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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 OCTOBER 4, 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 November 1, 1997.
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<PAGE>
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet at October 4, 1997...................... 3
Consolidated Statements of Operations for the Eighteen and
Thirteen Weeks Ended October 4, 1997.............................. 4
Consolidated Statements of Cash Flows for the Eighteen and
Thirteen Weeks Ended October 4, 1997.............................. 5
Consolidated Balance Sheets at June 4, 1997 and
December 28, 1996................................................. 6
Consolidated Statements of Operations for the Twenty-Two
Weeks Ended June 4, 1997 and the Twenty-One Weeks
Ended May 25, 1996................................................ 7
Consolidated Statements of Cash Flows for the Twenty-Two
Weeks Ended June 4, 1997 and the Twenty-One Weeks
Ended May 25, 1996................................................ 8
Notes to Consolidated Financial Statements ........................ 9
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................28
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.....................................................35
Item 2 Changes in Securities.................................................35
Item 3 Defaults Upon Senior Securities.......................................36
Item 4 Submission of Matters to a Vote of Security Holders...................36
Item 5 Other Information.....................................................36
Item 6 Exhibits and Reports on Form 8-K......................................36
SIGNATURES....................................................................37
INDEX TO EXHIBITS.............................................................38
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
October 4,
1997
--------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..............................................$ 10,907
Accounts receivable- net of allowances for possible losses
of $6,444 .......................................................... 29,676
Inventories ............................................................ 17,358
Prepaid expenses and other current assets .............................. 4,267
--------
Total Current Assets................................................. 62,208
Property, Plant and Equipment, at cost, net of
accumulated depreciation of $3....................................... 375
Deferred Charges and Other Assets....................................... 216
--------
Total Assets............................................................$ 62,799
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................................$ 7,564
Accrued expenses and other current liabilities.......................... 11,630
Income taxes payable.................................................... 1,448
--------
Total Current Liabilities............................................ 20,642
Excess of Revalued Net Assets Acquired over Equity under
Fresh-Start Reporting, net of accumulated amortization of $1,524... 12,184
Long Term Debt-Capitalized Lease........................................ 268
--------
Total Liabilities..................................................... 33,094
--------
Stockholders' Equity:
Common stock, $.01 par value; 3,500 shares authorized;
3,400 shares issued and outstanding............................... 34
Preferred stock, $.01 par value; 500 shares authorized;
no shares issued and outstanding.................................. --
Capital in excess of par value.......................................... 25,086
Accumulated retained earnings .......................................... 4,585
--------
Total Stockholders' Equity.......................................... 29,705
--------
Total Liabilities and Stockholders' Equity..............................$ 62,799
========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated financial statements.
- 3 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
Eighteen Thirteen
Weeks Ended Weeks Ended
October 4 October 4
1997 1997
----------- -----------
Net Sales ........................................ $ 47,097 $ 41,562
Cost of Sales .................................... 36,242 31,832
----------- -----------
Gross profit .................................. 10,855 9,730
Operating Expenses:
Selling, warehouse, general and administrative
expenses ..................................... 7,976 6,344
Depreciation and amortization expense ......... 3 3
----------- -----------
Total operating expenses ................... 7,979 6,347
Other income .................................. (462) (344)
Amortization of excess revalued net assets
acquired over equity ......................... (1,524) (1,143)
----------- -----------
Total operating expenses, net ................. 5,993 4,860
----------- -----------
Operating income .............................. 4,862 4,870
Interest Expense, net and Financing
Costs ........................................... 212 314
----------- -----------
Net Income before taxes ....................... 4,650 4,556
Taxes ............................................ 65 45
----------- -----------
Net Income .................................... $ 4,585 $ 4,511
=========== ===========
Net Income per Common Share - Basic ............ $ 1.35 $ 1.33
=========== ===========
- Assuming Dilution .. $ 1.18 $ 1.17
=========== ===========
Weighted Average Common Shares Outstanding
- Basic ............... 3,400,000 3,400,000
=========== ===========
- Assuming Dilution ... 3,869,421 3,871,246
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
- 4 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Eighteen Thirteen
Weeks Ended Weeks Ended
October 4, October 4,
1997 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ...................................................... $ 4,585 $ 4,511
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ................................ 3 3
Amortization of excess purchase price over
net assets acquired ....................................... (1,524) (1,143)
Provision for possible losses on accounts receivable ......... (27) 72
Provision for compensation under stock option grants ......... 120 90
(Increase) decrease in:
Accounts receivable ........................................ (13,239) (18,318)
Inventories ................................................ 1,757 5,602
Prepaid expenses and other current assets .................. (3,083) 1,169
Deferred charges and other assets .......................... (216) 33
(Decrease) increase in:
Accounts payable, accrued expenses and other
current liabilities ..................................... (285) 1,377
Income taxes payable ....................................... (751) (740)
-------- --------
Total adjustments ....................................... (17,245) (11,855)
-------- --------
Net cash (used in) operating activities ................. (12,660) (7,344)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................ (378) (238)
-------- --------
Net cash (used in) investing activities ................. (378) (238)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ..................................... (76) (57)
Payment of obligations under Plan of Reorganization ............. (17,059) (16,519)
-------- --------
Net cash (used in) financing activities ................. (17,135) (16,576)
-------- --------
Net decrease in cash and cash equivalents ............................... (30,173) (24,158)
Cash and cash equivalents, at beginning of period ....................... 41,080 35,065
-------- --------
Cash and cash equivalents, at end of period.............................$ 10,907 $ 10,907
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
-5-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 4, December 28,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
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, respectively ...................... -- 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 earnings (deficit) ................................... -- (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 consolidated financial statements.
- 6 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
(Unaudited)
Twenty-Two Twenty-One
Weeks Ended Weeks Ended
June 4, May 25,
1997 1996
------------ ------------
<S> <C> <C>
Net Sales .................................................................. $ 197,984 $ 173,452
Cost of Sales .............................................................. 147,276 131,981
------------ ------------
Gross profit ............................................................ 50,708 41,471
------------ ------------
Operating Expenses:
Selling, warehouse, general and administrative expenses ................. 35,459 33,934
Depreciation and amortization of intangibles ............................ 2,090 1,770
------------ ------------
Total operating expenses ............................................. 37,549 35,704
Other income ............................................................ (1,196) (1,590)
------------ ------------
Total operating expenses, net ........................................... 36,353 34,114
------------ ------------
Operating income ........................................................ 14,355 7,357
Interest and Financing Costs (excludes contractual
interest of $7,513 and $7,513, respectively) .......................... 1,372 837
------------ ------------
Income before reorganization costs, taxes, gain
on sale, fresh-start revaluation and extraordinary item .............. 12,983 6,520
Reorganization Costs ....................................................... 3,379 1,560
------------ ------------
Income before taxes, gain on sale,
fresh-start revaluation and extraordinary item ...................... 9,604 4,960
Taxes ...................................................................... 451 435
------------ ------------
Net Income before gain on sale, fresh-start
revaluation and extraordinary item ................................... 9,153 4,525
Gain on disposition of Sassco Fashions Division (net of $3,728 of income
taxes), loss on revaluation of assets pursuant to adoption of fresh-start
reporting and extraordinary gain on debt discharge ...................... 136,341 --
------------ ------------
Net Income .............................................................. $ 145,494 $ 4,525
============ ============
Net Income per Share of Common Stock .................................... * $ 0.24
============ ============
Weighted Average Common Shares Outstanding .............................. * 18,771,836
============ ============
</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 consolidated financial statements.
