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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998 COMMISSION FILE NO. 1-9196
THE LESLIE FAY COMPANY, INC.
DELAWARE 13-3197085
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1412 BROADWAY
NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:
Common Stock, .01 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein. [_]
The aggregate market value of the voting stock (based on the average bid and
asked prices of such stock) held by non-affiliates of the registrant at March
27, 1998 was approximately $31,800,000.
There were 3,400,000 shares of Common Stock outstanding at March 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
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None
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<PAGE>
PART I
ITEM 1. BUSINESS.
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The Company is engaged principally in the design, arranging for the
manufacture and sale of diversified lines of moderately priced women's dresses
and sportswear. The Company's products focus on career clothing, cover a broad
retail price range and offer the consumer a wide selection of styles, fabrics
and colors suitable for different ages, sizes and fashion preferences. The
Company believes that it is among the major producers of moderate-price dresses
and sportswear, and that it is considered one of the major resources to
retailers of such products. The Leslie Fay business has been in continuous
operation as an apparel company since 1947.
The Company's business is seasonal in nature, with sales being
greatest in the first and third quarters. Accordingly, the inventory purchase
levels are highest during the second and fourth quarters.
REORGANIZATION UNDER CHAPTER 11
On April 5, 1993 (the "Filing Date"), The Leslie Fay Companies, Inc.
("Leslie Fay") and certain of its wholly-owned subsidiaries (collectively, the
"Debtors") filed a voluntary petition under chapter 11 of the Bankruptcy Code
(the "Bankruptcy Code"). On November 15, 1995, certain other wholly-owned
subsidiaries of Leslie Fay (collectively, 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 the Retail Debtors operated or
liquidated their businesses, as applicable, 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 (as
subsequently amended, the "Plan") pursuant to chapter 11 of the Bankruptcy Code.
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 (as
subsequently amended, the "Disclosure Statement"). The Debtors obtained
Bankruptcy Court approval of the Disclosure Statement on February 28, 1997. The
Plan was approved by the Debtors' creditors, and on April 21, 1997 the
Bankruptcy Court confirmed the Plan.
On June 4, 1997 (the "Consummation Date"), the Plan was consummated
by the Company by 1) transferring the equity interest in both the Company and
Sassco Fashions, ltd. ("Sassco"), which has since changed its name to Kasper
A.S.L., Ltd., to its creditors in exchange for relief from an aggregate amount
of 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 and liabilities of the Company's Sassco Fashions product
line (as more particularly described below) to Sassco and the assets and
liabilities of its Dress and Sportswear product lines to three wholly-owned
subsidiaries of the Company. The Company retained approximately $41,080,000 in
cash, of
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which $23,580,000 has been or will be used to pay administrative claims as
defined in the Plan. The assets and liabilities of the Sassco Fashions line
transferred to Sassco included cash ($10,963,000), 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 line. In addition, the Company transferred to Sassco its
100% equity interest in several subsidiaries associated with the Sassco Fashions
line. As provided in the Plan, the creditors of the Company became the
stockholders of Sassco and of the reorganized Company. To effectuate this, the
Company issued approximately seventy-nine (79%) percent of its 3,400,000 new
shares of Common Stock to its creditors in July 1997. The remaining twenty-one
(21%) percent is being held for the benefit of its creditors pending the
resolution of certain litigation before the Bankruptcy Court. The existing
stockholders of the Company at June 4, 1997 did not retain or receive any value
for their equity interest in the Company, which was canceled.
The gain on the disposition of the assets and liabilities of the
Sassco Fashions product line is a taxable event and a substantial portion of the
net operating loss carryforward available to the Company at December 28, 1996
was utilized to offset a significant portion of the taxes recognized on this
transaction.
PRODUCTS
During 1997, 1996 and 1995, respectively, dresses accounted for
approximately 57%, 43% and 41% of the Company's net sales (exclusive of the
Sassco Fashions and Castleberry product lines and other lines sold or closed
during such years [the "Sold Product Lines"]); and sportswear accounted for 43%,
57% and 59%, respectively. During 1998, dresses are expected to account for
approximately 63% of total sales with sportswear expected to account for the
remaining 37%.
DRESS PRODUCT LINE. This line sells moderately priced one and two
piece dresses, pant dresses and pant dresses with coordinated jackets under the
"Leslie Fay", "Leslie Fay Petite", "Leslie Fay Women" and "Leslie Fay Women's
Petites" labels. The line's products are offered in petite, misses and large
sizes.
SPORTSWEAR PRODUCT LINE. This line markets moderately priced
coordinated sportswear and related separates under the "Leslie Fay Sportswear",
"Leslie Fay Sportswear Petite", "Leslie Fay Sportswear Woman" and "Joan Leslie"
labels. The line's products include skirts, blouses, sweaters, pants and jackets
which are related in color and material and are intended to be sold as
coordinated outfits. The line's products are offered in petite, misses and large
sizes. This line also offered contemporary knitted sportswear, including knitted
separates and dresses under the "Outlander", "Outlander Studio", "Outlander
Petite" and "Outlander Woman" labels, styled to appeal to women of a wide range
of ages and available in misses, petite and large sizes. These labels were
discontinued in the Fall of 1997.
For the Spring of 1998, the Company is introducing a new label:
Haberdashery, which represents a ready-to-wear sportswear product line.
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DESIGN
The styles that are produced under the names used by the Company are
created by the Company's fashion designers or stylists. The Company has its own
designers and in some instances utilizes separate design staffs for different
products within a particular line. The design staff of a line meets regularly
with representatives of the line's merchandising, production and sales staff to
review the status of each collection and to discuss adjustments which may be
necessary in line composition, fabric selection, construction and product mix.
The Company's Dress and Sportswear product lines generally offer four
or five seasonal lines: Spring, Summer, Fall I, Fall II and Holiday. These
seasonal lines are typically offered by the Company in ten to twelve week
selling periods.
TRADEMARKS AND LICENSES
The labels used by the Company are registered trademarks, all of
which are owned by the Company. The Company considers its trademarks and license
agreements to have significant value in the marketing of its products. The
Company has licensed certain of its names and trademarks to various companies
for their use in connection with the manufacture and distribution of their
respective products.
MARKETS AND DISTRIBUTION
The Company's products were sold during 1997 principally to
department and specialty stores located throughout the United States. Excluding
the sales of the Sold Product Lines, during 1997, 1996 and 1995 the Company's
Dress and Sportswear lines' products were sold to 788, 857 and 1,785 customers,
respectively. Management believes that the decline in the number of customers is
primarily attributable to the Company's chapter 11 filing. Dillard's Department
Stores, Inc. accounted for 33%, 35% and 24% and JC Penney accounted for 12%, 19%
and 28% of the Company's dress and sportswear sales during the respective
periods. No other customer accounted for as much as 10% of the Company's dress
and sportswear sales during these three years. The Company believes that the
loss of Dillard's Department Stores, Inc. or JC Penney would have a material
adverse effect on its operations.
Each line maintains its own employee and commission sales force and
exhibits its products in its principal showroom in New York City and additional
showrooms in Dallas, Texas and Atlanta, Georgia. The Sportswear line currently
has an employee sales force consisting of 3 persons in Dallas and 5 in New York.
The Dress line has 8 salespeople, all based in New York. For further discussion,
see "Properties" below. While in some instances the Company's lines compete with
each other, as a practical matter, such competition is limited because of the
differences in products, price points and market segments.
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To most effectively reach its ultimate consumers, the Company assists
retailers in merchandising and marketing the Company's products. The Company
promotes its products through special in-store events, as well as through
various sales, promotions and cooperative advertising.
The Company's products are sold under brand names which are
advertised and promoted in national magazines and trade publications.
MANUFACTURING
Apparel sold by the Company is produced in accordance with its
designs, specifications and production schedules. Almost all of such apparel is
produced by a large number of independent contractors located domestically and
abroad. In 1997, excluding the Sold Product Lines, products representing
approximately 84% of dress and sportswear sales were produced abroad and
imported into the United States from the Caribbean Basin countries of Guatemala
and El Salvador and selected contractors in the Far Eastern countries of Taiwan,
South Korea and the People's Republic of China, including Hong Kong.
In 1997, three operating subsidiaries of Cambridge Corp. and LVTS
Sportswear of Canada manufactured 45.0% and 10.1%, respectively, of the Dress
and Sportswear product lines' total production. The Company historically has had
satisfactory, long-standing relationships with most of its contractors. In 1997,
none of the Company's domestic contracted production was produced by contractors
who work exclusively for the Company. The Company monitors production at each
contractor's facility, in the United States and abroad, to ensure quality
control, compliance with its specifications and fair labor standards and timely
delivery of finished goods to the Company's distribution centers. The Company
believes it will be able to obtain the services of a sufficient number of
independent suppliers to produce quality products in conformity with its
requirements.
The Company manufactures in accordance with plans prepared each
season which are based primarily on projected orders, and to a lesser extent on
current orders and consultations with customers. These plans also take into
account current fashion trends and economic conditions. The average lead time
from the commitment of piece goods through the production and shipping of goods
ranges from two to four months for domestic products and four to six months for
imported products. These lead times impose substantial time constraints on the
Company in that they require production planning and other manufacturing
decisions and piece good commitments to be made substantially in advance of the
receipt of orders from customers for the bulk of the items to be produced.
