of the
month of his death, in a lump sum within five (5) business days after his death,
and (ii) a bonus for the year in which such termination occurs, equal to the
bonus (if any) that would have been paid for such year if no such termination
had occurred, times a fraction, the numerator of which is the number of months
in such year through the end of the month in which such termination occurs, and
the denominator of which is twelve (12) (such bonus to be computed and paid at
the time and in the manner specified in Section 6 hereof).
(b) In the event that the Executive shall become Disabled, the
Corporation shall have the right to terminate the Executive's employment
hereunder by giving him written notice of such termination. Upon receipt of such
notice, the Executive's employment hereunder shall terminate. In the event of
such termination, the Corporation shall pay to the Executive (i) the unpaid Base
Salary owing to the Executive through the end of the month of such termination,
in a lump sum within five (5) business days of such termination, and (ii) a
bonus for the year in which such termination occurs, equal to the bonus (if any)
that would have been paid for such year if no such termination had occurred,
times a fraction, the numerator of which is the number of months in such year
through the end of the month in which such termination occurs, and the
denominator of which is twelve (12) (such bonus to be computed and paid at the
time and in the manner specified in Section 6 hereof).
9. Termination for Cause by Corporation.
(a) The Executive's employment hereunder may be terminated by the
Corporation for Cause upon compliance with the provisions of Section 9(b)
hereof. In the event that Executive's employment hereunder shall validly be
terminated by the Corporation for Cause pursuant to this Section 9(a), the
Corporation shall promptly pay accrued but unpaid Base Salary and reimburse or,
pay any other accrued but unpaid amounts due under sections 6 and 13 hereof as
of the date of termination, and thereafter shall have no further obligations
under this Agree ment. Upon termination of the Executive's employment hereunder
for Cause, the Executive shall nonetheless remain bound by the obligations
provided for in Sections 11 and 12 hereof.
(b) Termination for Cause shall be effected only by action of a majority
of the Board then in office (excluding the Executive) at a meeting duly called
and held upon at least ten (10) days' prior written notice to the Executive
specifying the particulars of the action or inaction alleged to constitute
"Cause" (and at which meeting the Executive and his counsel
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were entitled to be present and given reasonable opportunity to be heard).
10. Termination for Good Reason by the Executive; Severance Payment.
(a) The Executive's employment hereunder may be terminated by the
Executive for Good Reason by providing written notice to the Corporation to such
effect (such termination to be effective on the date specified in such notice,
which date shall not be more than sixty (60) days nor less than thirty (30)days
after date of such notice).
(b) If at any time (i) the Executive terminates his employment for Good
Reason (other than on the grounds of Section 1(i)(viii) hereof) or (ii) the
Corporation terminates the Executive's employment (or fails or declines to
extend the Term) without Cause, then the Corporation shall pay to the Executive,
in lieu of any other amounts that might otherwise have been payable hereunder
(other than pursuant to Sections 6 and 13 hereof), an amount ("Compensation")
equal to the greater of (i) the sum of (x) the aggregate amount which would have
been payable to the Executive had he continued to be employed by the Corporation
as Base Salary through the end of the Term (at the rate in effect as of the date
of termination), (y) the bonus (if any) through the end of the Term, such bonus
to be calculated and paid in the manner described in Section 6 (it being
understood and agreed that, if the end of the Term occurs before the end of a
fiscal year, such bonus will be pro rated through the end of such Term) and (z)
the automobile and clothing allowances provided for hereunder, and (ii) the
aggregate amount (the "Minimum Severance Amount") which would have been payable
to the Executive had he continued to be employed by the Corporation as
Compensation for six (6) months following the date of termination (at the rate
in effect as of the date of termination, in the case of Base Salary), which
Compensation shall in the case of Base Salary be payable within ten (10) days
following such termination; provided, however, that, if the Executive terminates
his employment for Good Reason solely on the grounds of Section 1(i) (viii),
then the Corporation shall pay to the Executive within ten (10) days following
such termination, in lieu of any other amounts that might otherwise have been
payable hereunder (other than pursuant to Sections 6 and 13) the greater of (i)
the Minimum Severance Amount and (ii) the excess, if any, of (x), the aggregate
amount which would have been payable to the Executive had he continued to be
employed by the Corporation as Compensation for one (1) year following the date
of termination (it being understood and agreed that, the bonus portion of
Compensation, in this instance, will be deemed earned, based on Target EBIDTA
for the
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fiscal year in which the Change of Control occurs, if, and only if, the Change
of Control is a merger, consolidation or sale of all or substantially all of the
assets of the Corporation) over (y) the profit (if any) realized by the
Executive, in connection with the Change of Control giving rise to such
termination, on (aa) options for capital stock of the Corporation or (bb)
capital stock of the Corporation issued upon exercise of such options.
11. Confidential Information. In addition to any other
confidentiality obligation the Executive may have to the Corporation, from and
after the date hereof, and until the end of the original Term, the Executive
shall keep secret and retain in strictest confidence, and shall not use for his
benefit or the benefit of others, any and all confidential information relating
to the Corporation and its subsidiaries, including, without limitation, customer
lists, financial plans or projections, pricing policies, marketing plans or
strategies, business acquisition or divestiture plans, new personnel acquisition
plans, designs, and, except in connection with the performance of his duties
hereunder, the Executive shall not disclose any such information to anyone
outside the Corporation and any of its subsidiaries, except as required by law
(provided prior written notice thereof is given by the Executive to the
Corporation) or except with the Corporation's prior written consent, unless such
information is known generally to the public or the trade through sources other
than the Executive's unauthorized disclosure.
12. Competitive Activity. The Executive hereby agrees that, during
his employment hereunder, and, following a termination of his employment other
than termination by the Executive for Good Reason or by the Corporation without
Cause, for the balance of the original Term (if any), the Executive shall not,
without the prior consent of the Board (i) directly or indirectly, engage or be
interested in (as owner, partner, shareholder, employee, director, officer,
agent, consultant or otherwise), with or without compensation, any business
wherever located in the world engaged in the manufacture, distribution, design
marketing or sale of women's apparel, if such business is a material competitor
of the Corporation or (ii) induce or attempt to persuade any employee of the
Corporation or of any subsidiary of the Corporation, or any person who was
employed by the Corporation or any subsidiary of the Corporation within the
preceding six months, to leave the employ of the Corporation or any subsidiary
of the Corporation (but the foregoing shall not be deemed to prevent the
Executive in his capacity as Chief Executive Officer of the Corporation from
hiring or dismissing any employee of the Corporation or any subsidiary for the
benefit of the Corporation). Nothing in this Section 12 shall
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prohibit the Executive from acquiring or holding not more than five percent (5%)
of any class of publicly traded securities of any business.
13. Expenses. The Corporation shall reimburse the Executive for all
reasonable, ordinary and necessary expenses incurred by the Executive in the
performance of the Executive's duties hereunder; provided, however, that, in
connection with such reimbursement, the Executive shall account to the
Corporation for such expenses in the manner customarily prescribed by the
Corporation for its senior executives.