- 7 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
Twenty-Two Twenty-One
Weeks Ended Weeks Ended
June 4, May 25,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 145,494 $ 4,524
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ....................... 1,749 1,420
Amortization of excess purchase price over
net assets acquired .............................. 473 483
Provision for possible losses on accounts
receivables ...................................... 199 492
(Gain) Loss on sale of fixed assets ................. (347) --
Decrease (increase) in:
Accounts receivable ............................... (1,248) (17,158)
Inventories ....................................... 25,538 13,251
Prepaid expenses and other current asset .......... (66) 1,810
Income taxes refundable ........................... -- 10,345
Deferred charges and other assets ................. 125 99
(Decrease) increase in:
Accounts payable, accrued expenses and other
current liabilities ............................ (4,167) (14,131)
Income taxes payable .............................. (1,515) 60
Deferred credits and other noncurrent liabilities . 374 384
Changes due to reorganization activities:
Gain on disposition of Sassco Fashions, fresh-start
revaluation charge and extraordinary gain on
debt discharge ............................... (136,341) --
Reorganization costs .............................. 3,379 1,560
Payment of reorganization costs ................... (917) (3,196)
--------- ---------
Total adjustments .............................. (112,764) (4,581)
--------- ---------
Net cash provided by (used in) operating
activities .................................. 32,730 (57)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (3,731) (2,155)
Proceeds from sale of assets ........................... 467 --
Proceeds from sale of Castleberry ...................... 600 --
Cash paid to sell/transfer the Sassco Fashion
division ............................................. (10,963) --
--------- ---------
Net cash (used in) investing activities ........ (13,627) (2,155)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ............................... -- 993
Repayment of borrowings ................................ -- (993)
--------- ---------
Net cash provided by financing activities ...... -- --
--------- ---------
Net increase (decrease) in cash and cash equivalents ...... 19,103 (2,212)
Cash and cash equivalents, at beginning of period ......... 21,977 32,324
--------- ---------
Cash and cash equivalents, at end of period ............... $ 41,080 $ 30,112
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these consolidated 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
forty weeks and thirteen weeks ended October 4, 1997 in two separate periods in
this Form 10-Q. One period contains financial statements and notes for the
twenty-two 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 periods contain
financial statements and notes for the eighteen and thirteen weeks ended October
4, 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>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Certain reclassifications have been made to the financial statements
for the twenty-two week period ended June 4, 1997 and twenty-one week period
ended May 25, 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 "Consummation Date"), the Plan was consummated by
the Company 1) transferring the equity interest in both the Company and Sassco
Fashions, Ltd. ("Sassco"), which has changed its name to Kasper ASL, Ltd., 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 seventy-nine (79%) percent of
its 3,400,000 of new shares to its creditors in July 1997. The remaining
twenty-one (21%) percent is being held back pending the resolution of certain
litigation before the Bankruptcy Court. A hearing on this litigation has been
scheduled for the first quarter of 1998. 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 1996 Form 10-K for a copy of
the Plan and a summary of Plan provisions, respectively.
On June 4, 1997, as provided for in the Plan, 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 week
period ended June 4, 1997 and the twenty-one week period ended May 25, 1996,
aggregating $3,379,000 and $1,560,000, 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, respectively. No
reorganization costs were recognized in the eighteen and thirteen weeks ended
October 4, 1997.
- 11 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Fresh-Start Reporting
- ---------------------
Pursuant to the guidelines provided by SOP 90-7, the Company adopted
fresh-start reporting and reflected the consummation distributions under 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 under
fresh-start reporting" 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 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, becomes 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 consolidated
balance sheet as of any prior date or for any prior period since the
consolidated 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
The effect of the disposition of Sassco Fashions division and the
consummation of the Plan on the Company's consolidated balance sheet as of June
4, 1997 was as follows:
CONSOLIDATED BALANCE SHEET
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Adjustments to Record Plan
--------------------------
Historical Reorganized
as of Disposition Debt Fresh as of
June 4, 1997 of Sassco Discharge Start June 4, 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................... $ 52,043 ($ 10,963) $ -- $ -- $ 41,080
Accounts receivable- net of allowances for possible losses .. 64,705 (48,295) -- -- 16,410
Inventories ................................................. 79,382 (60,267) -- -- 19,115
Prepaid expenses and other current assets ................... 2,401 (1,217) -- -- 1,184
--------- --------- --------- --------- ---------
Total Current Assets...................................... 198,531 (120,742) -- -- 77,789
Property, Plant and Equipment, at cost less
accumulated depreciation and amortization ............... 19,394 (14,002) -- (5,392) --
Excess of Purchase Price over Net Assets Acquired ................... 23,326 (16,066) -- (7,260) --
Deferred Charges and Other Assets ................................... 2,646 (1,753) (243) (650) --
--------- --------- --------- --------- ---------
Total Assets ................................................ $ 243,897 ($152,563) ($ 243) ($ 13,302) $ 77,789
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................ $ 19,354 ($ 9,947) $ -- $ -- $ 9,407
Accrued expenses and other current liabilities .............. 22,399 (3,917) 8,649 -- 27,131
Income taxes payable ........................................ 708 1,491 -- -- 2,199
--------- --------- --------- --------- ---------
Total Current Liabilities ................................ 42,461 (12,373) 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 ................................... 337,433 (240,000) (97,433) -- --
--------- --------- --------- --------- ---------
Total Liabilities ........................................ 380,238 (252,373) (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) ..................... (192,952) 99,810 63,541 29,601 --
Foreign currency translation adjustment ..................... 565 -- -- (565) --
--------- --------- --------- --------- ---------
Subtotal .............................................. (123,375) 99,810 88,541 (39,976) 25,000
--------- --------- --------- --------- ---------
Treasury stock .............................................. (12,966) -- -- 12,966 --
--------- --------- --------- --------- ---------
Total Stockholders' Equity (Deficit) .................... (136,341) 99,810 88,541 (27,010) 25,000
--------- --------- --------- --------- ---------
Total Liabilities and Stockholders' Equity .................. $ 243,897 ($152,563) ($ 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>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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). The resulting gain of $99,810,000, net of
taxes of $3,728,000, recorded from these transactions is reflected as a Gain on
the disposition of the Sassco Fashions division in the consolidated statement of
operations for the twenty-two weeks ended June 4, 1997. A complete valuation
study is currently being performed to establish a book and tax basis of the new
Sassco entity. 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.
The following unaudited pro forma consolidated statements of operations
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. Pro forma
consolidated balance sheets as of October 4, 1997 or June 4, 1997 are not
presented because the transactions recording the Plan and the sale transactions
are already reflected in those consolidated balance sheets.
The unaudited pro forma consolidated financial statements of operations
have been prepared in accordance with guidelines established by the SEC. The
historical balances were derived from the statement of operations for the
applicable periods. All significant intercompany transactions have been
eliminated. The unaudited pro forma financial statements should be read in
conjunction with the consolidated statements of operations and notes thereto
included in the 1996 Form 10-K.