Historically, the purchase of raw materials has been controlled and
coordinated by a centralized purchasing function which consults with line
management over most aspects of their product production, manufacturing and
purchasing functions. The Company supplies the raw materials to its domestic
contractors and certain of its foreign contractors. Otherwise, the raw materials
are purchased directly by the contractors in accordance with the Company's
specifications. Raw materials, which are in most instances made and/or colored
especially for the Company, consist principally of piece goods and yarn and are
purchased by the Company from a number of domestic
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and foreign textile mills and converters. The Company does not have long-term,
formal arrangements with any of its suppliers of raw materials. The Company,
however, has experienced little difficulty in satisfying its raw material
requirements and considers its sources of supply adequate.
IMPORTS AND IMPORT RESTRICTIONS
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Taiwan, China (including Hong Kong), South Korea, Guatemala
and El Salvador (the principal countries from which the Company imports goods).
These agreements impose quotas on the amount and type of goods which can be
imported into the United States from these countries. In addition, each of the
countries in which the Company's products are sold have laws and regulations
regarding import restrictions and quotas. Because the United States and other
countries in which the Company's products are manufactured and sold may, from
time to time, impose new quotas, duties, tariffs, surcharges or other import
controls or restrictions, or adjust presently prevailing quota allocations or
duty or tariff rates or levels, the Company intensively monitors import and
quota-related developments. The Company continually seeks to minimize its
potential exposure to import and quota-related risks through allocation of
production to merchandise categories that are not subject to quota pressures,
adjustments in product design and fabrication, shifts of production among
countries and manufacturers, geographical diversification of its sources of
supply and other measures. The United States may enter into bilateral trade
agreements with additional countries and may, in the future, include other types
of garments in existing agreements.
Imports are also affected by the high cost of transportation into the
United States and by the increased competition resulting from greater production
demands abroad.
The Company's imported products are subject to United States Customs
duties and, in the ordinary course of its business, the Company is from time to
time subject to claims by the United States Customs Service for duties and other
charges.
The Company currently imports a substantial majority of its raw
materials, primarily fabric, through two Korean based agents. These agents
secure the manufacture of these raw materials from a number of factories (about
10) located throughout the Far East. The Company's senior management also meets
with these manufacturers prior to placing raw material orders with them. The
Company believes its primary risk is the timely receipt of its raw materials to
allow the timely manufacture and shipment of its finished product. Through the
present time, the Company has received its raw materials in a timely manner. The
Company monitors the status of its orders through its Korean agents continually.
Payment for the raw materials is guaranteed through letters of credit which
require, among other items, timely delivery and satisfaction of quality
standards.
The Company does not "hedge" its foreign purchases as all contracts
are quoted in United States Dollars. The typical contract may extend for sixty
days. Prices are re-negotiated with each new contract.
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The Company does not sell its product in the Far East.
In addition to the factors outlined above, the Company's future
import operations may be adversely affected by: political or financial
instability resulting in the disruption or delay of trade from exporting
countries; the imposition of additional regulations relating to, or duties,
taxes and other charges on, imports; any significant fluctuation in the value of
the dollar against foreign currencies; and restrictions on the transfer of
funds.
BACKLOG
At March 17, 1998, the Company had unfilled orders of approximately
$30,530,000, compared to approximately $23,446,000 of such orders for comparable
continuing businesses at a comparable date in 1997. The amount of unfilled
orders at a particular time is affected by a number of factors, including the
scheduling of the manufacture and shipment of the product, which in some
instances is dependent on the desires of the customer. Accordingly, a comparison
of unfilled orders from period to period is not necessarily meaningful and may
not be indicative of eventual actual shipments.
CREDIT AND COLLECTION
Historically, the Company had managed substantially all of its credit
and collection functions internally. In connection therewith, it regularly
evaluated, approved and monitored the credit of the Company's customers and was
responsible for collection of accounts receivable. In June 1997, the Company
entered an agreement with the CIT Group/Commercial Services, Inc. (the "CIT
Factoring Agreement") to approve credit and act as a collection agent for the
Company.
COMPETITION
The sectors of the apparel industry for which the Company designs,
manufactures and markets products are highly competitive. The Company competes
with many other manufacturers, including manufacturers of one or more apparel
items. In addition, department stores, including some of the Company's major
customers, have from time to time varied the amount of goods manufactured
specifically for them and sold under their own labels. Many such stores have
also changed their manner of presentation of merchandise and in recent years
have become increasingly promotional. Some of the Company's competitors are
larger and have greater resources than the Company. Based upon its knowledge of
the industry, the Company believes that it is a leading producer of moderate
dresses in the United States, among the more significant producers of moderate
sportswear, and that it is considered one of the major resources of retailers of
such products. The Company's business is dependent upon its ability to evaluate
and respond to changing consumer demand and tastes and to remain competitive in
the areas of style, quality and price, while operating within the significant
domestic and foreign production and delivery constraints of the industry.
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EMPLOYEES
At March 17, 1998, the Company employed 343 persons, of whom
approximately 28% were in production, 36% in distribution, 8% in merchandising
and design, 6% in sales and 22% in administrative and financial operations.
Approximately 39% of the Company's employees were members of unions, primarily
the Union of Needletrades, Industrial and Textile Employees ("UNITE"), the
successor to the International Ladies' Garment Workers Union. On June 2, 1997,
the Company and UNITE reached an agreement on a four-year collective bargaining
agreement, terminating on May 31, 2001 covering non-supervisory production,
maintenance, packing and shipping employees. The Company believes that its
relationship with its employees is satisfactory.
ITEM 2. PROPERTIES.
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Executive and sales offices, as well as design facilities, are
located in New York City under a lease expiring in 2002 (40,660 square feet).
The Company also leases a sales office and showroom in Dallas, Texas (3,900
square feet) and a showroom in Atlanta, Georgia (737 square feet). In addition,
the Company operates two small manufacturing facilities - one located in
Pittston, Pennsylvania and owned by the Company (11,368 square feet) and another
leased by the Company in Guatemala (5,202 square feet). Furthermore, the Company
leases a major distribution center of approximately 194,685 square feet and a
storage facility of 6,160 square feet in Laflin, Pennsylvania.
All of the Company's facilities are in good condition. None of the
Company's principal facilities are idle. The machinery and equipment contained
in the Company's facilities is modern and efficient.
ITEM 3. LEGAL PROCEEDINGS.
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As discussed above, 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 subsidiaries
prior to that date was 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. Certain alleged creditors who asserted
age and other discrimination claims against the Company and whose claims were
expunged (the "Claimants") pursuant to an Order of a Bankruptcy Court (see
below) appealed the Confirmation Order to the United States District Court for
the Southern District of New York. The Company moved to dismiss the appeal from
the Confirmation Order and the motion was granted and the appeal was dismissed.
An appeal to the United States Court of Appeals for the Second Circuit from the
Order dismissing the appeal taken by the Claimants subsequently was withdrawn,
without prejudice, and may be refiled in the future. In addition, the Claimants
and two other persons commenced an adversary proceeding in the Bankruptcy Court
to revoke the Confirmation Order. The Company has moved to dismiss the adversary
proceeding to revoke the Confirmation Order and that motion has been fully
briefed, but has not yet been argued to the Bankruptcy Court.
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Both prior to and subsequent to the Filing Date, various class
actions were commenced on behalf of persons who were stockholders of the Company
prior to April 5, 1993. Any claims against the Company arising out of these
suits were discharged as part of, and in accordance with the terms of the Plan.
The Claimants, who are former employees of the Company and who were
discharged prior to the filing of the chapter 11 cases, asserted age and other
discrimination claims, including punitive damage claims against the Company in
the approximate aggregate sum of $80 million. Following a trial on the merits,
the Bankruptcy Court expunged and dismissed those claims in their entirety. The
Claimants have appealed that decision to the United States District Court for
the Southern District of New York, the appeal has been fully briefed and argued
and the parties are awaiting a decision.
Several former employees, who are included among the Claimants in the
above-described pending appeal, have commenced an action alleging employment
discrimination against certain former officers and directors of the Company in
the United States District Court for the Southern District of New York. The
Court has dismissed all of the causes of action arising under federal and state
statutes, and the only remaining claims are those arising under the New York
City Human Rights Law. Discovery is complete and a pre-trial order has been
filed.
In November 1992, a class action entitled "Stephen Warshaw and
Phillis Warshaw v. The Leslie Fay Companies, Inc., et al." was instituted in the
United States District Court for the Southern District of New York. In January
1993 and February 1993, the plaintiffs served amended complaints and thereafter
twelve other similar actions were commenced against the Company, certain of its
officers and directors and its then auditors, BDO Seidman. The complaints in
these cases, which purported to be on behalf of all persons who purchased or
acquired stock of the Company during the period from February 4, 1992 to and
including February 1, 1993, alleged that the defendants knew or should have
known material facts relating to the sales and earnings which they failed to
disclose and that if these facts had been disclosed, they would have affected
the price at which the Company's common stock was traded. A pre-trial order was
entered which had the effect of consolidating all of these actions and, in
accordance therewith, the plaintiffs served the defendants with a consolidated
class action complaint which, because of the chapter 11 filing by the Company,
did not name the Company as a defendant. In March 1994, plaintiffs filed a
consolidated and amended class action complaint. This complaint added certain
additional parties as defendants, including Odyssey Partners, L.P. ("Odyssey"),
and expanded the purported class period from March 28, 1991 to and including
April 5, 1993. In March 1995, BDO Seidman filed an answer and cross-claims
against certain of the officers and directors of the Company previously named in
this action and filed third-party complaints against Odyssey, certain then
current and former executives of the Company and certain then current and former
directors of the Company. These cross-claims and third-party complaints alleged
that the Company's senior management and certain of its directors engaged in
fraudulent conduct and negligent misrepresentation. BDO Seidman sought
contribution from certain of the defendants and each of the third-party
defendants if it were found liable in the class action, as well as damages. On
March 7, 1997, a stipulation and agreement was signed pursuant to which all
parties agreed to settle the above described litigation for an aggregate sum of
$34,700,000. The officers' and directors' share
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of the settlement was covered by the Company's officers' and directors'
liability insurance. The settlement specifically provided that the officers and
directors deny any liability to the plaintiffs and have entered in to the
settlement solely to avoid substantial expense and inconvenience of litigation.