14. Directors, and Officers, Insurance; Indemnification. Within
thirty (30) days after the execution and delivery hereof, the Executive shall be
provided with directors' and officers' insurance in connection with his
employment hereunder (and, to the extent contemplated hereby, his service as a
Director) with such coverage (including with respect to unpaid wages and taxes
not remitted when done) as shall be reasonably satisfactory to the Executive and
with aggregate limits of liability for all covered officers and directors of not
less than Twenty-Five Million Dollars ($25,000,000.00), and the Corporation
shall maintain such insurance in effect for the period of the Executive's
employment hereunder and for not less than five (5) years thereafter; provided,
however, that, in the event that the Corporation shall not obtain such
insurance, it shall provide or cause the Executive to be provided with indemnity
(or a combination of indemnity and directors, and officers, insurance) in
connection with his employment hereunder with substantially equivalent coverage
and amounts, and the Corporation shall maintain such indemnity (or combination
of indemnity and directors' and officers, insurance) or cause such indemnity (or
such combination) to be maintained for the period of the Executive's employment
hereunder and for not less than five (5) years thereafter.
15. No Duty to Mitigate. The Executive shall have no duty to
mitigate the severance amounts or any other amounts payable to the Executive
hereunder and such amounts shall not be subject to reduction for any
compensation received by the Executive from employment in any capacity or other
source following the termination of Executive's employment with the Corporation
and its subsidiaries.
16. Prior Agreements; Amendments; No Waiver. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof. This Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
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No failure on the part of either party to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof, nor shall any partial
exercise of any right hereunder preclude any further exercise thereof.
17. Survival of Provisions. The provisions of Sections 11, 12 and 25
shall survive the termination or expiration of this Agreement as provided
therein. Such provisions are unique and extraordinary, which give them a value
peculiar to the Corporation, and cannot be reasonably or adequately compensated
in damages for its loss and any breach by the Executive of such provisions will
cause the Corporation irreparable injury and damage. Therefore, the Corporation,
in addition to all other remedies available to it, shall be entitled to
injunctive and other available equitable relief in any court of competent
jurisdiction to prevent or otherwise restrain a breach of such provisions for
the purposes of enforcing such provisions.
18. Withholding. The Corporation shall be entitled to withhold from
any and all amounts payable to the Executive hereunder such amounts as may from
time to time be required to be withheld pursuant to applicable tax laws and
regulations.
19. Succession, Assignability and Binding Effect.
(a) The Corporation will require any successor or successors (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such agreement
prior to the effectiveness of any such succession shall constitute Good Reason
for resignation by the Executive.
(b) This Agreement shall inure to the benefit of and shall be binding
upon the Corporation and its successors and permitted assigns and upon the
Executive and his heirs, execu tors, legal representatives, successors and
permitted assigns; provided, however, that without prejudice to the rights of
the Corporation under Section 19(a) hereof, neither party may assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of
its or his rights hereunder without the prior written consent of the other
party, and any such attempted assignment, transfer, pledge, encumbrance,
hypothecation or other disposition without such consent shall be null and void
and without effect.
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20. Headings. The paragraph headings contained herein are included
solely for convenience of reference and shall not control or affect the meaning
or interpretation of any of the provisions of this Agreement.
21. Notices. Any notices or other communications hereunder by either
party shall be in writing and shall be deemed to have been duly given if
delivered personally to the other party or, if sent by registered or certified
mail, upon receipt, to the other party at his or its address set forth at the
beginning of this Agreement or at such other address as such other party may
designate in conformity with the foregoing.
22. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without giving effect to the principles thereof relating to the conflict of
laws.
23. Legal Fees and Expenses. In order to induce the Executive to
enter into this Agreement and to provide the Executive with reasonable assurance
that the purposes of this Agreement will not be frustrated by the cost of its
enforcement, the Corporation shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of the failure by the Corporation to perform this Agreement or any
provision hereof to be performed by it or in connection with any action which
may be brought, by or in the name or for the benefit of the Corporation or any
subsidiary contesting the validity or enforceability of this Agreement or any
provision hereof to be performed by the Corporation, which action shall have
been dismissed by a final, nonappealable court order.
24. Opportunity to Review. The Executive acknowledged that he has
been given the opportunity to discuss this Agreement, including this Section 24,
with his private legal counsel and has availed himself of that opportunity to
the extent he wishes to do so.
25. Arbitration.
(a) Disputes Subject to Arbitration. In the event that the Corporation
terminates the Executive's employment on the grounds set forth in clause (iii)
of the definition of "Cause", the Corporation and the Executive mutually consent
to the resolution by arbitration of any dispute between the Corporation and the
Executive as to whether such Cause has occurred (a "Dispute"). Unless the
Corporation and the Executive otherwise agree, no other disputes, issues, claims
or controversies
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arising out of the Executive's employment (or its termination), or any other
matter whatsoever, shall be submitted to or resolved by arbitration.
(b) Arbitration Procedures. (i) The Corporation and the Executive agree
that, except as provided in this Agreement, any arbitration shall be in
accordance with the then current Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA") before an arbitrator who is licensed to
practice law in the state in which the arbitration is convened (the
"Arbitrator"). The arbitration shall take place in or near the city in the
Executive is or was last employed by the Corporation.
(ii) Upon designation as a Dispute, the AAA shall give each party a list
of eleven (11) arbitrators drawn from its panel of labor and employment
arbitrators. The Corporation and the Executive may strike all names on the list
which it deems unacceptable. If only one common name remains on the lists of all
parties, said individual shall be designated as the Arbitrator. If more than one
common name remains on the lists of all parties, the parties shall strike names
alternatively until only one remains. If no common name remains on the lists of
all parties, the AAA shall furnish an additional list and the parties shall
alternate striking names on such second list until an arbitrator is selected.
(iii) The Arbitrator shall apply the law of the State of New York
applicable to contracts made and to be performed wholly in that state (without
giving effect to the principles thereof relating to conflicts of law). The
Federal Rules of Evidence shall apply. The Arbitrator, and not any federal,
state, or local court or agency, shall have exclusive authority to resolve any
dispute relating to the interpretation, applicability or formation of the term
"Cause". The Arbitrator shall render a decision within thirty (30) days of the
date upon which the Arbitrator is selected pursuant to Section 25(b)(ii), which
decision shall be final and binding upon the parties. In the event that the
Arbitrator decides that Material insubordination has (x) occurred, then the
Executive's employment shall be deemed to have been terminated for Cause
pursuant to Section 9(a) hereof or (y) not occurred, then the Executive's
employment shall be deemed to have been terminated without Cause pursuant to
Section 10(b) hereof.
(iv) The Arbitrator shall have jurisdiction to hear and rule on
pre-hearing disputes and is authorized to hold
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pre-hearing conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall have the authority to entertain a motion to
dismiss and/or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil Procedure.
(v) Either party, at its expense, may arrange for and pay the costs of a
court reporter to provide a stenographic report of proceedings.
(vi) Either party, upon request at the close of hearing, shall be given
leave to file a post-hearing brief. The time for filing such a brief shall be
set by the Arbitrator.