- 14 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
The unaudited pro forma adjustments presented in the statement 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 acquired over equity 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.
d) The additional compensation expense related to the stock
options granted upon the consummation of 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>
Eighteen Weeks Ended September 28, 1996
-------------------------------------------------------------
Pro Forma Adjustments per Note 3 Pro Forma
Historical ----------------------------------- Adjusted
Operations (1) (2) (3) Balance
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales ...................................... $ 165,598 ($120,574) ($ 2,863) $ -- $ 42,161
Cost of Sales .................................. 124,339 (89,328) (2,219) (29) 32,763
--------- --------- --------- --------- ---------
Gross profit ................................. 41,259 (31,246) (644) 29 9,398
--------- --------- --------- --------- ---------
Operating Expenses:
Selling, warehouse, general and
administrative expenses .................. 28,186 (19,147) (793) 120 8,366
Depreciation and amortization expense ........ 1,496 (769) (9) (718) --
--------- --------- --------- --------- ---------
Total operating expenses ................ 29,682 (19,916) (802) (598) 8,366
Other income ................................. (1,169) 371 -- -- (798)
Amortization of excess revalued net assets
acquired over equity ...................... -- -- -- (1,524) (1,524)
--------- --------- --------- --------- ---------
Total operating expenses ................... 28,513 (19,545) (802) (2,122) 6,044
--------- --------- --------- --------- ---------
Operating income ........................... 12,746 (11,701) 158 2,151 3,354
Interest and Financing Costs (excludes
contractual interest) ........................ 2,000 (483) -- -- 1,517
--------- --------- --------- --------- ---------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and
extraordinary items ................... 10,746 (11,218) 158 2,151 1,837
Reorganization Costs ........................... 601 -- -- (601) --
--------- --------- --------- --------- ---------
Income (Loss) before taxes and
extraordinary items ....................... 10,145 (11,218) 158 2,752 1,837
Taxes .......................................... 601 (547) -- -- 54
--------- --------- --------- --------- ---------
Net Income (Loss) before extraordinary item .. 9,544 (10,671) 158 2,752 1,783
Gain on disposition of Sassco Fashions Division,
loss on revaluation of assets pursuant to
adoption of fresh-start reporting and
extraordinary gain on debt discharge ......... -- -- -- -- --
--------- --------- --------- --------- ---------
Net Income (Loss) ............................ $ 9,544 ($ 10,671) $ 158 $ 2,752 $ 1,783
========= ========= ========= ========= =========
Net Income (Loss) per Share of
Common Stock - Basic...................... $ 0.51 $ 0.52
========= =========
Net Income (Loss) per Share of
Common Stock-Fully Diluted................ $ 0.51 $ 0.46
========= =========
Weighted Average Common Shares
Outstanding - Basic....................... 18,771,836 3,400,000
========== =========
Weighted Average Common Shares
Outstanding - Fully Diluted............... 18,771,836 3,862,121
========== =========
</TABLE>
Earnings per share on a historical basis is based on the old stock
outstanding. The old stock was cancelled under the plan of reorganization
and new stock was issued. Earnings per share on a pro forma basis is
calculated on the new stock outstanding as of June 4, 1997.
- 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>
Thirteen Weeks Ended September 28, 1996
-------------------------------------------------------------
Pro Forma Adjustments per Note 3 Pro Forma
Historical ----------------------------------- Adjusted
Operations (1) (2) (3) Balance
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales...................................... $ 134,908 ($95,565) ($2,260) -- $ 37,083
Cost of Sales ................................. 101,397 (71,258) (1,649) (22) 28,468
--------- --------- --------- --------- ---------
Gross profit................................. 33,511 (24,307) (611) 22 8,615
--------- --------- --------- --------- ---------
Operating Expenses:
Selling, warehouse, general and
administrative expenses.................. 21,182 (13,953) (613) 90 6,706
Depreciation and amortization expense........ 1,158 (618) (7) (533) --
--------- --------- --------- --------- ---------
Total operating expenses..................... 22,340 (14,571) (620) (443) 6,706
Other income................................. (948) 331 -- -- (617)
Amortization of excess revalued net assets
acquired over equity ..................... -- -- -- (1,143) (1,143)
--------- --------- --------- --------- ---------
Total operating expenses..................... 21,392 (14,240) (620) (1,586) 4,946
--------- --------- --------- --------- ---------
Operating income............................. 12,119 (10,067) 9 1,608 3,669
Interest and Financing Costs (excludes
contractual interest)........................ 1,796 (375) -- -- 1,421
--------- --------- --------- --------- ---------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and
extraordinary items ................... 10,323 (9,692) 9 1,608 2,248
Reorganization Costs............................ 1,881 -- -- (1,881) --
--------- --------- --------- --------- ---------
Income (Loss) before taxes and
extraordinary items ....................... 8,442 (9,692) 9 3,489 2,248
Taxes........................................... 397 (363) -- -- 34
--------- --------- --------- --------- ---------
Net Income (Loss) before extraordinary item .. 8,045 (9,329) 9 3,489 2,214
Gain on disposition of Sassco Fashions Division,
loss on revaluation of assets pursuant to
adoption of fresh-start reporting and
extraordinary gain on debt discharge ......... -- -- -- -- --
--------- --------- --------- --------- ---------
Net Income (Loss) ........................... $ 8,045 ($9,329) $ 9 $ 3,489 $ 2,214
========= ========= ========= ========= =========
Net Income (Loss) per Share of
Common Stock - Basic...................... $ 0.43 $ 0.65
========= =========
Net Income (Loss) per Share of
Common Stock-Fully Diluted................ $ 0.43 $ 0.67
========= =========
Weighted Average Common Shares
Outstanding - Basic....................... 18,771,836 3,400,000
========== =========
Weighted Average Common Shares
Outstanding - Fully Diluted............... 18,771,836 3,862,121
========== =========
</TABLE>
Earnings per share on a historical basis is based on the old stock
outstanding. The old stock was cancelled under the plan of reorganization
and new stock was issued. Earnings per share on a pro forma basis is
calculated on the new stock outstanding as of June 4, 1997.
- 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>
Twenty-Two Weeks Ended June 4, 1997
-------------------------------------------------------------
Pro Forma Adjustments per Note 3 Pro Forma
Historical ----------------------------------- 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) (32) 43,409
--------- --------- --------- --------- ---------
Gross profit................................ 50,708 (34,534) (546) 32 15,660
--------- --------- --------- --------- ---------
Operating Expenses:
Selling, warehouse, general and
administrative expenses.................. 35,457 (23,665) (1,003) 150 10,939
Depreciation and amortization expense........ 2,092 (1,079) (40) (973) --
--------- --------- --------- --------- ---------
Total operating expenses..................... 37,549 (24,744) (1,043) (823) 10,939
Other income................................. (1,196) 260 -- -- (936)
Amortization of excess revalued net assets
acquired over equity ..................... -- -- -- (1,905) (1,905)
--------- --------- --------- --------- ---------
Total operating expenses..................... 36,353 (24,484) (1,043) (2,728) 8,098
Operating income............................. 14,355 (10,050) 497 2,760 7,562
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 2,760 6,785
Reorganization Costs........................... 3,379 -- 14 (3,393) --
--------- --------- --------- --------- ---------
Income (Loss) before taxes and
extraordinary items ....................... 9,604 (9,455) 483 6,153 6,785
Taxes........................................... 451 (343) -- -- 108
--------- --------- --------- --------- ---------
Net Income (Loss) before extraordinary item .. 9,153 (9,112) 483 6,153 6,677
Gain on disposition of Sassco Fashions Division
(net of $3,728 of income taxes), loss on
revaluation of assets pursuant to adoption of
fresh-start reporting and extraordinary gain on
debt discharge................................ 136,341 (99,810) -- (36,531) --
--------- --------- --------- --------- ---------
Net Income (Loss) ............................ $ 145,494 ($108,922) $ 483 ($30,378) $ 6,677
========= ========= ========= ========= =========
Net Income (Loss) per Share of
Common Stock - Basic....................... * $ 1.96
========= =========
Net Income (Loss) per Share of
Common Stock-Fully Diluted................. * $ 1.73
========= =========
Weighted Average Common Shares
Outstanding - Basic....................... * 3,400,000
========== =========
Weighted Average Common Shares
Outstanding - Fully Diluted............... * 3,862,121
========== =========
</TABLE>
* Earnings per share is not presented for the twenty-two weeks ended
June 4, 1997 on a historical basis because such presentation would
not be meaningful. The old stock was cancelled under the plan of
reorganization and new stock was issued. Earnings per share on a pro
forma basis is calculated on the new stock outstanding as of June 4,
1997.