The Company had no obligations under this settlement. The District Court
approved this settlement and signed the final order of dismissal on May 8, 1997.
The settlement has been fully consummated.
The Company is also involved in 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. The trial of the case against Paul F. Polishan has not yet
occurred.
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." 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 its 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.
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
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on May 9, 1997. On December 23, 1997, the Court ruled in favor of the Company
finding the plaintiffs in violation of the Federal and New York trademark
statutes and of unfair competition under common law. The plaintiffs have
appealed and the Company has cross-appealed to recover its costs and expenses in
the litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The Common Stock of the Company is traded on the over-the-counter
market bulletin board under the symbol "LFAY". The high bid and low asked prices
on the bulletin board for each quarter during 1996, 1997 and 1998 were as
follows:
Period High Low
1996 First Quarter $ 0.28 $0.06
Second Quarter 0.34 0.09
Third Quarter 0.23 0.05
Fourth Quarter 0.19 0.02
1997 First Quarter $ 0.12 $0.01
Second Quarter 0.10 0.02(a)
(prior to June 4, 1997)
Second Quarter 9.50 7.38
(June 4, 1997 and subsequent)
Third Quarter 16.13 6.25
Fourth Quarter 17.75 12.00
1998 First Quarter 15.75 12.00
(through March 27, 1998)
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(a) The old common stock was canceled on June 4, 1997 and the then stockholders
of the Company did not retain any value for their equity.
On March 27, 1998, the high bid and low asked prices were $15.25 and
$14.50, respectively. Potential investors are encouraged to obtain current
trading information. As of March 31, there were 1,621 holders of record of the
Common Stock of the Company.
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ITEM 6. SELECTED FINANCIAL DATA.
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The following selected financial data of the Company should be read
in conjunction with the Consolidated Financial Statements and related Notes
appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
|
Reorganized Company | Predecessor Company
--------------------------------------|-------------------------------------------------------------------
Pro Forma | Twenty-Two
Fifty-Three Thirty-One | Weeks
Weeks Ended Weeks Ended | Ended For the Years Ended
January 3, January 3, Pro Forma | June 4, ----------------------------------------------------
1998(a) 1998(b) 1996(a) | 1997(c) 1996 1995 1994 1993
--------- --------- --------- | --------- --------- --------- --------- ---------
(unaudited) (unaudited) (unaudited)|
|(In thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales ............$ 132,160 $ 73,091 $ 110,053 | $ 197,984 $ 429,676 $ 442,084 $ 531,843 $ 661,779
|
Operating Income |
(Loss) ............. 11,782 4,322 4,079 | 14,355 17,965 1,235 (27,278) (32,574)
|
Reorganization Costs . -- -- -- | 3,379(d) 5,144(d) 16,575(d) 115,769(d) 45,139(d)
Interest Expense and |
Financing Costs .... 1,113 336 2,298 | 1,372 3,932(e) 3,262(e) 5,512(e) 25,783
Tax Provision |
(Benefit) 2,684 677 130 | 451 (839)(f) (761)(f) 981(f) (8,258)(g)
|
Other Non-Recurring |
Items .............. -- -- -- | 136,341(h) -- -- -- --
|
Net Income (Loss) ....$ 7,985 $ 3,309 $ 1,651 | $ 145,494 $ 9,728 $ (17,841) $(149,540) $ (95,238)
|
Net Income (Loss) per |
Share - Basic ......$ 2.35(i) $ 0.97(i) --(i)| --(i) $ 0.52(i) $ (0.95)(i) $ (7.97)(i) $ (5.07)(i)
|
As of As of As of As of As of As of
01/03/98 06/04/97 12/28/96 12/30/95 12/31/94 01/01/94
--------- --------- --------- --------- --------- ---------
Total Assets .........$ 61,051 $ 77,789 $ 237,661 $ 245,980 $ 281,634 $ 421,341
Assets of Product
Lines Held for
Sale and
Disposition........ -- -- 3,003(j) 326(j) 21,063(j) --
Long-Term Debt
(Including Capital
Lease).............. 49 108 -- -- -- 8,022(k)
</TABLE>
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<PAGE>
NOTES TO SELECTED FINANCIAL DATA
- --------------------------------
(a) The unaudited proforma adjustments to the statements are as
follows:
Disposition of Sassco:
The operating results of the Sassco Fashions line have
been eliminated to give effect to the disposition as of the
beginning of the period presented, including depreciation
expense on its property, plant and equipment, an allocated
corporate charge based on workload by department related to the
Sassco Fashions line and direct charges associated with
financing fees on its factoring agreement and fees incurred on
letters of credit issued on its behalf. For periods including
June 4, 1997, the gain recorded on the disposition of the Sassco
Fashions line has been reversed.
Disposition of Castleberry:
The operating results of the Castleberry line have been
eliminated to give effect to the disposition as of the beginning
of the period presented, including depreciation expense on its
property, plant and equipment and an allocated corporate charge
based on workload by department related to the Castleberry line.
Fresh Start Reporting:
To record the estimated effect of the Plan as if it had
been effective as of the beginning of period presented. This
includes adjustments for the following items:
i) The elimination of the historical depreciation and
amortization for the remaining product lines, including the
amounts in cost of sales, on the beginning of period asset
balances and the recording of the amortization credit for the
"Excess of revalued net assets acquired over equity under
fresh-start reporting" (assuming a three-year amortization
period).
ii) The elimination of historical reorganization expense
that will not be incurred subsequent to the Consummation Date.
iii) The elimination of the fresh-start revaluation
charge and the reversal of the gain on debt discharge pursuant
to the Plan.
(b) Financial information for the thirty-one weeks ended January 3,
1998 represents the consolidated results of the reorganized
entity after the consummation of the Plan.
(c) Financial information for the twenty-two weeks ended June 4,
1997 represents the audited consolidated results prior to the
Company's consummation of the Plan. The income statement
information includes the results of Castleberry and Sassco
Fashions lines prior to their sale or spin-off in connection
with the consummation of the Plan.
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<PAGE>
(d) The Company incurred reorganization costs in 1997, 1996, 1995,
1994 and 1993 while operating as a debtor in possession.
Included in 1997, 1996, 1995, 1994 and 1993 is a provision of
$0, $652,000, $3,181,000, $53,000,000, and $1,642,000,
respectively, for a write-down of a portion of the excess
purchase price over net assets acquired in the 1984 leveraged
buyout of The Leslie Fay Company, related to certain of the
Company's product lines, which the Company believes will be
unrecoverable.
(e) On January 2, 1994, the Company decided not to accrue interest
on approximately $253,000,000 of pre-petition debt. During 1996
and 1995 the Company had direct borrowings under the FNBB Credit
Agreement on one hundred and two (102) days in the second and
third quarters of 1996 and ten (10) days in the third quarter of
1995, the highest amount of which was $28,672,000 and
$3,956,000, respectively. The Company had no direct borrowings
under the DIP Credit Agreement in 1994. Interest on direct
borrowings was incurred at a rate of prime plus 1.5%. The terms
of the FNBB Credit Agreement and DIP Credit Agreement are
described in Note 6(b) to the Consolidated Financial Statements.
(f) The Company recognized an income tax credit of $1,103,000 and
$1,811,000 in 1996 and 1995, respectively, representing a
reduction of foreign income tax liabilities as a result of
negotiated settlements on prior years' estimated taxes. The
Company only paid state, local and foreign taxes in 1996, 1995
and 1994. The elimination of the income tax benefit in 1994,
which was realized in 1993, resulted from the complete
utilization of tax refunds from prior years' taxes paid.
(g) In 1993, the Company realized an income tax benefit as a result
of the net losses incurred and the ability to recognize the
carryback of those losses against prior years' taxes paid.
(h) Amount consists of the following three components: Gain on
Sale/Transfer of the Sassco Fashions line of $89,810,000 (net of
$3,728,000 of income taxes), charge for Revaluation of Assets
and Liabilities Pursuant to the Adoption of Fresh-Start
Reporting of $(27,010) and Gain on Debt Discharge (an
extraordinary item) of $73,541.
(i) Net income (loss) per share for the pro forma fifty-three and
thirty-one weeks ended January 3, 1998 was calculated based on
3,400,000 shares of new Common Stock issued in connection with
the consummation of the Plan. Earnings per common share for the
twenty-two weeks ended June 4, 1997 is not presented because
such presentation would not be meaningful. The old stock of
18,771,836 shares, used in calculating the net income (loss) per
share in 1993 through 1996, was canceled under the Plan and the
new stock was not issued until the Consummation Date.