(vii) Either party may bring an action in any court of competent
jurisdiction to compel arbitration under this Section 25. Except as otherwise
provided in this Section 25, both the Corporation and the Executive agree that
neither such party shall initiate or prosecute any lawsuit or administrative
action in any way related to any Dispute covered by this Section 25.
(viii) The arbitrator shall render an opinion in the form typically
rendered in labor arbitrations.
(c) Arbitration Fees and Costs. The Corporation and the Executive shall
equally share the fees and costs of the Arbitrator. Each party will deposit
funds or post other appropriate security for its share of the Arbitrator's fee,
in an amount and manner determined by the Arbitrator, ten (10) days before the
first day of hearing. Each party shall pay for its own costs and attorneys'
fees, if any. However, if any party prevails on a statutory claim that affords
the prevailing party attorneys' fees, the Arbitrator may award reasonable fees
to the prevailing party.
(d) Opportunity to Review. The Executive acknowledged that he has been
given the opportunity to discuss this Agreement, including this Section 25, with
his private legal counsel and has availed himself of that opportunity to the
extent he wishes to do so.
(e) Law Governing. The parties agree that the arbitration provisions set
forth in this Section 25 will be governed by the Federal Arbitration Act, 9
U.S.C. 1-16, ("FAA"). The parties further agree that all Disputes, whether
arising under state or federal law, will be subject to the FAA, notwithstanding
any state or local laws to the contrary.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
THE LESLIE FAY COMPANY, INC.
By: /s/ John J. Pomerantz
-------------------------------
Name: John J. Pomerantz
Title: Chairman & Chief Executive Officer
/s/ John A. Ward
-------------------------------
Executive
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COMMERCIAL LEASE
THIS AGREEMENT of Lease made this 1st day of August, A.D. 1997 Between
JOHN J. PASSAN ("Lessor"), party of the one part, and LESLIE FAY MARKETING, INC.
("Lessee"), party of the other part,
Witnesseth, that the Lessor, in consideration of the rents and covenants
hereinafter mentioned, does demise and lease unto the said Lessee premises
situate in the Borough of Laflin, County of Luzerne and State of Pennsylvania,
described as follows, to wit:
All of the ground floor area located in Building 91 of the
Valley Distributing & Storage Co. Complex, being located at 41
Passan Drive, Borough of Laflin, Luzerne County, Pennsylvania
and containing approximately 194,685 square feet (the "Demised
Premises" or "Premises" or "demised premises" or "premises"), as
more particularly shown on Exhibit A annexed thereto and made a
part hereof.
The Premises to be used only for warehouse, cutting and shipping of
products, as well as administrative, general and clerical office uses and other
activities ancillary thereto.
Notwithstanding any provision of the lease to the contrary, Lessee shall
be permitted to use portions of the Demised Premises for the following purposes:
a. the sale in the Demised Premises to Lessee's employees
and business visitors by Lessee or third parties through
(1) vending machines and/or (2) other methods of sale
selected by Lessee which are permitted by law,
providing, however, that in no event may Lessee operate
a retail or wholesale outlet from the Demised Premises;
b. installation, maintenance and operation of the Demised
Premises of (i) electronic data processing equipment and
business machines, and (ii) printing and other
reproducing equipment used for purposes incidental to
the business of Lessee; and
c. installation, maintenance and operation of communication
equipment, such as telephones, computers,.telecopiers,
telex and the like, for purposes incidental to the
business of Lessee; and
d. installation, maintenance and operation of sewing
machines, microdynamics, printing machines and similar
equipment for purposes relating to business of Lessee.
<PAGE>
To have and to hold unto the said Lessor, subject to the conditions of
this Agreement, for the ten-n beginning on the 1" day of August, 1997, and
ending on the 30' day of June, 2001.
In consideration of which the said Lessee agrees that it will pay to the
Lessor for the use of said premises, the following rentals:
MONTHLY
TERM BASE RENT RENTAL
August 1, 1997 thru July 31, 1998 $500,000 $41,666.67
August 1, 1998 thru July 31, 1999 $550,000 $45,833.33
August 1, 1999 thru July 31, 2000 $575,000 $47,916.67
August 1, 2000 thru July 31, 2001 $600,000 $50,000.00
Lessee is hereby given an option to renew this Lease for an additional four (4)
year term by giving Lessor at least six (6) months prior written notice of its
intention to renew. If Lessee exercises said option, the rental for the option
period shall be as follows:
MONTHLY
TERM BASE RENT RENTAL
August 1, 2001 thru July 31, 2002 $630,000 $52,500.00
August 1, 2002 thru July 31, 2003 $660,000 $55,000.00
August 1, 2003 thru July 31, 2004 $690,000 $57,500.00
August 1, 2004 thru July 31, 2005 $720,000 $60,000.00
THIS LEASE IS MADE AND ACCEPTED ON THE FOLLOWING CONDITIONS
1. No waste shall be committed; and at the end of the said term the
Demised Premises shall be delivered in as good condition as at the commencement
thereof, ordinary wear and tear and damage by fire, tempest, lightning, the
elements or other casualty and condemnation excepted.
2. The rent reserved shall be promptly paid on the several days and
times herein specified without set-off, deduction or abatement, except as
otherwise set forth herein, at the principal office of the Lessor, 1 Passan
Drive, Laflin, Pennsylvania.
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3. If the Lessee shall abandon the Premises, it shall be considered
a default.
4. Said Lessee shall not carry on any unlawful or immoral business
in or about the Demised Premises and shall not carry on any business not
expressly permitted herein.
5. Nothing contained in this Lease is intended to prohibit the
permitted business and uses expressly for which the premises are being demised
under this Lease.
6. The Lessee agrees to pay all bills which may be incurred for
light, heat or power used or consumed upon the Demised Premises. The Lessor
shall not be responsible in any way in the event that the supply of heat is cut
off by reason of any cause beyond the control of the Lessor. And the Lessee does
hereby release the Lessor from any damage which may result to him by reason of
the failure of the supply of heat. Should the Lessee fail to pay any bills as
aforesaid, the Lessor shall have the right to pay the same, and the amount as
paid shall be chargeable to the Lessee as additional rent. Lessor represents and
warrants to Lessee the Premises are served by utilities which supply
electricity, water, sanitary sewers, telephone service and natural gas and
heating oil to the Premises.
7. Lessee accepts the Demised Premises as they now are and
undertakes to make all non-structural interior repairs and alterations necessary
to adapt the Demised Premises for the purposes for which they are leased at
Lessee's own expense for which Lessor's consent shall not be required, but must
obtain the prior written consent of Lessor to any structural improvements or
alterations, which consent shall not be unreasonably withheld or delayed.
The Lessee agrees to keep the premises in a good condition of
repair. All refuse of any kind shall be removed from the premises at the cost of
the Lessee at least once a week or oftener, if need be. Should the Lessee fail
to comply with the provisions of this clause of the lease, the Lessor may enter
the premises and make said repairs or remove said refuse and do all other things
as herein provided to be done by the Lessee at the expense of the Lessee, and
said expense thus incurred may also be collected as additional rent under the
lease.