- 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>
Twenty-One Weeks Ended May 25, 1996
-------------------------------------------------------------
Pro Forma Adjustments per Note 3 Pro Forma
Historical ----------------------------------- 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................... 33,934 (19,902) (1,158) 150 13,024
Depreciation and amortization expense ........ 1,770 (674) (15) (1,081) --
--------- --------- --------- --------- ---------
Total operating expenses.................... 35,704 (20,576) (1,173) (931) 13,024
--------- --------- --------- --------- ---------
Other income.................................. (1,590) 372 -- -- (1,218)
Amortization of excess revalued net assets
acquired over equity ...................... -- -- -- (1,905) (1,905)
--------- --------- --------- --------- ---------
Total operating expenses...................... 34,114 (20,204) (1,173) (2,836) 9,901
--------- --------- --------- --------- ---------
Operating income.............................. 7,357 (10,427) 78 2,871 (121)
Interest and Financing Costs (excludes
contractual interest)......................... 837 (541) -- -- 296
--------- --------- --------- --------- ---------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and
extraordinary items .................... 6,520 (9,886) 78 2,871 (417)
Reorganization Costs............................ 1,560 -- -- (1,560) --
--------- --------- --------- --------- ---------
Income (Loss) before taxes and
extraordinary items ....................... 4,960 (9,886) 78 4,431 (417)
Taxes........................................... 435 (370) -- -- 65
--------- --------- --------- --------- ---------
Net Income (Loss) before extraordinary item .. 4,525 (9,516) 78 4,431 (482)
Gain on disposition of Sassco Fashions Division,
loss on revaluation of assets pursuant to
adoption of fresh-start reporting and
extraordinary gain on debt discharge.......... -- -- -- -- --
--------- --------- --------- --------- ---------
Net Income (Loss)............................. $ 4,525 ($9,516) $ 78 $ 4,431 ($482)
========= ========= ========= ========= =========
Net Income (Loss) per Share of
Common Stock - Basic....................... $ 0.24 ($ 0.14)
========= =========
Net Income (Loss) per Share of
Common Stock-Fully Diluted................ $ 0.24 ($ 0.12)
========= =========
Weighted Average Common Shares
Outstanding - Basic....................... 18,771,836 3,400,000
========== =========
Weighted Average Common Shares
Outstanding - Fully Diluted............... 18,771,836 3,862,121
========== =========
</TABLE>
Earnings per share on a historical basis is based on the old stock
outstanding. The old stock was cancelled under the plan of reorganization
and new stock was issued. Earnings per share on a pro forma basis is
calculated on the new stock outstanding as of June 4, 1997.
- 19 -
<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>
Forty Weeks Ended October 4, 1997
-------------------------------------------------------------
Pro Forma Adjustments per Note 3 Pro Forma
Historical ----------------------------------- Adjusted
Operations (1) (2) (3) Balance
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales ...................................... $ 245,081 ($136,107) ($2,808) $ -- $ 106,166
Cost of Sales .................................. 183,518 (101,573) (2,262) (32) 79,651
--------- --------- --------- --------- ---------
Gross profit................................. 61,563 (34,534) (546) 32 26,515
--------- --------- --------- --------- ---------
Operating Expenses:
Selling, warehouse, general and
administrative expenses................... 43,433 (23,665) (1,003) 150 18,915
Depreciation and amortization expense ........ 2,095 (1,079) (40) (973) 3
--------- --------- --------- --------- ---------
Total operating expenses................. 45,528 (24,744) (1,043) (823) 18,918
Other income.................................. (1,658) 260 -- -- (1,398)
Amortization of excess revalued net assets
acquired over equity ...................... (1,524) -- -- (1,905) (3,429)
--------- --------- --------- --------- ---------
Total operating expenses...................... 42,346 (24,484) (1,043) (2,728) 14,091
--------- --------- --------- --------- ---------
Operating income.............................. 19,217 (10,050) 497 2,760 12,424
Interest and Financing Costs (excludes
contractual interest)......................... 1,584 (595) -- -- 989
--------- --------- --------- --------- ---------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and
extraordinary items .................... 17,633 (9,455) 497 2,760 11,435
Reorganization Costs............................ 3,379 -- 14 (3,393) --
--------- --------- --------- --------- ---------
Income (Loss) before taxes and
extraordinary items ....................... 14,254 (9,455) 483 6,153 11,435
Taxes........................................... 516 (343) -- -- 173
--------- --------- --------- --------- ---------
Net Income (Loss) before extraordinary item .. 13,738 (9,112) 483 6,153 11,262
Gain on disposition of Sassco Fashions Division
(net of $3,728 of income taxes), loss on
revaluation of assets pursuant to adoption of
fresh-start reporting and extraordinary gain on
debt discharge................................ 136,341 (99,810) -- (36,531) --
--------- --------- --------- --------- ---------
Net Income (Loss) ............................ $ 150,079 ($108,922) $ 483 ($30,378) $ 11,262
========= ========= ========= ========= =========
Net Income (Loss) per Share of
Common Stock - Basic....................... * $ 3.31
========= =========
Net Income (Loss) per Share of
Common Stock-Fully Diluted................. * $ 2.91
========= =========
Weighted Average Common Shares
Outstanding - Basic....................... * 3,400,000
========== =========
Weighted Average Common Shares
Outstanding - Fully Diluted............... * 3,866,771
========== =========
</TABLE>
* Earnings per share is not presented for the forty weeks ended October, 1997
on a historical basis because presentation would not be meaningful.
The old stock was cancelled under the plan of reorganization and new
stock was issued at June 4, 1997. Earnings per share on a pro forma basis is
calculated on the new stock outstanding.