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<PAGE>
(j) The Company classified certain product lines as "Assets of
Product Lines Held for Sale and Disposition", as the
Company had announced its intention to dispose of these
lines.
(k) All long-term debt except capital leases was reclassified
as Liabilities subject to compromise because of the
Company's chapter 11 filing.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
(a) RESULTS OF OPERATIONS
THIRTY-ONE WEEKS ENDED JANUARY 3, 1998 AS COMPARED TO THIRTY-ONE WEEKS ENDED
DECEMBER 28, 1996
The Company recorded net sales of $73,091,000 for the thirty-one
weeks ended January 3, 1998, compared with $256,225,000 for the thirty-one weeks
ended December 28, 1996, a net decrease of $183,134,000, or 71.5%. The primary
factor contributing to this decrease was the sale of the Sassco Fashions and
Castleberry product lines, which generated $184,495,000 and $4,223,000,
respectively, in net sales for the thirty-one weeks ended December 28, 1996. On
a comparable basis, after excluding the effect of the above mentioned
businesses, the remaining businesses had a net sales increase of $5,584,000, or
8.3%, for the thirty-one weeks ended January 3, 1998 as compared to the
thirty-one weeks ended December 28, 1996, primarily due to the increased volume
of the Dress line. Excluding a decrease of $6,255,000 related to discontinuing
its Outlander labels, sales from continuing businesses grew 20.5% over the
comparable period for 1996. This growth was driven by an increase of 44.5% over
the comparable period of 1996 by the Dress line. After excluding the effect of
the discontinued Outlander labels, the Sportswear line had a sales growth of 1%
over the comparable period for 1996.
Gross profit for the thirty-one weeks ended January 3, 1998 was 19.7%
of net sales compared with 22.2% for the thirty-one weeks ended December 28,
1996 (a decrease of $42,461,000). The Sassco Fashions and Castleberry lines
generated $42,442,000 and $912,000, respectively, in gross profit for the
thirty-one weeks ended December 28, 1996. These product lines had a higher gross
profit percent to net sales than the remaining businesses. The remaining
businesses increased gross profit by $842,000 for the thirty-one weeks ended
January 3, 1998 versus the prior year and the gross margin percent decreased to
19.7% from 20.0%. Excluding the Discontinued Outlander labels, gross profit
percent decreased from 21.6% to 19.8% during the period. The decrease in gross
profit percent was due to the additional markdowns taken to market the
sportswear fall production due to late delivery of a majority of the line. The
Dress line's gross profit increased $3,084,000 or a gross profit percent of
19.3% from 15.9%.
Selling, warehouse, general and administrative expenses were 18.7%
and 17.8% for the thirty-one weeks ended January 3, 1998 and December 28, 1996,
respectively. After excluding the costs associated with the product lines sold,
the comparable remaining businesses had expenses of 20.3% for the thirty-one
weeks ended December 28, 1996. This decrease in the comparable percentage is a
result of the additional sales volume during the thirty-one weeks ended January
3, 1998 while continuing to reduce overhead expenses related to downsizing.
Depreciation and amortization expense for the thirty-one weeks ended
January 3, 1998 was only $14,000 due to the write-off of fixed assets at June 4,
1997 under fresh-start reporting. In
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<PAGE>
addition, the Company realized income of $2,667,000 from amortization of the
excess revalued net assets acquired over equity (see Note 2). Depreciation and
amortization expense for the thirty-one weeks ended December 28, 1996 consisted
of depreciation on fixed assets of $2,214,000, including $956,000 related to
product lines sold and amortization of the excess purchase price over net assets
acquired of $670,000, including $340,000 of amortization related to the lines
sold. This amortization expense related to the leveraged buyout of The Leslie
Fay Company on June 28, 1984.
Other income was $947,000 and $2,294,000 for the thirty-one weeks
ended January 3, 1998 and December 28, 1996, respectively. The decrease is
primarily due to the licensing revenues related to tradenames which were
spun-off with the Sassco Fashions product line and the expiration of certain
licensing agreements which were not renewed.
Interest expense, net of interest income and financing costs were
$336,000 and $3,095,000 for the thirty-one weeks ended January 3, 1998 and
December 28, 1996, respectively. The financing fees under the new CIT Credit
Agreement (see Note 6) were offset by income earned on the cash invested for the
thirty-one weeks ended January 3, 1998. The financing fees incurred were
significantly below those incurred during the thirty-one weeks ended December
28, 1996 due to the higher line needed to finance the operations of the Sassco
Fashions and Castleberry product lines. In addition, the Company maintained a
higher average cash balance during the period and earned additional interest
income compared to the prior year.
The provision for taxes was $677,000 and ($1,273,000) for the
thirty-one weeks ended January 3, 1998 and December 28, 1996, respectively. The
credit in 1996 relates primarily to foreign taxes on a subsidiary of the Sassco
Fashions line.
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 $173,451,000 for the twenty-one weeks
ended May 25, 1996, a net increase of $24,533,000, or 14.1%. The additional week
accounted for $10,084,000 of the net sales increase. Additionally, in 1996, the
Sassco Fashions product line began shipping a new product line under the Nina
Charles label and opened additional retail stores over the last 17 months, for a
total of 45 stores in operation at June 4, 1997. These new businesses achieved a
net sales volume of $17,843,000 for the twenty-two weeks ended June 4, 1997, or
$11,379,000 more than the twenty-one weeks ended May 25, 1996. On a comparable
basis, after excluding the effect of the above mentioned additional week and new
businesses, the Sassco Fashions line 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 $12,542,000, or 29.5%, primarily due to
increased volume for its Dress product line. The net sales of the Castleberry
product line declined by $1,042,000.
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<PAGE>
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 line 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 line 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 lines also accounted
for $4,885,000 of additional gross profit. The Castleberry line had a decrease
in gross profit of $549,000.
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 expenses. For the period, expenses increased
$2,248,000 over the prior year. Sassco Fashions expenses increased $4,118,000,
of which $1,100,000 was related to the extra week and the remainder was due to
the additional product lines and retail stores opened. The Leslie Fay business
reduced expenses by $1,749,000 or 14.1% below the prior year. This decrease was
offset by approximately $483,000 of expenses incurred in the extra week. The
Castleberry line decreased expenses by approximately $121,000 or 10.4% below the
comparable period in 1996 due to its reduced volume.
Depreciation and amortization consists primarily of the amortization
of the excess purchase price over net assets acquired and relates principally to
the leveraged buyout of The Leslie Fay Company on June 28, 1984.
Interest and financing costs increased to $1,372,000 for the
twenty-two weeks ended June 4, 1997 compared to $837,000 for the twenty-one
weeks ended May 25, 1996. The increase was due primarily to the fee to finance
the accounts receivable of the Sassco Fashions product line under an agreement
which began in February 1996.
While operating as a debtor in possession, the Company recognized
reorganization costs of approximately $3,379,000 and $1,560,000 during the
twenty-two weeks ended June 4, 1997 and twenty-one weeks ended May 25, 1996,
respectively, which is comprised of professional fees and other costs of
$2,951,000 and $1,806,000; and plan administration costs of $1,000,000 and $0;
offset by interest income of $572,000 and $246,000.
The provision for taxes was $451,000 and $435,000 for the twenty-two
weeks ended June 4, 1997 and the 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.
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<PAGE>
YEAR ENDED DECEMBER 28, 1996 AS COMPARED WITH THE YEAR ENDED DECEMBER 30, 1995
- ------------------------------------------------------------------------------
The Company recorded net sales of $429,676,000 for the 52 weeks ended
December 28, 1996 compared with $442,084,000 for the 52 weeks ended December 30,
1995, a decrease of 2.8%. Contributing to this decrease was the Company's
decision in the second half of 1995 to close its Leslie Fay Retail Outlet stores
and discontinue its Nipon Studio Sportswear line which, together, had 1995 net
sales of $44,091,000. Also in 1995, the Company opened 23 retail stores under
the name Kasper for ASL and organized an operation in Europe to market Kasper
suits. In 1996, the Company began shipping a new line of product under the Nina
Charles label and opened 16 additional stores, bringing the total stores in
operation at the end of 1996 to 39. These new businesses achieved a net sales
volume of $35,701,000 in 1996, or $27,695,000 more than in 1995. After adjusting
for these closed and new businesses, the Company's net sales, on a comparable
basis, rose $4,140,000 over 1995, or 1.1%.
Separating this into the Company's key business groups, the Sassco
Fashions product line had 1996 net sales of $311,550,000, which represented a
comparable sales growth of 6.1%, the continuing Leslie Fay Dress and Sportswear
lines had 1996 net sales of $47,237,000 and $62,816,000, or a comparable sales
decline of 10.3% and 5.6%, respectively from 1995, and the Castleberry line had
1996 net sales of $8,073,000, or a decline of 24.2% from 1995. The decline
realized in both the Leslie Fay Dress and Sportswear lines was a result of the
Company's change in business strategy to focus on higher margin customers and
reduce its off-price sales.
The Company had a 1996 gross profit of $98,304,000, which represents
22.9% of net sales. This compares favorably to the gross profit for 1995 of
$96,193,000, and 21.8% of net sales. The discontinued product lines discussed
above accounted for a 1995 gross profit of $11,026,000 while the new businesses
opened in 1996 and 1995 had gross profit of $13,386,000 in 1996 as compared to
$3,003,000 for 1995. Adjusting for these closed and new businesses, on a
comparable basis, the Company's gross profit rose $2,754,000 over 1995 to
$84,918,000 and 21.6% of net sales versus 21.1% for 1995.