8. Lessee shall be obligated to make all interior non-structural
repairs to the Demised Premises. Lessor, at its sole cost and expense, shall
make all structural repairs, replacements and alterations to the interior and
exterior of the Demised Premises and the building of which it is part, including
the roof, roof deck and roof structure, the exterior masonry or metal walls and
foundations, the gutters and downspouts and the load bearing structural parts of
the Demised Premises, slab floors, and exterior window and door frames. Lessee
shall maintain, replace, alter and repair the sprinkler system located in or
serving the Demised Premises. Lessor shall maintain and repair all damage or
injury to the Demised Premises and Lessee's fixtures, equipment or appurtenances
or personal property of Lessee therein caused by or resulting from carelessness,
act, omission, neglect or improper conduct of Lessor, its servants, employees,
invitees or licensees, at Lessor's sole cost and expense, to the reasonable
satisfaction of Lessee reasonably exercised. Lessee shall maintain, replace,
alter and repair the plumbing and heating systems and equipment located in or
serving the Demised Premises, unless the reason for repair, alteration or
replacement is due to the negligence of Lessor, its agents or employees. To the
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<PAGE>
extent that portions of the plumbing and heating systems equipment servicing the
Premises are located outside the Premises, the Lessor shall ensure that Lessee
has prompt access to the same to make repairs.
In the event that the making of such structural repairs or
alterations in the Demised Premises shall render the Demised Premises
untenantable for the conduct of Lessee's business for a period in excess of
three (3) consecutive business days, then Fixed Rent and Additional Rent shall
be abated until Lessee received notice from the Lessor that the premises are
tenantable. Lessor agrees that while exercising such right of access and making
such report or alterations it shall use its best efforts to avoid interfering
with Lessee's conduct of its business at and from the Demised Premises. Lessor
agrees, at its expense, to repair and restore the Demised Premises subsequent to
conducting any repairs or alterations therein to the conditions existing prior
thereto.
If Lessor does not make the structural repairs that are required
to make with due diligence to the Demised Premises, Lessee at its option, shall
be allowed to do this at Lessor's expense. Any failure by Lessee to give notice
to Lessor of the need to repair shall not relieve Lessor of its obligation to
make such repairs if Lessor otherwise obtains knowledge thereof. Lessor agrees
in the making of any repairs, alterations, additions or improvements and will
use its best efforts to minimize interference with Lessee's use and enjoyment of
an access to the Building and the Demised Premises and that Lessee will perform
and complete such repairs or changes with due diligence. Notwithstanding
anything to the contrary contained in this Lease, Lessor shall have an
obligation to make structural repairs and to take any necessary action to
effectuate the restoration of services with respect to the Demised Premises and
Lessor shall proceed with reasonable diligence in performing such obligation.
If, as a result of Lessor's failure to make such structural repairs, or to take
such other action as is required hereunder, Lessee is not able to use the
Demised Premises for three (3) business days, Lessee shall be entitled to an
abatement of Fixed Rent and Additional Rent for that portion of the Demised
Premises which is unusuable until such time as all such repairs have been made
and other necessary actions taken. The abatement shall end upon notice from
Lessor to Lessee that such repairs have been completed and the Demised Premises
are tenantable. In the event that the Demised Premises shall remain untenantable
for a period in excess of fifteen (I 5) consecutive days after the Lessee has
given Lessor notice thereof, then upon notice to Lessor given after the
expiration of such fifteen (15) day period, Lessee may, at the Lessee's option,
terminate this Lease or Lessee may refrain from giving such notice and remain in
occupancy under this Lease while Fixed Rent and Additional Rent remain abated.
9. In the event of the filing of a voluntary petition in
bankruptcy, by the Lessee herein, the Lessor shall have the further right in
said event, to forfeit and terminate this lease. The said forfeiture to be
effected by giving notice in writing to the Lessee herein or to the person then
in charge of the Demised Premises.
In the event of (i) an involuntary filing of a petition in
bankruptcy against Lessee, and/or (ii) issuance of an execution, the provisions
of this Article shall not become operative and no default shall have occurred
under this Lease unless the same is not discharged or dismissed
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within ninety (90) days after its filing or issuance. Furthermore in the event
of the filing of a petition in bankruptcy, whether voluntary or involuntary, by
or against the Lessee or the issuance of an execution out of any court Lessor
may not exercise -an rights under this Article or elsewhere in this Lease to
forfeit and terminate this Lease so long as Lessee is otherwise not in default
beyond the expiration of any notice and grace period in the payment and
performance of Lessee's obligations under this Lease.
10. In the event of any damage to the Demised Premises resulting
from fire or any other cause which is included within the scope of extended
all-risk coverage insurance, however such damage may have been caused, Lessor
and Lessee will look for reimbursement for such damage solely to its respective
insurers as to any loss Sustained by Lessor and Lessee, respectively, for which
Lessor or Lessee, as the case may be, is required to maintain insurance pursuant
to this Lease and as to any such respective loss, Lessor and Lessee each waive
any and all claims, rights for damages and rights of recovery against the other
or any one claiming through or under the other by subrogation or otherwise, to
the extent permitted by law and to the extent that such waiver shall not
constitute a defense to payment under their respective insurance policies.
Lessor and Lessee shall obtain a waiver of subrogation rights and a consent to
the releases contained herein from their respective insurers and shall promptly
notify the other if for any reason such waiver and consent is not so obtainable.
11. Lessee, at its own cost and expense, shall carry General Public
Liability Insurance with respect to the Demised Premises, insuring both Lessor
and Lessee against personal injuries in the amount of at least Three Million
($3,000,000.00) Dollars, and not less than Five Hundred Thousand ($500,000.00)
Dollars for damage to property; and Lessee shall deliver to Lessor a certificate
of the insurance company or companies issuing such insurance evidencing such
coverage, which certificate shall contain a statement to the effect that such
coverage may not be cancelled without at least ten (10) days written notice to
Lessor.
12. Lessor shall maintain Comprehensive General Liability Insurance
for both personal injury and property damage, including contractual liability
coverage, with respect to the common areas and the building (other than the
demised premises) and property in amounts not less than Three Million
($3,000,000.00) Dollars for each occurrence or person and Five Hundred Thousand
($500,000.00) Dollars for damage to property. Each insurance policy shall be
issued by an insurer of recognized responsibility. Each insurance policy shall
be carried in favor of and name both Lessor and Lessee and any other persons
designated by Lessor. The insurance required by this Section may be included in
general coverage under policies that include the coverage of other property in
which Lessor has, or Lessor's affiliates have, an insurable interest. Each
insurance policy or certificate with respect thereto shall be delivered to
Lessee. Each insurance policy shall provide, in effect, that it may not be
cancelled, reduced in amount, or modified by the insurer until at least ten (1
0) days after the insurer shall have notified Lessee in writing.
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13. Lessor is not responsible for any damage to contents of the
Lessee however caused unless due to the gross negligence or willful misconduct
of Lessor, and Lessee shall pay for and maintain its own fire insurance coverage
on its merchandise and equipment.