- 20 -
<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>
Thirty-Nine Weeks Ended September 28, 1996
-------------------------------------------------------------
Pro Forma Adjustments per Note 3 Pro Forma
Historical ----------------------------------- Adjusted
Operations (1) (2) (3) Balance
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales ...................................... $ 339,050 ($247,630) ($6,713) $ -- $ 84,707
Cost of Sales .................................. 256,320 (185,753) (4,974) (64) 65,529
--------- --------- --------- --------- ---------
Gross profit ................................. 82,730 (61,877) (1,739) 64 19,178
--------- --------- --------- --------- ---------
Operating Expenses:
Selling, warehouse, general and
administrative expenses................... 62,120 (39,049) (1,951) 270 21,390
Depreciation and amortization expense ........ 3,266 (1,443) (24) (1,799) --
--------- --------- --------- --------- ---------
Total operating expenses.................... 65,386 (40,492) (1,975) (1,529) 21,390
Other income.................................. (2,759) 743 -- -- (2,016)
Amortization of excess revalued net assets
acquired over equity ...................... -- -- -- (3,429) (3,429)
--------- --------- --------- --------- ---------
Total operating expenses...................... 62,627 (39,749) (1,975) (4,958) 15,945
--------- --------- --------- --------- ---------
Operating income.............................. 20,103 (22,128) 236 5,022 3,233
Interest and Financing Costs (excludes
contractual interest)......................... 2,837 (1,024) -- -- 1,813
--------- --------- --------- --------- ---------
Income (Loss) before fresh-start revaluation,
reorganization costs, taxes and
extraordinary items .................... 17,266 (21,104) 236 5,022 1,420
Reorganization Costs............................ 2,161 -- -- (2,161) --
--------- --------- --------- --------- ---------
Income (Loss) before taxes and
extraordinary items ....................... 15,105 (21,104) 236 7,183 1,420
Taxes........................................... 1,036 (917) -- -- 119
--------- --------- --------- --------- ---------
Net Income (Loss) before extraordinary item .. 14,069 (20,187) 236 7,183 1,301
Gain on disposition of Sassco Fashions Division,
loss on revaluation of assets pursuant to
adoption of fresh-start reporting and
extraordinary gain on debt discharge.......... -- -- -- -- --
--------- --------- --------- --------- ---------
Net Income (Loss) ............................ $ 14,069 ($20,187) $ 236 $ 7,183 $ 1,301
========= ========= ========= ========= =========
Net Income (Loss) per Share of
Common Stock - Basic....................... $ 0.75 $ 0.38
========= =========
Net Income (Loss) per Share of
Common Stock-Fully Diluted................ $ 0.75 $ 0.34
========= =========
Weighted Average Common Shares
Outstanding - Basic....................... 18,771,836 3,400,000
========== =========
Weighted Average Common Shares
Outstanding - Fully Diluted............... 18,771,836 3,862,121
========== =========
</TABLE>
Earnings per share on a historical basis is based on the old stock
outstanding. The old stock was cancelled under the plan of reorganization
and new stock was issued. Earnings per share on a pro forma basis is
calculated on the new stock outstanding as of June 4, 1997.
- 21 -
<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 (with a minimum charge per invoice) and assumes the credit risk in
excess of $50,000 for CIT credit approved receivables.
5. INVENTORIES:
Inventories consist of the following:
October 4, June 4, December 28,
1997 1997 1996
-------- -------- --------
(In thousands)
Raw materials $ 6,332 $ 8,341 $ 33,151
Work in process 3,131 3,429 2,711
Finished goods 7,895 7,345 68,521
-------- -------- --------
Total inventories $ 17,358 $ 19,115 $104,383
======== ======== ========
The balances at December 28, 1996 included 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 the Company's behalf in an aggregate amount
not to exceed $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 October
4, 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 $7,454,000 was committed under unexpired letters of credit as of
October 4, 1997.
- 22 -
<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, a minimum tangible net worth 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 to exceed $60,000,000. 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). There were no unexpired letters of credit outstanding under the
FNBB Credit Agreement at October 4, 1997.
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Interest on direct borrowings was charged 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 gain on debt discharge in the
consolidated statement of operations for the twenty-two weeks ended June 4,
1997.
7. INCOME TAXES:
The provision for state and foreign income taxes is $65,000 and $45,000
for the eighteen and thirteen weeks ended October 4, 1997, respectively. Federal
income taxes for the eighteen and thirteen weeks ended October 4, 1997 (the
post-consummation period) are primarily offset by the utilization of net
operating loss carryforwards, which are limited to approximately $750,000 in
1997, and deductions available for tax purposes. Although there is no Federal
income tax provision currently recognizable on the pre-consummation earnings 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 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 weeks ended June 4, 1997. For the twenty-two weeks
ended June 4, 1997, the Company recognized $451,000 for state and foreign income
taxes.
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 21, 1997 (the "Confirmation
Order"), the Bankruptcy Court confirmed the Plan. The Plan was consummated on
June 4, 1997.
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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 third quarter of 1997 the
following legal proceedings of significance:
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 pleaded 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 Plan, a Derivative Action Board,
comprised of three Persons or Entities nominated by the Creditors' Committee and
appointed by the Bankruptcy Court, shall determine whether to prosecute,
compromise and settle or discontinue the Derivative Action.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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. This matter is still pending before the Court.
9. STOCKHOLDERS' EQUITY:
As provided under the Plan, the authorized common stock of the
reorganized Company consisted of 3,500,000 shares of common stock with a par
value $.01 per share. In November 1997, pursuant to the authority granted the
Company by the Confirmation Order of the Bankruptcy Court, the Company amended
its Certificate of Incorporation to increase its authorized common stock to
9,500,000 shares.. At June 4, 1997, 3,400,000 shares were issued and outstanding
and were being held by the plan administrator in trust. In July 1997, 2,686,000
(79%) of the shares were distributed. The remaining twenty-one (21%) percent is
being held back pending the resolution of certain disputed claims before the
Bankruptcy Court. A hearing on this litigation has been scheduled for the first
quarter of 1998. The then outstanding common stock was extinguished at June 4,
1997 and the holders thereof 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.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
10. STOCK OPTION PLAN:
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 the 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 is authorized to grant
up to 2,000,000 stock options and on June 4,1997 granted 412,121 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 at June 4,
1997 was granted 10,000 stock options for a total of 50,000 options. These
options may be exercised for $6.18 per share. 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) shall be granted to certain senior management upon
the occurrence of certain specified transactions whereby the imputed enterprise
value of the Company exceeds a minimum of $37,500,000 (this amount increases at
each one year anniversary date (June 4th) of the consummation of the Plan until
the year 2000). The exercise of these options would create the issuance of
additional stock.
In addition, on September 22, 1997, the Board also authorized 36,500
stock options be granted to employees of the Company, which are exercisable at
$11.50 per share.
The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" effective as of the Consummation Date. Under SFAS No.
123, the Company has recorded $120,000 and $90,000 of non-cash compensation
expense included in Selling, warehouse, general and administrative expenses for
the eighteen and thirteen weeks ended October 4, 1997, respectively. This amount
is offset as an adjustment to Capital in excess of par value in the consolidated
balance sheet at October 4, 1997.
11. 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.
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<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
EIGHTEEN WEEKS ENDED OCTOBER 4, 1997 AS COMPARED TO
EIGHTEEN WEEKS ENDED SEPTEMBER 28, 1996
The Company recorded net sales of $47,097,000 for the eighteen weeks
ended October 4, 1997, compared with $165,598,000 for the eighteen weeks ended
September 28, 1996, a net decrease of $118,501,000, or 71.6%. The primary factor
contributing to this decrease was the sale of the Sassco Fashions and
Castleberry divisions, which generated $120,574,000 and $2,863,000,
respectively, in net sales for the eighteen weeks ended September 28, 1996. On a
comparable basis, after excluding the effect of the above mentioned businesses,
the remaining businesses had a net sales increase of $4,936,000, or 11.7%, for
the eighteen weeks ended October 4, 1997 as compared to the eighteen weeks ended
September 28, 1996, primarily due to the increased volume of its Dress division.