Separating this into the Company's key business groups, the Sassco
Fashions line had a gross profit of $73,073,000 and 23.5% of net sales for 1996
and $71,556,000 and 26.7% of net sales for 1995. Adjusting for the new
businesses begun in 1996 and 1995, the comparable gross profit for the Sassco
Fashions line $59,687,000 and 21.6% of net sales for 1996 and $68,553,000 and
26.4% of net sales for 1995. This deterioration in gross profit resulted from
pricing concessions, especially in the Kasper for ASL and Kasper Dress
businesses. The Leslie Fay Dress and Sportswear product lines had a gross profit
of $9,057,000 and $14,166,000 representing 19.2% and 22.6% of net sales,
respectively for 1996. Removing the lines closed in 1995, the comparable gross
profit for the continuing Leslie Fay Dress and Sportswear lines in 1995 was
($2,167,000) and $12,302,000 or (4.1%) and 18.5% of net sales, respectively. The
1996 improvement in gross profit was the result of the Company's change in its
business strategy to focus on higher margin business, controlling production
levels and lowering production costs in its Dress line by shifting its
manufacturing to third party contractors, both domestic and overseas, following
the closure of the Company's owned
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<PAGE>
manufacturing facility in August 1995. The Castleberry line had a gross profit
of $2,007,000 and 24.9% of net sales in 1996 and $3,476,000 and 32.6% of net
sales in 1995. This deterioration was caused by additional pricing concessions
as well as by the unsuccessful launch of the Adolfo New York label.
Selling, warehouse, general and administrative expenses decreased in
1996 to $79,570,000 and 18.5% of net sales from $92,832,000 and 21.0% of net
sales in 1995. This represents a reduction of expenses of $13,262,000 or 14.3%
from the level of 1995. Additional expenses were incurred in support of the
Sassco Fashions line for the additional Kasper for ASL retail stores, for the
European sales operation organized in 1995, and to support the planned
separation from Leslie Fay. Together, these efforts added $4,528,000 in expense
in 1996 over 1995, a 9.7% increase. The Castleberry line reduced its expenses by
$365,000 or 12.3% of its 1995 expense level. The Leslie Fay businesses reduced
their expenses by $18,791,000 or about 42.6% below their 1995 expense level.
Approximately $13,400,000 of this decrease is the result of the closed Leslie
Fay Retail Outlet and Nipon Studio businesses. The remaining reductions occurred
in functions that previously supported both the Leslie Fay and Sassco Fashions
lines as well as other areas of the Leslie Fay lines, including payroll, rent,
occupancy and other expenses.
Depreciation and amortization expense includes the amortization of
the excess purchase price over net assets acquired and relates principally to
the leveraged buyout of The Leslie Fay Company in 1984 and the acquisition of
Hue, Inc. in 1992. Amortization expense was reduced as a result of the
write-down of the asset by $3,181,000 at the end of 1995. This reduction was
offset by the reversal of amortization expense recorded in 1995 related to prior
periods.
Interest and financing costs primarily represent the cost of bank and
other borrowings for working capital requirements, long-term debt and the
capitalized lease obligation. Interest and financing costs in 1996 were 0.9% of
net sales, as compared with 0.7% in 1995. This increase was due to 1) a fee of
$1,147,000 for financing the accounts receivable of the Company's Sassco
Fashions line under an agreement which began in February 1996 and 2) higher
interest cost incurred on the direct borrowings under the FNBB Credit Agreement
in 1996 for 102 days to support higher inventory and accounts receivable
balances in the fifty-two weeks ended December 28, 1996, with a maximum
borrowing of $28,672,000 versus direct borrowings for a total of nineteen days
during the fifty-two weeks ended December 30, 1995 with a maximum borrowing of
$3,957,000. Offsetting these increases were reduced financing fees related to
the FNBB Credit Agreement.
While operating as a debtor in possession, the Company incurred
reorganization costs of approximately $5,144,000 in 1996 and $16,575,000 in
1995. Reorganization costs included professional fees and other costs of
$3,719,000 in 1996 and $7,995,000 in 1995, closed facilities and operations
charges of $1,082,000 in 1996 and $10,138,000 in 1995, a write-off of excess
purchase price of $652,000 in 1996 and $3,181,000 in 1995. The reduced
reorganization costs were related to discontinuing the use of certain
consultants as it began executing its restructuring plan and completing the
closing of unprofitable lines and a foreign buying office in 1995, offset by
$2,003,000 accrued in 1996 for losses relating to the sale of the Castleberry
line. In 1996, the Company
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<PAGE>
increased its accrual for employee related benefit plans by $167,000. The
decrease in interest income to $476,000 in 1996 from $4,739,000 in 1995 was due
to less cash available for investing opportunities and the realization of
$2,375,000 in interest income on Federal income taxes refundable in 1995.
The Company recorded a net benefit for taxes of $(839,000) in 1996
versus $(761,000) in 1995. These benefits of $1,103,000 and $1,811,000,
respectively, represent a reduction of foreign tax liabilities as a result of
negotiated settlements on prior years' estimated taxes. This credit was offset
by Federal tax expense of $130,000 in 1996.
(b) LIQUIDITY AND CAPITAL RESOURCES
On June 2, 1997, the Company obtained $30,000,000 of post-emergence
financing (see Note 6), 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 March 18, 1998, there were no borrowings under the revolving line
of credit and the Company was utilizing approximately $8,514,000 of the CIT
Credit Agreement for the letters of credit.
At January 3, 1998, there were no cash borrowings outstanding under
the CIT Credit Agreement, and cash and cash equivalents amounted to $19,813,000.
Of this amount, $1,358,000 will be used to pay remaining administrative claims
as defined in the Plan. Working capital increased $637,000, to $39,453,000 at
January 3, 1998 from June 4, 1997. The primary changes in the components of
working capital were a decrease in accounts receivable of $6,845,000, an
increase in inventories of $7,586,000, a decrease of $377,000 in prepaid
expenses and other current assets and the payment of obligations and
administrative claims as directed by the Plan net of preference income and
interest earned of $19,233,000. Accounts receivable decreased due to
historically low fourth quarter shipments. Inventories increased due to higher
shipping levels for January and February 1998 compared with inventory required
for shipping in June and July 1997. Short term investments increased as the
Company invested $2,989,000 in a one year US Treasury Note maturing on June 30,
1998, the proceeds from which will be used to pay administrative claims.
The Company estimated it had approximately $50,000,000 of NOL
available at June 4, 1997 to offset future taxable income, if any, through
fiscal year 2012. The utilization of the NOL, however, is subject to
limitations, including the annual limitation of about $1,500,000 imposed by
Section 328 of the Internal Revenue Code. The Company has generated
approximately $9,000,000 of loss carryforwards for the thirty-one weeks ended
January 3, 1998. These loss carryforwards may be available to offset future
taxable income, if any, without limitation.
Capital expenditures were $859,000 for the thirty-one weeks ended
January 3, 1998 and $3,731,000 for the twenty-two weeks ended June 4, 1997.
Capital expenditures for the twenty-two weeks ended June 4, 1997 included
$3,152,000 of expenditures related to the Sassco Fashions product line. Capital
expenditures for the continuing lines were $1,438,000 for the fiscal year 1997.
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<PAGE>
The anticipated capital expenditures of $2,900,000 for the 1998 fiscal year
include approximately $2,000,000 to improve management information, production
and distribution systems, approximately $500,000 for fixturing the Company's
in-store shops that are planned to be opened in 1998 and approximately $400,000
for all other purposes. The Company believes that its financing arrangements and
anticipated level of internally generated funds will be sufficient to finance
its capital spending during 1998.
The provisions of the Company's Credit Agreement with CIT have been
modified three times:
On August 18, 1997, CIT waived the provision contained in section
10.17 of the Credit Agreement that set a minimum ratio of current assets to
current liabilities for the quarter ended July 5, 1997. This waiver was required
due to the later than anticipated consummation of the Plan that caused a higher
level of confirmation expenses to remain unpaid as of July 5, 1997. Such unpaid
confirmation expenses were collateralized by an equal amount of cash and
securities.
On February 23, 1998, CIT amended several of the provisions of the
Credit Agreement in order to adjust for the fresh start accounting adjustments
made in accordance with generally accepted accounting principles following the
Company's exit from bankruptcy. As part of the initial financing agreement
entered into by the Company with CIT on June 2, 1997, CIT had agreed to make the
appropriate amendments caused by "fresh start."
This February 23, 1998 amendment also included an increase in the
level of allowed annual capital expenditures to conform to the Company's
requirements.
On March 31, 1998, CIT amended numerous sections of the Credit
Agreement in order to permit the Company to:
o Purchase, acquire or invest in businesses, subject to the approval of
CIT. Such acquisitions or investments may include the assumption of
debt, liens, guarantees, or contingent liabilities.
o Pay dividends or repurchase the Company's common stock up to an
aggregate amount of $5,000,000 in each fiscal year 1998 and 1999.
Such payment may also be limited by not experiencing or incurring an
event of default under the Credit Agreement that includes other
restrictive covenants. Further, such payment must also leave the
Company with no less than $5,000,000 in undrawn availability.
o Incur additional capital expenditures to the extent the prior year's
actual capital expenditures were less than the amount allowed for
that year. The Company's 1997 capital expenditures from June 4, 1997
through the end of the fiscal year were $859,000. This amount was
$641,000 below the 1997 covenant. Effectively, this raises the 1998
limit on capital expenditures to $3,141,000.