14. In case of damage by fire or other cause to the Demised
Premises, if the damage is so extensive so as to amount practically to total
destruction of the Demised Premises, or if Lessor shall be unable to rebuild and
restore the same within ninety (90) days after the casualty occurs, then Lessee
may elect within thirty (30) days of such occurrence to terminate this Lease
upon thirty (30) days notice to Lessor, and upon such notice this Lease shall
cease and come to an end, and the rent shall be apportioned to the time of the
damage.) In addition, if such an extensive casualty shall occur at any time
during the last year of the term of this Lease or any renewal ten-n, Lessor may
elect within thirty (30) days of such occurrence to terminate this Lease and not
rebuild or restore the Demised Premises upon thirty (30) days notice to Lessee,
and unless Lessee, within ten (I 0) days after receipt of such notice notifies
Lessor of Lessee's election to exercise any then existing renewal Option to
extend the Lease term, this Lease shall cease and come to an end upon the giving
of Lessor's termination notice, and the rent shall be apportioned to the date of
the damage. In all other events where the Demised Premises are damaged by fire
the Lessor shall promptly repair the damage and to the extent that such damage
has rendered the premises untenantable, in whole or in part, there shall be an
apportionment of the rent until the damage has been repaired.
15. If the Demised Premises shall be partially damaged by casualty
which damage renders the Demised Premises unusable to Lessee, then Lessee shall
be entitled to a total abatement of rent until such damage has been repaired by
Lessor and the Demised Premises are made useable for Lessee. If all repairs
required to be made by Lessor are not made within three months of the date of
damage to the Demised Premises, then Lessee shall have the option to cancel the
Lease upon thirty (30) days prior written notice to Lessor.
16. It is agreed and understood that the Lessor, his heirs, or
assigns, may enter the premises hereby leased at any time during the term, in
the presence of the said Lessee for the purpose of ascertaining whether the said
premises are kept in good order and repair during business hours. Further, that
the Lessor reserves the right to display a "for rent or sale" card upon the said
premises, and to show same to prospective tenants or buyers.
Lessor's right, however, to enter the premises or to show the
same to prospective buyers or tenants may be exercised only at reasonable time
during business hours and upon prior reasonable notice and only in the presence
of a representative of Lessee unless Lessee otherwise authorizes Lessor in
writing or in case of an emergency.
17. All damages or injuries done to the said premises by Lessee
other than those caused by fire and other perils covered by an all-risk casualty
policy and by ordinary wear and tear or by the acts or omission of the Lessor
shall be repaired by the Lessee herein. And the Lessee covenants and agrees to
make or commence making said structural repairs upon five
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days' notice given to him by the Lessor, and if he shall neglect to make said
repairs or commence to make the same promptly or within ten days after said
notice as given to him, the Lessor shall have the right to make the said repairs
at the expense and cost of the Lessee, and the amount thereof may be collected
as additional rent accruing for the month following the date of the said
repairs, and if the said expense is made at the expiration of the term, then the
cost so made may be collected by the landlord as an additional rent for, the use
of the premises during the entire term.
18. Lessee represents and warrants that except as previously
reported to Lessor with respect to garment cleaning solvents used in the
ordinary course of Lessee's business, and small quantities of general cleaning
solvent and other substances customarily used by ordinary garment industry
tenants of manufacturing, warehouse and distribution facilities none of the
goods which it will store with Lessor are hazardous or dangerous materials or
articles, explosives or pesticides (collectively "hazardous substances"), as
defined under and regulated by federal, state or local laws, statutes,
ordinances or regulations (collectively, "environmental regulations"). Except as
set forth in the preceding sentence, Lessor represents and warrants that it will
not store or permit to be stored at the building or the property on which the
building is located any hazardous substances. Lessor represents and warrants
there is no hazardous substances, including without limitation, asbestos or
asbestos containing materials located in the Premises or the building.
19. Lessee hereby accepts notice to quit, remove from, and surrender
up possession of the said Demised Premises to the said Lessor, his heirs or
assigns, at the expiration of the said term, whenever it may be determined by
legal proceedings only, whether by forfeiture or otherwise, without any further
notice to that effect, all further notice being hereby waived. And thereupon the
Lessee shall be a non-tenant, subject to dispossession by the said Lessor by
legal proceedings only, without further notice or process of law, with release
of error, and of damages, and the said Lessor by legal proceedings only may
re-enter the premises and dispossess the Lessee without thereby becoming a
trespasser. And the Lessee hereby waives the benefit of all exemption laws of
this Commonwealth that now are in force or may hereafter be in force, or in any
action or actions that may accrue on this contract, and in any distress or
distress that may be made for collection of the whole of said rent or any part
thereof. Waiving also the benefit of stay of execution, inquisition, extension,
and all errors, in all proceedings arising out of this lease.
20. No showcase, sign or hanging or protruding sign or permanent
obstruction of any kind shall be kept or maintained by the Lessee on the
reservation or sidewalk in front of the Demised Premises, said space to be used
only for purpose of ingress and egress. Notwithstanding the foregoing, during
the term of this Lease, Tenant shall be entitled to maintain its existing sign
on the building in its current location and shall be entitled to remove the sign
which it placed on a nearby shed and place the same on the building.
21. The Lessee will bear, pay and discharge when and as the same
become due and payable all judgments and lawful claims for damages or otherwise
against Lessor arising from its use or occupancy of said leased premises or the
sidewalk in front and side of said premises, and
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will assume the burden and expense of defending all such suits, whether brought
before the expiration of this lease and will protect, indemnify and save
harmless the Lessor, his agents, servants, employees and public at large by
reason of or on- account of the use or misuse of the premises hereby leased or
the sidewalk in front of the said premises, or any part thereof, due to the
negligence of the Lessee or its agents or employees. Lessor shall indemnify,
defend and hold harmless Lessee from and against any and all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses (including,
without limitation, legal fees), suffered or incurred as a result of or in
connection with any negligence or misconduct of Lessor or any other person
claiming under Lessor, or the contractors, agents' employees, invitees or
licensees or Lessor or any such person in or about the Premises or the building
or the adjoining real property.
22. Lessee does hereby release and discharge said Lessor, his heirs
and assigns, from any and all liability for damage that may result from the
bursting, stoppage and leakage of any water pipe, gas pipe, sewer, basin,
water-closet, steam pipe and drain, and from all liability for any and all
damage caused by the water, gas, steam, waste and contents of said water pipes,
gas pipes, sewers, basins, water-closets and drains unless due to the gross
negligence or willful misconduct of Lessor.