Other than a decrease of $2,163,000 related to discontinuing its Outlander
labels, sales of the Sportswear division remained stable.
Gross profit for the eighteen weeks ended October 4, 1997 was 23.0% of
net sales compared with 24.9% for the eighteen weeks ended September 28, 1996 (a
decrease of $30,404,000). The Sassco Fashions and Castleberry divisions
generated $31,246,000 and $644,000, respectively, in gross profit for the
eighteen weeks ended September 28, 1996. These product lines have higher gross
profit margins in the third quarter than the remaining businesses. The
comparable remaining businesses increased gross profit by $1,486,000 for the
eighteen weeks ended October 4, 1997 versus the prior year and the gross margin
increased to 23.0% from 22.2%. Increased volume and better initial pricing in
the Dress division offset the reduced gross margins of the Sportswear divisions
as the Company reduced its initial markup to maintain market share.
Selling, warehouse, general and administrative expenses were 16.9% and
17.0% for the eighteen weeks ended October 4, 1997 and September 28, 1996,
respectively. After excluding the costs associated with the divisions sold, the
comparable remaining businesses had expenses of 19.6% for the eighteen weeks
ended September 28, 1996. The decrease in the comparable percentage is a result
of the additional sales volume during the eighteen weeks ended October 4, 1997
while continuing to reduce overhead expenses related to downsizing.
Other income was ($462,000) and ($1,169,000) for the eighteen weeks
ended October 4, 1997 and September 28, 1996, respectively. The decrease is
primarily due to the licensing revenues related to tradenames which were
spun-off with the Sassco Fashions division and the expiration of certain
licensing agreements which were not renewed.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Depreciation and amortization expense for the eighteen weeks ended
October 4, 1997 was $3,000 due to the write-off of fixed assets at June 4, 1997
under fresh-start reporting. In addition, the Company realized income of
$1,524,000 from amortization of the excess revalued net assets acquired over
equity (see Note 2). Depreciation and amortization expense for the eighteen
weeks ended September 28, 1996 consisted of depreciation on fixed assets of
$1,108,000, including $562,000 related to divisions sold and amortization of the
excess purchase price over net assets acquired of $388,000, including $216,000
of amortization related to the divisions sold. This amortization expense related
to the leveraged buyout of The Leslie Fay Company on June 28, 1984.
Interest expense, net and financing costs were $212,000 and $2,000,000
for the eighteen weeks ended October 4, 1997 and September 28, 1996,
respectively. The financing fees under the new CIT Credit Agreement were offset
by income earned on the cash invested for the eighteen weeks ended October 4,
1997. The financing fees incurred were significantly below those incurred during
the eighteen weeks ended September 28, 1996 due to the higher line needed to
finance the operations of Sassco Fashions and Castleberry. In addition, the
Company maintained a higher average cash balance during the period and earned
additional interest income compared to interest expense on borrowings in the
prior year, up to a maximum of $28,672,000, to fund the inventory build-up of
the sold divisions in the third quarter .
The provision for state and foreign income taxes was $65,000 and
$601,000 for the eighteen weeks ended October 4, 1997 and September 28, 1996,
respectively. The charge in 1996 relates primarily to foreign taxes on a
subsidiary of the Sassco Fashions division.
THIRTEEN WEEKS ENDED OCTOBER 4, 1997 AS COMPARED TO
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996
The Company recorded net sales of $41,562,000 for the thirteen weeks
ended October 4, 1997, compared with $134,908,000 for the thirteen weeks ended
September 28, 1996, a net decrease of $93,344,000, or 69.2%. The primary factor
contributing to this decrease was the sale of the Sassco Fashions and
Castleberry divisions, which generated $95,565,000 and $2,260,000, respectively,
in net sales for the thirteen weeks ended September 28, 1996. On a comparable
basis, after excluding the effect of the above mentioned businesses, the
remaining businesses had a net sales increase of $4,479,000, or 12.1%, for the
thirteen weeks ended October 4, 1997 as compared to the thirteen weeks ended
September 28, 1996, primarily due to the increased volume of its Dress division.
Other than a decrease of $1,675,000 related to discontinuing its Outlander
labels, sales of the Sportswear division remained stable.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Gross profit for the thirteen weeks ended October 4, 1997 was 23.4% of
net sales compared with 24.8% for the thirteen weeks ended September 28, 1996 (a
decrease of $23,781,000). The Sassco Fashions and Castleberry divisions
generated $24,307,000 and $611,000, respectively, in gross profit for the
thirteen weeks ended September 28, 1996. These product lines have higher gross
profit margins in the third quarter than the remaining businesses. The
comparable remaining businesses increased gross profit by $1,137,000 for the
thirteen weeks ended October 4, 1997 versus the prior year and the gross margin
increased to 23.4% from 23.2%. Increased volume and better initial pricing in
the Dress division offset the reduced gross margins of the Sportswear divisions
as the Company reduced its initial markup to maintain market share.
Selling, warehouse, general and administrative expenses were 15.3% and
15.7% for the thirteen weeks ended October 4, 1997 and September 28, 1996,
respectively. After excluding the costs associated with the divisions sold, the
comparable remaining business had expenses of 17.8% for the thirteen weeks ended
September 28, 1996. The decrease in the comparable percentage is a result of the
additional sales volume during the thirteen weeks ended October 4, 1997 while
continuing to reduce overhead expenses related to downsizing.
Other income was ($344,000) and ($948,000) for the thirteen weeks ended
October 4, 1997 and September 28, 1996, respectively. The decrease is primarily
due to the licensing revenues related to tradenames which were spun-off with the
Sassco Fashions division and the expiration of certain licensing agreements
which were not renewed.
Depreciation and amortization expense for the thirteen weeks ended
October 4, 1997 was $3,000 due to the write-off of fixed assets at June 4, 1997
under fresh-start reporting. In addition, the Company realized income of
$1,143,000 from amortization of the excess revalued net assets acquired over
equity (see Note 2). Depreciation and amortization expense for the thirteen
weeks ended September 28, 1996 consisted of depreciation on fixed assets of
$867,000, including $462,000 related to divisions sold and amortization of the
excess purchase price over net assets acquired of $291,000, including $163,000
of amortization related to the divisions sold. This amortization expense related
to the leveraged buyout of The Leslie Fay Company on June 28, 1984.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Interest expense, net and financing costs were $314,000 and $1,796,000
for the thirteen weeks ended October 4, 1997 and September 28, 1996,
respectively. The financing fees under the new CIT Credit Agreement were offset
by income earned on the cash invested for the thirteen weeks ended October 4,
1997. The financing fees incurred were significantly below those incurred during
the thirteen weeks ended September 28, 1996 due to the higher line needed to
finance the operations of Sassco Fashions and Castleberry. In addition, the
Company maintained a higher average cash balance during the period and earned
additional interest income compared to interest expense on borrowings in the
prior year, up to a maximum of $28,672,000, to fund the inventory build-up of
the sold divisions in the third quarter.
The provision for state and foreign income taxes was $45,000 and
$397,000 for the thirteen weeks ended October 4, 1997 and September 28, 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 $197,984,000 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 $24,532,000, 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 preceding 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.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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.