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<PAGE>
The Company is dependent on a number of automated systems to
communicate with its customers and suppliers, to efficiently design,
manufacture, import, and distribute its product, as well as to plan and manage
the overall business. The Company recognizes the critical importance of
maintaining the proper functioning of its systems.
In the fourth quarter of 1997, the Company began a review of its
systems and technology to address all business requirements, including Year 2000
compliance. This review is substantially completed and a plan has been developed
to meet these needs. Overall, the plan identifies numerous changes required to
make the Company's systems Year 2000 compliant. These changes will be
implemented through 1999 at an estimated cost of approximately $1,500,000 plus
the utilization of internal staff and other resources.
The Company is also dependent on the efforts of its customers,
suppliers and software vendors. The Company's upgrade of its electronic data
intercharge software will need to be tested with the Company's customers to
confirm proper functioning. The Company's customers and suppliers are also
required to implement projects to make their systems and communications Year
2000 compliant. Failure to complete their efforts in a timely way could disrupt
the Company's operations including the ability to receive and ship its product
as well as to invoice its customers. Finally, the Company's plan is based upon
the representation of the vendors that market the software packages selected by
the Company. There is no guarantee that these new systems will be compliant
under all the circumstances and volume stresses that may actually be required by
the Company's operations through Year 2000.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
See the Consolidated Financial Statements and Financial Statement
Schedule of The Leslie Fay Company, Inc. and Subsidiaries attached hereto and
listed on the index to consolidated financial statements set forth in Item 14 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
-24-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
DIRECTORS OF THE COMPANY
Principal Occupation and Director
Name and Age Offices with the Company Since
- ------------ ------------------------ -----
John J. Pomerantz (64) Chairman of the Board and Chief 1984
Executive Officer of the Company
John A. Ward (44) President of the Company 1997
Clifford B. Cohn (46) Principal of Cohn & Associates 1)(2) 1997
Mark B. Dickstein (39) President of Dickstein Partners Inc.(1)(2) 1997
Mark Kaufman (41) Vice President of Dickstein Partners, 1997
Inc.(2)(3)
William J. Nightingale (68) Senior Advisor of Nightingale & 1997
Associates (2)(3)
Robert L. Sind (64) President of Recovery Management 1997
Corporation (1)(2)(3)
- -----------------------------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of the Finance Committee of the Board of Directors.
(3) Member of the Audit Committee of the Board of Directors.
EXECUTIVE OFFICERS OF THE COMPANY
Name Positions with the Company Age
- ---- -------------------------- ---
John J. Pomerantz Chairman of the Board and 64
Chief Executive Officer
John A. Ward President 44
Dominick Felicetti Senior Vice President-Manufacturing 44
and Sourcing
Warren T. Wishart Senior Vice President-Administration 45
and Finance, Secretary and
Chief Financial Officer
-25-
<PAGE>
CERTAIN INFORMATION CONCERNING DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT
EMPLOYEES OF THE COMPANY
The term of office of each executive officer of the Company expires
on the date of the organizational meeting of the Board of Directors of the
Company following each Annual Meeting of Stockholders of the Company and when
his or her respective successor is elected and has qualified.
John J. Pomerantz has been the Chief Executive or Chief Operating
Officer of the Company and its predecessors since 1971, and an executive thereof
for over 30 years. Mr. Pomerantz was President of the Leslie Fay business from
1971 until August 1986, when he became Chairman of the Board of the Company.
John A. Ward joined the Company in August 1989 as head of the Andrea
Gayle division. From July 1991 to June 1993 he was Chairman of the Leslie Fay
Sportswear Group. In June 1993 he became Chairman of the combined Leslie Fay
Dress and Sportswear lines. He was elected a Senior Vice President of the
Company in September 1991 and President of the Company in June 1997. From June
1988 until August 1989 he was Senior Vice President and General Merchandise
Manager for Ready-to-Wear, Men's and Boys' at B. Altman & Co. For fifteen years
prior thereto, he had been an executive at Filene's.
Clifford B. Cohn has been a principal with Cohn & Associates law firm
since September 1994. From September 1992 to September 1994, he was a principal
with Sernovitz & Cohn law firm. Mr. Cohn is also a Director of Kasper A.S.L.,
Ltd.
Mark B. Dickstein has been the sole shareholder, sole director and
President of Dickstein Partners Inc. since prior to 1990 and is primarily
responsible for the operations of Dickstein & Co., L.P., Dickstein Focus Fund
L.P. and Dickstein International Limited. These businesses invest primarily in
risk arbitrage transactions, securities and debt obligations of financially
distressed companies, and other special situations. Mr. Dickstein is a Director
of Hills Stores Company and served as its Chairman of the Board from July 1995
to February 1996. He is also a Director of News Communications Inc.
Mark Kaufman has been a Vice President of Dickstein Partners, Inc.
since July 1992. Prior to joining Dickstein Partners, beginning in 1990, Mr.
Kaufman was a Senior Vice-President of Oppenheimer & Co., an investment banking
firm. Prior to that, Mr. Kaufman was a Vice President of GAF Corp., a chemical
and roofing manufacturer.
William J. Nightingale is a senior advisor at Nightingale &
Associates LLC, a general management consulting company, where he has been
employed since 1975. Mr. Nightingale is also a Director of Kasper A.S.L., Ltd.
Robert L. Sind founded Recovery Management Corporation ("RMC") in
1984. RMC specializes in developing and implementing hands-on business,
financial and operational turnaround programs and providing crisis management to
troubled commercial, industrial and real estate clients and their creditors. For
20 years prior thereto, Mr. Sind served in corporate operating positions,
-26-
<PAGE>
managing turnarounds and restructurings, including Londontown Manufacturing
Company, Beker Industries, and Nice-Pak Products, Inc. For ten years he also
served as investment banker for distressed companies. Mr. Sind is also a
Director of Kasper A.S.L., Ltd.
Dominick Felicetti rejoined the Company in May 1995 as Senior Vice
President of Worldwide Sourcing and Manufacturing. From 1994 to 1995 he was Vice
President Manufacturing and Production for S.L. Fashions. Mr. Felicetti was
previously employed by The Leslie Fay Companies, Inc. from December 1991 to July
1993 in the position of Director of Technical Services and Production. Prior to
that, from 1986 to 1990, he served as President of American Dress Company and
from 1979 to 1986 as Production Manager for Betsy's Things.
Warren T. Wishart joined the Company in March 1993. He held the
position of Vice President - Planning from July 1993 through December 1994. In
January 1995 he became Senior Vice President - Finance. In September 1995 he was
appointed Chief Financial Officer and Treasurer of the Company. In June 1997 he
became Senior Vice President - Administration and Finance and Secretary of the
Company. Before joining Leslie Fay Mr. Wishart was Vice President - Strategic
Planning of Galerias Preciados from 1991 to the end of 1992. Prior to that, he
had seventeen years of financial management and business planning experience
with several department stores including Filene's and the L.J. Hooker Retail
Group.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended, officers, directors and holders of more than 10% of the outstanding
shares of the Company's Common Stock are required to file periodic reports of
their ownership of, and transactions involving, the Company's Common Stock with
the Securities and Exchange Commission. Based solely on its review of copies of
such reports received by the Company, the Company believes that its reporting
persons have complied with all Section 16 filing requirements applicable to them
with respect to the Company's fiscal year ended January 3, 1998, except that
Catharine Bandel-Wirtshafter, a former officer, John Ward and Dominick Felicetti
each filed a late Form 5 reflecting the cancellation of old stock options and
the grant of new stock options and Clifford B. Cohn, William J. Nightingale and
Robert L. Sind each timely filed a Form 5 indicating that he had not filed a
Form 3.
-27-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
Summary of Cash and Certain Other Information. The following table
shows, for 1997, 1996 and 1995, the compensation paid or accrued by the Company
and its subsidiaries to the Chief Executive Officer and the other four most
highly compensated "named executive officers" (as defined in Regulation S-K) of
the Company during 1997 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation (1) Long Term Compensation
------------------------------------------------------------
Awards Payouts
---------- -------
Restricted Securities
Name and Principal Stock Underlying LTIP All Other
Position Year Salary (2) Bonus Awards Options (#) Payouts Compensation
- -------- ---- ---------- ----- ------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
John J. Pomerantz 1997 $611,129 $171,700 -- -- -- $ 8,699 (3)
Chairman of the 1996 $777,915 $ -- -- -- -- $ 8,938 (4)
Board and Chief 1995 $780,000 $ -- -- -- -- $ 8,600 (5)
Executive Officer
- ---------------------------------------------------------------------------------------------------------------
John A. Ward 1997 $462,692 $145,600 -- -- -- $ 2,650 (3)
President 1996 $521,154 $ 50,000 -- -- -- $ 2,500 (4)
1995 $500,000 $ -- -- -- -- $ 2,730 (5)
- ---------------------------------------------------------------------------------------------------------------
Dominick Felicetti 1997 $337,500 $ 91,200 -- -- -- $ 1,938 (3)
Senior Vice President - 1996 $267,885 $ 25,000 -- -- -- --
Manufacturing and 1995 $167,212 -- -- -- -- --
Sourcing
- ---------------------------------------------------------------------------------------------------------------
Catharine Bandel- 1997 $273,654 $166,200 -- -- -- $ 1,260 (3)
Wirtshafter 1996 $300,000 $ 50,000 -- -- -- $ --
Senior Vice 1995 $274,038 $ 25,000 -- -- -- $ --
President
- ---------------------------------------------------------------------------------------------------------------
Warren T. Wishart 1997 $207,692 $191,200 -- -- -- $ 2,650 (3)
Senior Vice President- 1996 $200,000 $ 25,000 -- -- -- $ 2,500 (4)
Administration and 1995 $198,461 $ -- -- -- -- $ 3,035 (5)
Finance, Chief
Financial Officer and
Treasurer
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------
(1) In 1997, 1996 and 1995, perquisites and other personal benefits did not
exceed the lesser of $50,000 or 10% of reported annual salary and bonuses
for any of the Named Officers.