23. Each of the following constitutes a default hereunder.
(i) Lessee's failure to pay within ten (10) days after
written notice from the Lessor, the base rent or
additional rent within the period of time provided for
herein after written notice from Lessor;
(ii) Lessee's failure to perform or observe any other
Lessee's obligation under this Lease thirty (30) days
after it receives written notice from Lessor, or in the
case where Lessee's failure to perform or observe any
other Lessee's obligation under this Lease cannot with
due diligence be cured in thirty (30) days, if Lessee
shall not commence such cure within thirty (30) days
after it receives written notice from Lessor and
diligently prosecute such cure to completion;
(iii) Lessee's failure to vacate or stay any of the following
within thirty (30) days after they occur: (A) a petition
in bankruptcy is filed by or against Lessee, (B) Lessee
is adjudicated as bankrupt or insolvent, (C) a receiver,
trustee or liquidator is appointed for all or a
substantial part of Lessee's property, or (D) Lessee
makes an assignment for the benefit of creditors.
Upon the occurrence of any Default, Lessor shall have the right, at
Lessor's option and in addition to all other remedies given under this Lease or
under the law, to elect to do any one or more of the following without further
notice or demand to Lessee:
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(i) terminate this Lease by appropriate legal proceedings,
in which event Lessee shall immediately surrender the
Premises to Lessor; and Lessee shall, and hereby agrees
to, indemnify Lessor for all loss and damage which
Lessor suffers by reason of such termination, including
without limitation, damages in an amount equal to the
total of (1) the actual, out-of-pocket, reasonable costs
of recovering the Premises and all other expenses
incurred by Lessor in connection with Lessee's default;
(2) the unpaid rent earned as of the date of
termination, plus interest at the interest rate
specified; (3) the excess of the total Base Rent and
Additional Rent which Lessor would have received under
this Lease for the remainder of the Term, but discounted
to the then present value using a rate equal to the
prime rate of Mellon Bank, N.A. then in effect, over the
fair market rental value of the Premises including Base
Rent and Additional Rent for the balance of the Tenn as
of the time of such default, discounted to the then
present value using a rate equal to the prime rate of
Mellon Bank, N.A. then in effect; and (4) all other sums
of money and damages owing by Lessee to Lessor; or
(ii) enter upon and take possession of the Premises after
terminating this Lease by appropriate legal proceedings
and without being liable to prosecution or any claim for
damages therefor, and, if Lessor elects, relet the
Premises on such terms as Lessor deems advisable, in
which event Lessee shall pay to Lessor on demand the
actual, commercially reasonable, out-of-pocket cost of
repossession, renovating, repairing, and altering the
Premises for a new tenant or tenants and any deficiency
between the Base Rent and Additional Rent payable
hereunder and the rent paid under such reletting,
payable on the due dates for such rental payments
hereunder; provided, however, that Lessee shall not be
entitled to any excess payments received by Lessor from
such relenting. Lessor's ability or failure to relet the
Premises shall not release or affect Lessee's liability
for Base Rent, Additional Rent or for damages. Lessor
agrees to use diligent efforts to relet the Premises on
commercially reasonable terms and to collect rents due
in accordance with such relenting; or
(iii) enter the Premises without terminating this Lease and
without being liable for prosecution or any claim for
damages therefor and maintain the Premises and repair or
replace any damage thereto or do anything for which
Lessee is responsible hereunder. Lessee shall reimburse
Lessor immediately upon demand for any actual,
commercially reasonable, out-of-pocket expenses which
Lessor incurs in thus effecting Lessee's compliance
under this Lease, and Lessor shall not be liable to
Lessee for any damages with respect thereto, provided
Lessor uses its best efforts to
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minimize interference with Lessee's conduct of its
business in the Premises.
No agreement to accept a surrender of the Premises and no act or
omission by Lessor or Lessor's agents during the Term shall constitute an
acceptance or surrender of the Premises unless made in writing and signed by
Lessor. No re-entry or taking possession of the Premises by Lessor shall
constitute an election by Lessor to terminate this Lease unless a written notice
of such intention is given to Lessee.
No provision of this Lease shall be deemed to have been waived
by Lessor or Lessee, respectively, unless such waiver is in writing and signed
by Lessor or Lessee, respectively. Lessor's acceptance of any rent following
Default hereunder shall not be construed as a waiver of such Default. No custom
or practice which may occur or develop between the parties in connection with
the terms of this Lease shall be construed to waive or lessen Lessor's or
Lessee's right to insist upon strict performance of the terms of this Lease,
without a written notice thereof from the party waiving its right hereunder.
Any rent or other amounts that are not paid when due hereunder
will accrue interest at the rate of the prime rate of Mellon Bank, N.A. (as such
prime rate may change from time to time) plus three percent (3%) per annum (but
in no event in an amount in excess of the maximum rate allowed by law) from the
date on which it was due until the date on which it is paid in full with accrued
interest.
Except as otherwise set forth herein, the rights granted to
Lessor shall be cumulative of every other right or remedy provided in this Lease
or which Lessor may otherwise have at law or in equity or by statute, and the
exercise of one or more rights or remedies shall not prejudice or impair the
concurrent or subsequent exercise of other rights or remedies or constitute a
forfeiture or waiver of rent or damages accruing to Lessor by reason of any
Default under this Lease. Lessee agrees to pay to Lessor all actual,
out-of-pocket, reasonable costs and expenses incurred by Lessor in the
enforcement of this Lease, including all attorneys' fees incurred in connection
with the collection of any sums due hereunder or the enforcement of any right or
remedy of Lessor.
The remedies permitted by this Section shall survive the
termination of this Article.
Lessor agrees that if at any time or times any governmental
authorities or insurance rating bureaus having jurisdiction shall complain that
the Demised Premises or the building of which the same is a part were not
constructed in compliance with any law, ordinance or regulation of any
governmental authority or insurance rating bureau having jurisdiction and shall
request compliance, then, unless and except to the extent that any such
non-compliance is caused by Lessee, Lessor shall, upon receipt of notice of such
complaint, cause such repairs, alterations or other work to be done so as to
bring about the compliance requested. Lessor shall,
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at its sole cost and expense, comply with all laws and requirements of public
authorities and all requirements of insurance bodies requiring structural
repairs or alterations to the real property, building or Premises unless such
repairs or alterations are necessitated by the particular use of the Premises by
Lessee, other than the use permitted by this Lease. Lessor represents and
covenants that (1) the Certificate of Occupancy and all building permits for the
real property, building and the Premises permit the use and occupancy of the
Premises for the Lessee's intended use as contemplated by this Lease and the
Certificate of Occupancy and all building permits for the Premises, the building
and the real property shall not be modified in any way which curtains such use;
(2) such use is permitted by all laws and requirements of public authorities and
all requirements of insurance bodies including, without limitation, zoning laws,
codes, rules and regulations applicable to the real property, the building and
the Premises; and (3) copies of the Certificate of Occupancy for the real
property, Certificate of Occupancy for the building and the Certificate of
Occupancy for the Premises and all building permits for the Premises will be
delivered by Lessor to Lessee as soon as Lessor has obtained the same.
24. Lessor agrees that at all times, except for temporary causes,
beyond the reasonable control of Lessor, there will be free and uninterrupted
access for pedestrian and motor vehicles (including but not limited to tractor
trailer trucks) to and from Yatesville Road to all doors and loading docks and
unloading areas appurtenant to the Demised Premises.