Selling, warehouse, general and administrative expenses for twenty-two
weeks ended June 4, 1997 decreased to 17.9% of net sales compared with 19.6% for
the twenty-one weeks ended May 25, 1996. The percentage decrease is primarily
due to the additional sales volume generated in the 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 $1,523,000 over the
prior year. Sassco Fashions expenses increased $3,763,000, 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
$2,085,000 or 16.0% 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 $155,000 or 13.4% below the
comparable period in 1996 due to its reduced volume.
Depreciation and amortization expense for the twenty-two weeks ended
June 4, 1997 was $2,092,000, including $ 1,619,000 of depreciation on fixed
assets prior to their write-off at June 4, 1997 under fresh-start reporting and
$473,000 of amortization of the excess purchase price over net assets acquired.
Depreciation and amortization expense for the twenty-one weeks ended May 25,
1996 was $1,770,000, including $1,287,000 of depreciation on fixed assets and
$483,000 of amortization of the excess purchase price over net assets acquired.
The amortization expense relates principally to the leveraged buyout of The
Leslie Fay Company on June 28, 1984.
Other income was $1,196,000 and $1,590,000 for the twenty-two and
twenty-one weeks ended June 4, 1997 and May 25, 1996, respectively. The decrease
is primarily due to the expiration of certain licensing agreements which were
not renewed
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.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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.
(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 November 1, 1997, there were no borrowings under the revolving
line of credit and the Company was utilizing approximately $7,298,000 of the CIT
Credit Agreement for the letters of credit.
At October 4, 1997, there were no cash borrowings outstanding under the
CIT Credit Agreement, and cash and cash equivalents amounted to $10,907,000. Of
this amount, $3,465,000 will be used to pay remaining administrative claims as
defined in the Plan. Working capital increased $2,514,000, to $41,566,000 for
the eighteen weeks ended October 4, 1997. The primary changes in the components
of working capital were a increase in accounts receivable of $13,239,000, a
decrease in inventories of $1,757,000, an increase of $3,083,000 in prepaid
expenses and other current assets and the payment of obligations and
administrative claims as directed by the Plan of $17,059,000. Accounts
receivable increased due to historically large third quarter shipments.
Inventories sold in the eighteen weeks were mostly offset by new inventory
purchases in the same period. Other current assets increased as the Company
invested $3,056,000 in a 1 Year US Treasury Note maturing on June 30, 1998, the
proceeds from which will be used to pay administrative claims.
For the thirteen weeks ended October 4, 1997, working capital increased
$3,229,000, to $41,566,000. The primary changes in the components of working
capital were a increase in accounts receivable of $18,318,000, a decrease in
inventories of $5,602,000 and the payment of obligations and administrative
claims as directed by the Plan of $16,519,000. Accounts receivable increased due
to historically large third quarter shipments. Inventories decreased as the
third quarter shipments were only partially offset by new inventory purchases.
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<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. Spring 1997 and excess Fall 1996 Sassco
Fashions' inventories on hand at year-end were sold during the first part of
1997.
Although, the Company's results of operations indicated an Operating
income of $14,355,000 for the twenty-two weeks and $4,862,000 for the eighteen
weeks ended October 4, 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, the Company anticipates a loss in the fourth
quarter.
Capital expenditures were $378,000 for the eighteen weeks ended October
4, 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 capital expenditures of $758,000 for the remainder of the year 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.
Other than the capital expenditures described above, no other long-term
investment or financing activities are anticipated throughout the remainder of
1997. The Company is currently prohibited from paying cash dividends under its
CIT Credit Agreement and has no plans to pay cash 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 and the
achievement and maintenance of profitable operations and positive cash flow.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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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 third 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 third quarter of
1997 or thereafter, other than ordinary routine litigation incidental to the
business of the Company.
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. In
November 1997, pursuant to the authority granted the Company by the Confirmation
Order of the Bankruptcy Court, the Company amended its Certificate of
Incorporation to increase its authorized common stock to 9,500,000 shares. Each
share of common stock has one vote in connection with 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 cash dividends (see Note 6).
- 35 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
On June 4, 1997, in connection with the consummation of the Plan of
Reorganization, the Company issued to its creditors 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 (the "Securities Act"), by virtue of the
provisions of Section 3(a)(10) thereof.
In addition, the Company granted options to purchase an aggregate of
412,121 shares to five executives and options to purchase 50,000 shares to
non-employee directors at June 4, 1997, all exercisable at $6.18 per share.
Additional stock options to purchase 36,500 common shares, exercisable at $11.50
per share, were granted to employees on September 22, 1997. The granting of such
options was exempt from registration under the Securities Act by virtue of the
provisions of Section 4(2) thereof.
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 38
hereof.
b) Reports on Form 8-K
Since the end of the second quarter of fiscal 1997, the Company
filed current reports on Form 8-K dated August 27, 1997 and
September 24, 1997, each reporting on item 5, as well as an
Amendment on Form 8-K/A filed on September 8, 1997, reporting on
Items 5 and 7, to the current report on Form 8-K dated June 4,
1997. The Form 8-K/A contained a pro forma consolidated balance
sheet as of June 4, 1997 and pro forma consolidated statements
of operations for the twenty-two weeks ended June 4, 1997 and
the fifty-two weeks ended December 28, 1996 and December 29,
1995. The August 27, 1997 Form 8-K contained condensed
consolidated pro forma statements of operations for the
twenty-seven and thirteen weeks ended July 5, 1997 and
twenty-six and thirteen weeks ended June 29, 1996 as well as
certain balance sheet data as of July 5, 1997.
- 36 -
<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: November 13, 1997 The Leslie Fay Company, Inc.
----------------------------
(Company)
By: /s/ Warren T. Wishart
-------------------------
Warren T. Wishart
Secretary and Chief
Financial Officer
- 37 -
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
1 Amendment to Restated Certificate of Incorporation of
The Leslie Fay Company, Inc.
10.2(c) Employment Agreement dated as of June 4, 1997 between
The Leslie Fay Company, Inc. and Warren T. Wishart.
10.2(d) Employment Agreement dated as of June 4, 1997 between
The Leslie Fay Company, Inc. and Dominick Felicetti.
10.2(e) Employment Agreement dated as of June 4, 1997 between
The Leslie Fay Company, Inc. and Catharine
Bandel-Wirtshafter.
27 Financial Data Schedule
- 38 -
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE LESLIE FAY COMPANY, INC.
The Leslie Fay Company, Inc., a corporation organized and presently
existing under such name under the General Corporation Law of Delaware (the
"DGCL") and originally incorporated under the name "New Lefco Corporation" on
January 9, 1984 (the "Corporation"), does hereby certify that in connection with
and pursuant to the Fourth Amended and Restated Joint Plan of Reorganization of
The Leslie Fay Companies, Inc. et al. (Chapter 11 Case No. 93 B 41724 et seq.
(TLB) (Jointly Administered)), confirmed on April 21, 1997 by order of the
United States Bankruptcy Court for the Southern District of New York (the
"Confirmation Order") (the Corporation initially filed its bankruptcy petition
in such Court on April 5, 1993), the Amended and Restated Certificate of
Incorporation of the Corporation, filed in the office of the Secretary of State
of the State of Delaware on June 3, 1997, is hereby amended pursuant to Section
303 of the DGCL, 11 U.S.C. ss.1142 and the authority granted by the Confirmation
Order as follows:
ARTICLE IV(A) of the Amended and Restated Certificate of Incorporation
of the Corporation shall be amended to read in its entirety as follows:
ARTICLE IV
(A) Authorized Stock. The total number of shares of stock which
the corporation shall have the authority to issue is ten million (10,000,000),
consisting of nine million five hundred thousand (9,500,000) shares of common
stock, par value $.01 per share ("Common Stock"), and five hundred thousand
(500,000) shares of preferred stock, par value $.01 per share ("Preferred
Stock").