(2) 1997 was a 53 week year. 1996 and 1995 were 52 week years. Amounts
represent salaries paid during the above calendar years.
(3) For 1997, consists of the following: (a) amounts contributed as Company
matching contributions for each Named Officer under the Company's 401(k)
savings plan as follows: Mr. Pomerantz $2,286; Mr. Ward $2,650; Mr.
Felicetti $1,938; Ms. Bandel-
-28-
<PAGE>
Wirtshafter $1,260 and Mr. Wishart $2,650 and (b) amounts paid by the
Company for split dollar life insurance coverage as follows: Mr. Pomerantz
$6,413.
(4) For 1996, consists of the following: (a) amounts contributed as Company
matching contributions for each Named Officer under the Company's 401(k)
Savings Plan as follows: Mr. Pomerantz $2,286; Mr. Ward $2,500 and Mr.
Wishart $2,500 and (b) amounts paid by the Company for split dollar life
insurance coverage as follows: Mr. Pomerantz $6,652.
(5) For 1995, consists of the following (a) amounts contributed as Company
matching contributions for each Named Officer under the Company's 401(k)
Savings Plan as follows: Mr. Pomerantz $2,230, Mr. Ward $2,230 and Mr.
Wishart $2,535; (b) amounts contributed by the Company under the Company's
defined benefit cash balance retirement plan as follows: Mr. Pomerantz,
Mr. Ward and Mr. Wishart $500 each; and (c) amounts paid by the Company
for split dollar life insurance coverage as follows: Mr. Pomerantz $5,870.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------------------
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted to Price Appreciation for Option Term
Options Employees in Exercise Expiration -----------------------------------
Name Granted Fiscal Year Price (1) Date(2) 0% 5% 10%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J. Pomerantz 131,878 29.4% $ 6.18 6/3/07 199,136 $ 837,425 $1,815,960
John A. Ward 70,060 15.6% $ 6.18 6/3/07 105,791 $ 444,881 $ 964,726
Dominick Felicetti 70,060 15.6% $ 6.18 6/3/07 105,791 $ 444,881 $ 964,726
Catharine Bandel-
Wirtshafter 70,060 15.6% $ 6.18 6/3/07 105,791 $ 444,881 $ 964,726
Warren T. Wishart 70,060 15.6% $ 6.18 6/3/07 105,791 $ 444,881 $ 964,726
</TABLE>
(1) The market price per share on the grant date was $7.69.
(2) Exercisable as to 33% of such shares commencing on each of June 4, 1998
and June 4, 1999 and as to the balance on June 4, 2000.
-29-
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR
END VALUE TABLE
The following table sets forth information with respect to the Named
Officers concerning the exercise of options during 1997 and unexercised options
held as of the end of such year. The average bid and asked price of a share of
Common Stock of the Company on the close of business on January 2, 1998 was
$14.13.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year-End at Fiscal Year-End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- --------- -------- ------------------------- -------------------------
<S> <C> <C> <C>
John J. Pomerantz None N/A 0/131,878 $ 0/1,048,430
John A. Ward None N/A 0/70,060 $ 0/556,977
Dominick Felicetti None N/A 0/70,060 $ 0/556,977
Catharine Bandel
-Wirtshafter None N/A 0/70,060 $ 0/556,977
Warren T. Wishart None N/A 0/70,060 $ 0/556,977
</TABLE>
(1) Aggregate market value of the shares of Common Stock covered by the
options at fiscal year end less the exercise price of such options.
RETIREMENT PLAN
Until December 31, 1996, when it was terminated, the Company had in
effect a defined benefit, cash balance retirement plan. Each year the Company
contributed a percentage of earnings to an account for each eligible employee
based on attained age and years of service. The benefit credits were calculated
using a defined formula. In tabular form, the formula was as follows:
Percent of Pay Percent of Pay
Age Plus Up to One-Half the Over One-Half the
Completed Social Security Social Security
Years of Service Wage Base Wage Base
- ---------------- ------------------ -----------------
Less than 50 2.00% 3.00%
50-59 2.75% 3.75%
60-69 3.75% 4.75%
70-79 5.25% 6.25%
80 or more 7.25% 8.25%
At December 28, 1996, the annual benefits payable upon retirement at
normal retirement age for each of John J. Pomerantz, John Ward, Dominick
Felicetti, Catharine Bandel-Wirtshafter and Warren Wishart were $7,344, $7,014,
$0, $0 and $1,436, respectively. These projected amounts do not reflect
continued plan credits.
-30-
<PAGE>
The retirement plan was amended to freeze benefit accruals effective
December 31, 1994 and the retirement plan was terminated on December 31, 1996.
All participants have been paid their accumulated benefits.
COMPENSATION OF DIRECTORS
Each director who is not a full-time employee of or consultant to the
Company receives an annual director's fee of $30,000. Each initial non-employee
director, upon becoming a director, received stock options to purchase 10,000
shares, vesting one-third each year and each subsequent non-employee director,
upon becoming a director, has received or will receive stock options to purchase
5,000 shares, vesting one-third each year.
EMPLOYMENT CONTRACTS
The Company has an employment agreement with John J. Pomerantz dated
as of June 2, 1997, which provides for his employment in his present capacity as
Chief Executive Officer until June 4, 1998 at a salary of $430,000 per annum. In
addition to such salary, the employment agreement provides that Mr. Pomerantz is
entitled to certain other perquisites and additional bonus compensation based on
the achievement of certain corporate financial and personal goals, as agreed
upon by the Company and Mr. Pomerantz.
The Company has an employment agreement with John A. Ward dated as of
June 2, 1997, pursuant to which he is employed as President of the Company at a
minimum total compensation of $400,000 per annum until June 4, 1998. In addition
to such salary, the employment agreement provides that Mr. Ward is entitled to
certain other perquisites and additional bonus compensation based on the
achievement of certain corporate financial and personal goals, as agreed upon by
the Company and Mr. Ward.
The Company also has one-year agreements with Dominick Felicetti and
Warren T. Wishart dated as of June 4, 1997, pursuant to which they are employed
at a base salary of $325,000 and $200,000 per annum, respectively. In addition
to such salary, the employment agreements provide that each employee is entitled
to certain other perquisites and additional bonus compensation based on the
achievement of certain corporate financial and personal goals, as agreed upon by
the Company and the employee.
On or about March 16, 1998, the Compensation Committee of the
Company's Board of Directors proposed new contracts for these four employees.
While no agreement has been completed, and the Board of Directors has not
approved the contracts, the proposal included, among other provisions, an
extension of the existing contracts and other adjustments that would cause the
Company to record higher compensation expense for fiscal year 1998 and future
years.
The Company's Stock Option Plan provides that upon a sale of the Company
where the imputed enterprise value exceeds $37,500,000, the above executives
would receive options for up to a maximum of 309,091 shares. The proposal
referred to above also includes provisions that would reduce the number of
options granted and eliminate the condition for the sale of the Company.
-31-
<PAGE>
SEVERANCE AGREEMENTS
In January 1998, the Company entered into a severance agreement with
Catharine Bandel-Wirtshafter pursuant to which she will receive in a lump sum
$290,000 representing six (6) months compensation as well as bonus and other
amounts under her employment agreement with the Company dated as of June 4,
1997. In addition, one-third of the options previously granted to her vested on
the effective date of the severance agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On June 10, 1997, the Board of Directors appointed a Compensation
Committee consisting of David H. Morse, Clifford B. Cohn and Larry G. Schafran,
which is charged with determining the compensation of officers. On September 22,
1997, Messrs. Morse and Schafran resigned as directors of the Company. They were
replaced on the Compensation Committee by Robert L. Sind and Mark B. Dickstein.
Prior to June 4, 1997, during the period the Company was subject to the
jurisdiction of the Bankruptcy Court, issues regarding the compensation of
officers were submitted to the creditors committee and/or the Bankruptcy Court
for approval prior to action by the Compensation Committee. The members of the
Compensation Committee during 1996 and until June 4, 1997 were Ralph Destino,
Peter W. May and Faye Wattleton.
-32-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- ---------------------------------------------------------------
(a) The following table sets forth certain information with respect
to each person (including any "group" as that term is used in Section 13(d)(3)
of the Securities and Exchange Act of 1934, as amended) who is known to the
Company to be the beneficial owner of more than 5% of the Company's Common Stock
as of March 18, 1998.
Percentage of
Names and Address Number of Shares Ownership of
of Beneficial Owners Beneficially Owned Common Stock
- -------------------- ------------------ ------------
Mark B. Dickstein 1,261,922(1) 37.1%
c/o Dickstein Partners Inc.