25. The common areas, being the parking areas and access roads on
the property (the "property") on which the Demised Premises is located
(including but not limited to Passan Drive) as shown on the attached plot plan
set forth on Exhibit B annexed hereto and made a part hereof (collectively, the
"common areas"), shall be used for the sole purpose of parking and maneuvering
of vehicles, egress and ingress, and loading and unloading of goods stored at
the Demised Premises or at the building and Lessor shall use its best efforts to
prevent material interference by Lessor or any other tenant at the building or
anyone claiming by, through or under Lessor, with the conduct of Lessee's
permitted Use and business at the Demised Premises. Lessor grants to Lessee the
non-exclusive right and easement to use the common areas and to permit Lessee's
employees, invitees, customers, agents and contractors to use the common areas
for the aforesaid purposes. This right and easement may be exercised only in
common with other occupants of the complex and with Lessor, and their respective
employees, invitees, customers, agents and contractors and Lessor shall not
pen-nit anyone else to use the common areas other than Passan Drive. Lessor's
right to use the common areas shall be solely for the purposes of repairing,
maintaining and inspecting the same; carrying out Lessor's obligations under
this Lease and any other lease or occupancy agreement with respect to the
building; complying with legal and insurance requirements applicable to the
property and showing the property to prospective tenants, occupants, purchasers
and mortgagees of the property.
Lessor further agrees to provide, operate, repair, replace and
maintain during the term of this Lease and any extensions hereof, all of the
common areas (being all parking areas, loading areas, driveways, sidewalks,
drainage and sewer systems, utility pipes, lines and conduits, and service
entrances therein), perform all landscaping, paving, grading and maintain
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lighting facilities sufficient to provide reasonably adequate and continuous
lighting throughout all of the common areas, and to keep the common areas free
of obstruction, clear of debris, water, ice and snow and in a clean condition
for the entire term bf this Lease and any extension thereof.
Throughout the term of this Lease, Lessor shall keep in place
and maintain at least one hundred ninety-eight (198) parking spaces in the areas
in front of the Demised Premises land the exclusive use of the additional
parking area to the west of the Demised Premises, which area shall be properly
graded by Lessor, all as shown on the attached plot plan. Lessor shall ensure
that the exits and entrances to the common areas,'which may contain signs
directing traffic in and out of said parking areas, are kept open and in place
as shown on the attached plot plan. Lessor shall keep said parking areas,
driveways, sidewalks and pedestrian malls lighted at such times during the hours
of darkness as Lessee's business shall be operating at the Demised Premises and
at least one hour thereafter.
26. This Lease and the terms, provisions and conditions contained
herein restate, replace and supersede all prior leases between the parties.
27. Lessee covenants and agrees and will be solely responsible to
maintain the heat in the Demised Premises at a sufficient level to prevent the
sprinkler system from freezing.
28. Lessee further agrees to pay to Lessor as additional rent any
increase or increases in fire insurance premiums upon the Demised Premises due
to an increase in the rate of fire insurance in excess of the rate on the
Demised Premises at the time of making of this Lease, if said increase is caused
by any act or neglect of Lessee or the manner in which Lessee conducts its
business at the Demised Premises.
29. In the event the Demised Premises, or any part of the Demised
Premises, be taken or condemned for public or quasi-public use, this Lease
shall, as to the part so taken, terminate as of the date possession of said
premises shall be vacated or surrendered by Lessee to the condemnor, and the
rent reserved shall abate proportionately to the square feet of leased space
taken or condemned. Lessor shall promptly after such taking restore the Demised
Premises or said building to substantially the same condition as existed prior
to such taking, subject to a reduction in size due to such taking. In addition,
if the entire Demised Premises, or such portion thereof or of any of the common
areas used for parking, loading or access as will render in the Lessee's sole
but reasonable judgment the Demised Premises or such common areas inadequate for
Lessee's purposes, shall be so taken, then in any such event Lessee shall have
the right to terminate this Lease effective on the date of such taking and the
rent shall be prorated to the date thereof. In the event of any taking, Lessee
may claim damages from the condemnor for the taking of the leasehold as well as
consequential damages from the condemnor, such as moving expenses. If Lessor
receives any notice relating to the condemnation of all or part of the Demised
Premises or the building or the common areas, Lessor shall notify Lessee in
writing of said notice within five (5) days after receipt by Lessor of said
notice.
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30. In the event that Lessee remains in possession beyond the term
of this Lease with the consent of Lessor, which consent shall be construed from
silence, this Lease shall remain in effect under the same terms and conditions
except that the term shall be on a month-to-month basis, and may be terminated
by either party upon thirty (30) day's written notice to the other.
31. Lessor, at its own cost and expense, agrees that it will
maintain at all times during the term of this Lease with respect to the Demised
Premises and the building in which it is located, insurance against loss or
damage by fire and the so called extended all-risk coverage casualties,
(including, but not limited to, subsidence coverage). Said insurance shall be
the greater of (x) of the full replacement value of the building and (y) one
hundred (100%) of the insurable value, and, in any event, sufficient insurance
shall be carried so that the insured shall not be a coinsurer. Lessor shall
deliver to Lessee a certificate of the insurance company or companies issuing
such insurance, which shall be duly licensed to do business in the State of
Pennsylvania, evidencing such coverage, which certificate shall contain a
statement to the effect that such coverage may not be cancelled without at least
ten (IO) days written notice to Lessee.
32. Lessee and Lessor each agrees to indemnify and save harmless the
other from and against any and all liability, loss, damages, costs or expense
which Lessor or Lessee, as the case may be, may incur, suffer or be required to
pay by reason of any failure of the other party's representations, agreements
and guarantees contained in this Lease.
33. Lessee agrees that upon the written request of Lessor it will
subordinate this Lease and the lien hereof, from time to time, to the lien of
any present or future mortgage made to a bank, insurance company or similar
financial institution, irrespective of the time of execution or time of
recording of any such mortgage or mortgages, provided that the holder of any
such mortgage agrees not to disturb Lessee's possession of the Demised Premises
or interfere with any of Lessee's rights hereunder so long as no default on the
part of Lessee hereunder shall continue after the giving of notice and passage
of the applicable grace or cure period. Lessor agrees to deliver to Lessee prior
to the commencement of the term of this Lease such a nondisturbance agreement,
which shall be in form and substance reasonably satisfactory to Lessee, from the
holder of each existing mortgage and ground lease.
34. Nothing contained in this Lease shall be construed as releasing
Lessor from responsibility for, or as indemnifying Lessor against, its own, or
its agents' or employees' negligent acts or omissions or wilful misconduct.