IN WITNESS WHEREOF, THE LESLIE FAY COMPANY, INC. has caused this
Certificate to be executed, under penalty of perjury, by John J. Pomerantz, its
Chairman and Chief Executive Officer, this 3rd day of November, 1997.
THE LESLIE FAY COMPANY, INC.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman and Chief
Executive Officer
EMPLOYMENT AGREEMENT
--------------------
(Warren T. Wishart)
AGREEMENT, dated as of June 4, 1997, between The Leslie Fay Company,
Inc., a Delaware corporation, with its principal office at 1412 Broadway, New
York, New York (the "Corporation"), and Warren T. Wishart, residing at 5
Crestview Road, Mountain Lakes, New Jersey 07046 (the "Executive").
RECITAL
- -------
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 a Senior Vice President, Chief Financial Officer and Treasurer of Leslie Fay.
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.
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.
(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
<PAGE>
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, Catharine
Bandel-Wirtshafter, Dominick Felicetti 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 4, 1997.
(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 positions of
Senior Vice President-Administration and Finance or Chief
Financial Officer 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 Senior Vice President-Administration and
Finance and Chief Financial Officer of
2
<PAGE>
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 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 (1st) anniversary of the Effective Date,
unless earlier terminated pursuant to the provisions of Section 8, 9 or 10
hereof (the "Term") .
3
<PAGE>
4. Duties and Extent of Services. During the Term, the Executive
shall serve as Senior Vice President-Administration and Finance, Chief Financial
Officer and Secretary 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 Senior Vice President-Administration and Finance,
Chief Financial Officer and Secretary 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 Two Hundred Thousand Dollars
($200,000), 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 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 (x) make available to the
Executive and members of his immediate family (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)
provide the Executive with an automobile allowance of $900 per month.
4
<PAGE>
(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 positions as Senior
Vice President-Administration and Finance, Chief Financial Officer and Secretary
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 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
5
<PAGE>
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 (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)
6
<PAGE>
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 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. 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, 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
7
<PAGE>
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 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.
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
8
<PAGE>
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 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 acknowledges 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.
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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 or he deem 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 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.
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(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 or his 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 or his 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 acknowledges 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.
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 of the Board
/s/ Warren T. Wishart
---------------------------
Executive
11
EMPLOYMENT AGREEMENT
--------------------
(Dominick Felicetti)
AGREEMENT, dated as of June 4, 1997, between The Leslie Fay Company,
Inc., a Delaware corporation, with its principal office at 1412 Broadway, New
York, New York (the "Corporation"), and Dominick Felicetti, residing at 221 Penn
Estates, East Stroudsburg, Pennsylvania 18301 (the "Executive").
RECITAL
- -------
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 a Senior Vice President of Leslie Fay.
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.
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.
(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
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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, Catharine
Bandel-Wirtshafter, Dominick Felicetti 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 4, 1997.
(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
Senior Vice President-Manufacturing and Sourcing 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 Senior Vice President-Manufacturing and
Sourcing of the Corporation as
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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
position 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 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 FortyThree 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") .
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4. Duties and Extent of Services. During the Term, the Executive
shall serve as Senior Vice President-Manufacturing and Sourcing 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
Senior Vice President-Manufacturing and Sourcing 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 Three Hundred Twenty Five Thousand
Dollars ($325,000), 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 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 (x) make available to the
Executive and members of his immediate family (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)
provide the Executive with an automobile allowance of $900 per month.
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(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 Senior
Vice President-Manufacturing and Sourcing 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 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
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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 (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)
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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 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. 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, 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
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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 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.
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
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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 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 acknowledges 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.
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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 or he deem 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 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.
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(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 or his 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 or his 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 acknowledges 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.
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 of the Board
/s/ Dominick Felicetti
---------------------------
Executive
11
EMPLOYMENT AGREEMENT
--------------------
(Catharine Bandel-Wirtshafter)
AGREEMENT, dated as of June 4, 1997, between The Leslie Fay Company,
Inc., a Delaware corporation, with its principal office at 1412 Broadway, New
York, New York (the "Corporation"), and Catharine Bandel-Wirtshafter, residing
at 131 Fifth Avenue, New York, New York 10003 (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 President of the Leslie Fay Sportswear Group of Leslie Fay,
predecessor-in-interest to the Corporation, and as Senior Vice President of
Leslie Fay.
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.
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.
(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
<PAGE>
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, Catharine
Bandel-Wirtshafter, Dominick Felicetti and Warren Wishart.
(e) "Disabled" shall mean, with respect to the Executive, being
physically or mentally disabled, whether totally or partially, so that she is
substantially unable to perform her 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 4, 1997.
(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
Senior Vice President of the Corporation or President of
the Sportswear Division of the Corporation at any time
during the Term (other than for Cause);
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(ii) the Executive shall fail to be vested with the powers
and authority of Senior Vice President of the Corporation
or President of the Sportswear Division of the Corporation
as described in Section 4(a) hereof, or the powers and
authority of such positions or her responsibilities with
respect thereto shall be diminished in any material
respect;
(iii) the Executive shall have assigned to her without her
express written consent any duties, functions, authority or
responsibilities that are inconsistent with the Executive's
position 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 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
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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 Senior Vice President of the Corporation and President of the
Sportswear Division of the Corporation faithfully and to the best of her
ability, and shall devote substantially all of her 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 her duties
hereunder. The Executive shall be invested with the duties and authority that
are customarily delegated to a Senior Vice President of a corporation and the
President of a division 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 Two Hundred Fifty Thousand Dollars
($250,000), 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 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 (x) make available to the
Executive and members of her immediate family (i) supplemental disability
coverage and (ii) medical insurance
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for all medical costs and services incurred by the foregoing, including costs of
dental, vision and custodial care, and (y) provide the Executive with an
automobile allowance of $900 per month and a clothing allowance of $200 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 her positions as Senior
Vice President of the Corporation and President of the Sportswear Division of
the Corporation and adequate for the performance of her 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 her
death, in a lump sum within five (5) business days after her 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 her 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
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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 her 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 her 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 she 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 prorated through the end of such Term), and
(z) the automobile and clothing allowance provided for hereunder and (ii) the
aggregate amount (the "Minimum Severance Amount") which would have been payable
to the Executive had she 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 her 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 she
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
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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 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 her
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 her 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 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
her employment hereunder, and, following a termination of her 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. 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 her
employment hereunder (and, to the extent contemplated hereby,
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her 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 her 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.
19. Succession, Assignability and Binding Effect.
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(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 her 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 her 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 her 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.
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24. Opportunity to Review. The Executive acknowledges that she has
been given the opportunity to discuss this Agreement, including this Section 24,
with her private legal counsel and has availed herself of that opportunity to
the extent she 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 or she deem 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.
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(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 Arbitrator. Each party will
deposit funds or post other appropriate security for its or her 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 or her 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 acknowledges that she has
been given the opportunity to discuss this Agreement, including this Section 25,
with her private legal counsel and has availed herself of that opportunity to
the extent she 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.
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 of the Board
/s/ Catharine Bandel-Wirtshafter
----------------------------------
Executive
11
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