35. If Lessor shall default in the performance or observance of any
agreement or condition in this Lease on its part to be performed or observed,
and if Lessor shall not cure such default within the time periods provided for
herein after written notice (or, if said default is non monetary and is not
reasonably capable of cure within thirty (30) days, shall not within said period
commence to cure such default and thereafter prosecute the curing of such
default to completion with due diligence), Lessee may at its option, without
waiving any claim for damages for breach of agreement, at any time thereafter
cure such default for the account of Lessor, and
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any amount paid or any contractual liability incurred by Lessee in so doing
shall be deemed paid or incurred for the account of Lessor, and Lessor agrees to
reimburse Lessee therefor or save Lessee harmless therefrom; provided that
Lessee may cure, any such default as aforesaid prior to the expiration of said
waiting period, but after said notice to Lessor (which notice, in the case of
emergency, may be given orally or in any other reasonably due and sufficient
manner) if the curing of such default prior to the expiration of said waiting
period is reasonably necessary to protect the Demised Premises or Lessee's
interest therein, to prevent injury or damage to persons or property, or to
enable Lessee to conduct its business in the Demised Premises. If Lessor shall
fail to reimburse Lessee upon demand for any amount paid for the account of
Lessor hereunder or for any other sum payable to Lessee pursuant to this Lease,
said amount or sum plus interest thereon at an annual rate of 2% in excess of
the prime rate as published from time to time in the Wall Street Journal, but in
no event greater than the maximum legal rate of interest, from the date of
demand upon Lessor for payment, may be deducted by Lessee from the next or any
succeeding payments of rent due hereunder.
36. Lessee shall not assign this Lease nor sublet all or a portion
of the Demised Premises without first obtaining the written consent of Lessor,
which consent shall not be unreasonably withheld or delayed.
Lessee shall have the right, without the prior written consent
of Lessor, to assign this Lease or any portion thereof, or to sublet all or part
of the Demised Premises to any related or affiliated company or to any entity or
person to whom all or substantially all of the assets or stock of Lessee are
sold or transferred. Notwithstanding the above, in the event of an assignment or
subletting, Lessee shall remain liable under all the terms and conditions of
this Lease.
37. Lessor covenants and agrees that, upon Lessee's paying the rent
and observing and performing all of the terms, covenants, and conditions on
Lessee's part to be observed and performed, Lessee may peaceably and quietly
enjoy the Demised Premises and all of Lessee's rights hereunder.
38. Lessor represents and warrants that he owns the fee title to the
Demised Premises and the common areas and other property shown on the attached
plot plan; he has full right, title, and authority to enter into and perform his
obligations under the Lease; and Exhibit 1 hereto is a true and complete list of
all mortgages and ground leases, if any, encumbering the premises as of the date
hereof and the names of the holders thereof and that except as provided on said
Exhibit Lessor owns such fee title free and clear of any other liens or
encumbrances.
39. Any notices required to be sent under this Lease shall be mailed
by certified mail, return receipt requested, addressed, if to the Lessor at 1
Passan Drive, Laflin, Pennsylvania 18702, and, if to Lessee at Leslie Fay
Marketing, Inc., One Passan Drive, Laflin, PA 18702-7302, Attention: Warren T.
Wishart, Senior Vice President, Chief Financial Officer with a copy to Parker
Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, NY 10036,
Attention: Michael J. Shef, Esquire, or to some future address as designated by
either of the
14
<PAGE>
parties in writing sent by notice as herein required. Notices shall be deemed
given when mailed as aforesaid, three (3) business days after being deposited in
the U.S. mail postal office.
40. This Lease shall inure to and be binding upon the respective
heirs, executors, administrators, successors and assigns of the Lessor and
Lessee.
41. Lessee may, but shall not be obligated to, remove at or prior to
the termination of this Lease or any extensions thereof, any equipment or trade
fixtures installed by it on the Demised Premises even though such fixtures or
equipment may be attached to the Demised Premises, but all damage to the Demised
Premises caused by such removal shall be repaired by Lessee. Lessor shall not
have any lien for the performance of any obligations of Lessee upon any
fixtures, machinery or equipment, or goods, wares or merchandise or other
personal property, and hereby expressly waives the provisions of any law giving
to it such a lien.
42. It is expressly understood by the parties that the whole
agreement is embodied in this agreement and that no part or item is omitted.
43. Lessor and Lessee represent to each other that they have dealt
with no broker in connection with this Lease.
44. Lessee shall reimburse Lessor for any increase in Lessor's real
estate taxes on the Demised Premises, over and above the real estate taxes which
Lessor shall have paid for the fiscal year 1990. Lessor represents that said
property is taxed as a separate tax parcel. Lessee's Obligation pursuant to this
paragraph, if any, shall become due and payable, as additional rent, within (10)
days after the payment by Lessor of such property taxes and upon submission to
Lessee by Lessor of a statement showing the computations upon which Lessee's
payment under this paragraph are based and a copy of the tax bill. If any
exemption and/or abatement, rebate or refund shall be made for any tax year, an
appropriate refund shall be made with respect to the amount paid by Lessee to
Lessor on account of real estate taxes dependent on the amount of such exemption
and/or abatement, rebate or refund less Lessee's proportionate share of the cost
and expense of obtaining the same. If Lessor does not elect to bring a
proceeding for an exemption and/or abatement, rebate or refund for any tax year
in which there has been an increase in assessment Lessor shall notify Lessee
reasonably in advance of the date when such proceeding may no longer be brought
and Lessee shall have he right to maintain such proceeding on behalf of Lessor.
Notwithstanding anything to the contrary contained in this Lease, Lessor and
Lessee hereby agree that the initial responsibility for the payment of all real
estate taxes shall be upon Lessor and Lessor agrees to pay the same as required
by law, but in any event, so as to assure that Lessee's right to occupy the
Leased Premises shall not be disturbed or threatened. Lessee shall not be
required to share in any penalties, interest, late payments or the like
resulting from Lessor's late payment of real estate taxes.
15
<PAGE>
WITNESS:
/s/ Jack L. Robinson /s/ JOHN J. PASSAN
- ----------------------- ----------------------
JOHN J. PASSAN, LESSOR
/s/ Antoinette Lane LESLIE FAY MARKETING, INC.,
- -----------------------
LESSEE
By: /s/ Vance Walsh
-----------------------
16
<PAGE>
COMMERCIAL LEASE
--------------------------------------------------------------
BETWEEN
JOHN J. PASSAN
--------------------------------------------------------------
--------------------------------------------------------------
AND
LESLIE FAY MARKETING, INC
--------------------------------------------------------------
--------------------------------------------------------------
From
--------------------------------------------------------------
--------------------------------------------------------------
TO
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000796229
<NAME> THE LESLIE FAY COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUL-05-1997
<CASH> 35,065
<SECURITIES> 0
<RECEIVABLES> 11,430
<ALLOWANCES> 4,465
<INVENTORY> 22,960
<CURRENT-ASSETS> 74,891
<PP&E> 140
<DEPRECIATION> 0
<TOTAL-ASSETS> 75,280
<CURRENT-LIABILITIES> 36,554
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 24,966
<TOTAL-LIABILITY-AND-EQUITY> 75,280
<SALES> 203,519
<TOTAL-REVENUES> 203,519
<CGS> 151,686
<TOTAL-COSTS> 37,486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,270
<INCOME-PRETAX> 13,077
<INCOME-TAX> 471
<INCOME-CONTINUING> 12,606
<DISCONTINUED> 0
<EXTRAORDINARY> 132,950
<CHANGES> 0
<NET-INCOME> 145,568
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