660 Madison Avenue 16th Floor
New York, NY 10021
John C. "Bruce" Waterfall 308,306(2) 9.1%
10 East 50th Street
New York, NY 10022
Edwin H. Morgens 308,306(2) 9.1%
10 East 50th Street
New York, NY 10022
- ------------------
(1) Includes 910,919, 147,613, 163,390 and 40,000 shares of Common Stock
directly owned by Dickstein & Co., L.P., Dickstein Focus Fund L.P.,
Dickstein International Limited and Mark B. Dickstein, respectively. Does
not include 96,911, 22,687 and 17,348 shares of Common Stock that may be
purchased by Dickstein & Co., L.P., Dickstein Focus Fund L.P. and
Dickstein International Limited, respectively, on an "if and when issued"
basis from a third- party. Mark B. Dickstein is the sole shareholder, sole
director and president of Dickstein Partners Inc. ("DPI"). DPI is the
general partner of Dickstein Partners L.P. which is the sole general
partner of Dickstein & Co., L.P. and Dickstein Focus Fund. DPI is the
adviser for Dickstein International Limited and makes all investment and
voting decisions for that entity. Also does not include 1,000 shares owned
directly by Mark Kaufman, a Vice President of DPI. The information
provided above was obtained from Schedules 13D dated November 6, 1997.
(2) Includes 9,746, 58,893, 87,904, 61,732, 37,107, 12,988, 18,665, 3,652,
10,330 and 7,289 shares of Common Stock directly owned by Morgens
Waterfall Income Partners ("MWIP"); Restart Partners, L.P. ("Restart");
Restart Partners II, L.P. ("Restart II"); Restart Partners III, L.P.
("Restart III"); Restart Partners IV, L.P. ("Restart IV"); Restart
Partners V, L.P. ("Restart V"); Endowment Restart, L.L.C. ("Endowment");
Betje Partners ("Betje"); Phoenix Partners, L.P. ("Phoenix"); and Phaeton
BVI ("Phaeton"), respectively. Mr. Waterfall is president and Mr. Morgens
is chairman of Morgens, Waterfall, Vintiadis & Co., Inc., which is the
investment advisor to Betje and Phaeton; they are also managing members of
MW
-33-
<PAGE>
Capital. L.L.C., the general partner of MWIP; the president and chairman,
respectively, of Prime Inc., the general partner of each of Prime Group,
L.P., Prime Group II, L.P., Prime Group III, L.P., Prime Group IV, L.P.
and Prime Group V, L.P., the general partners of Restart, Restart II,
Restart III, Restart IV and Restart V, respectively; managing members of
MW Management, L.L.C., the general partner of Phoenix; and managing member
of Endowment Prime, L.L.C., the managing member of Endowment. The
information provided above was obtained from Forms 4 dated November 12,
1997.
(b) The following table sets forth certain information as of March
18, 1998 with respect to the beneficial ownership of the Company's Common Stock
by each director, each of the Named Officers and by all directors and executive
officers of the Company as a group. Unless otherwise noted, the address of each
beneficial owner named below is the Company's corporate address.
Percentage of
Names and Address Number of Shares Ownership of
of Beneficial Owners Beneficially Owned Common Stock
- -------------------- ------------------ ------------
Mark B. Dickstein 1,261,922(1) 37.1%
c/o Dickstein Partners Inc.
660 Madison Avenue 16th Floor
New York, NY 10021
Mark Kaufman 1,000(2) (3)
John J. Pomerantz -- --
John A. Ward -- --
Clifford B. Cohn -- --
William J. Nightingale -- --
Robert L. Sind -- --
Catharine Bandel-Wirtshafter 23,353(4) (3)
Dominick Felicetti -- --
Warren T. Wishart -- --
Officers and Directors as a group (9 1,262,922 37.1%
persons)
- ------------------
(1) See footnote (1) to table (a) under the caption "Security Ownership of
Certain Beneficial Owners and Management" for certain information
concerning Mr. Dickstein's beneficial ownership of Common Stock.
-34-
<PAGE>
(2) Does not include any of the shares included in footnote (1).
(3) Less than 1% of the outstanding Common Stock.
(4) Consists of currently exercisable stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
Bear, Stearns & Co. Inc. ("Bear Stearns") and its affiliates have
rendered the following advisory services to the Company. Bear Stearns Asset
Management, a division of Bear Stearns, acts as investment manager for the
Company's 401(k) Savings Plan and Retirement Plan and receives fees therefor.
Michael L. Tarnopol, a director of the Company until June 1997, is a Senior
Managing Director and a member of the Executive Committee of Bear Stearns and a
director and Executive Vice President of The Bear Stearns Companies, Inc., an
affiliate of Bear Stearns.
-35-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------- -----------------------------------------------------------------
(a) Documents filed as part of this report:
(1) Financial Statements:
The Consolidated Financial Statements are set forth in the
Index to Consolidated Financial Statements and Financial
Statement Schedule on page F-1 hereof.
(2) Financial Statement Schedule:
The Financial Statement Schedule is set forth on the Index to
Consolidated Financial Statements and Financial Statement
Schedule on page F-1 hereof.
(3) Exhibits:
Exhibits are set forth on the "Index to Exhibits" on page E-1
hereof.
(b) Reports on Form 8-K:
Since the end of the third quarter of 1997, the Company has not
filed any Current Reports on Form 8-K.
-36-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 31st day of March, 1998.
THE LESLIE FAY COMPANY, INC.
By: /s/ John J. Pomerantz
-------------------------
John J. Pomerantz
Chief Executive Officer
and Chairman of the
Board of Directors
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signatures Title Date
/s/ John J. Pomerantz Chief Executive Officer and March 31, 1998
- --------------------------- Chairman of the Board of
John J. Pomerantz Directors
/s/ Warren T. Wishart Chief Financial and Accounting March 31, 1998
- --------------------------- Officer
Warren T. Wishart
/s/ John A. Ward Director March 31, 1998
- ---------------------------
John A. Ward
/s/ Clifford B. Cohn Director March 31, 1998
- ---------------------------
Clifford B. Cohn
/s/ Mark B. Dickstein Director March 31, 1998
- ---------------------------
Mark B. Dickstein
/s/ Mark Kaufman Director March 31, 1998
- ---------------------------
Mark Kaufman
/s/ William Nightingale Director March 31, 1998
- ---------------------------
William Nightingale
/s/ Robert L. Sind Director March 31, 1998
- ---------------------------
Robert L. Sind
-37-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Report of Independent Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' (Deficit) Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
Schedule II-Valuation and Qualifying Accounts F-35
F-1
<PAGE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of
The Leslie Fay Company, Inc.:
We have audited the accompanying consolidated balance sheets of The Leslie Fay
Company, Inc. (a Delaware corporation and formerly The Leslie Fay Companies,
Inc.) and subsidiaries as of January 3, 1998 and December 28, 1996, and the
related consolidated statements of operations, stockholders' (deficit) equity
and cash flows for the thirty-one weeks ended January 3, 1998, the twenty-two
weeks ended June 4, 1997, and the fiscal years ended December 28, 1996 and
December 30, 1995. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 2 to the consolidated financial statements,
effective June 4, 1997, the Company emerged from protection under chapter 11 of
the U.S. Bankruptcy Code pursuant to a Reorganization Plan which was confirmed
by the Bankruptcy Court on April 21, 1997. In accordance with AICPA Statement of
Position 90-7, the Company adopted "Fresh Start Reporting" whereby its assets,
liabilities and new capital structure were adjusted to reflect estimated fair
values as of June 4, 1997. As a result, the consolidated financial statements
for the periods subsequent to June 4, 1997 reflect the Reorganized Company's new
basis of accounting and are not comparable to the Predecessor Company's
pre-reorganization consolidated financial statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Leslie Fay Company, Inc.
and subsidiaries as of January 3, 1998 and December 28, 1996, and the results of
their operations and their cash flows for the thirty-one weeks ended January 3,
1998, the twenty-two weeks ended June 4, 1997, and the fiscal years ended
December 28, 1996 and December 30, 1995 in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
New York, New York
February 27, 1998, except with respect to
Note 6 as to which the date is March 31, 1998
F-2
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
JANUARY 3, | DECEMBER 28,
1998 | 1996
--------- | ---------
<S> <C> <C>
ASSETS |
Current Assets: |
Cash and cash equivalents .................................................. $ 18,455 | $ 21,977
Restricted cash and cash equivalents ....................................... 1,358 | --
Restricted short term investments .......................................... 2,989 | --
Accounts receivable- net of allowances for possible losses of $3,236 |
and $15,081, respectively .............................................. 9,747 | 63,456
Inventories ................................................................ 26,701 | 104,383
Prepaid expenses and other current assets .................................. 807 | 2,290
Assets of product lines held for sale or disposition ....................... -- | 3,003
--------- | ---------
Total Current Assets ................................................... 60,057 | 195,109
Property, plant and equipment, at cost, net of accumulated |
depreciation of $14 and $19,549, respectively .......................... 845 | 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 .......................................... 149 | 1,182
--------- | ---------
Total Assets ............................................................... $ 61,051 | $ 237,661
========= | =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
Current Liabilities: |
Accounts payable ........................................................... $ 11,530 | $ 20,341
Accrued expenses and other current liabilities ............................. 4,542 | 23,154
Accrued expenses and other current confirmation liabilities ................ 4,347 | --
Income taxes payable ....................................................... 25 | 634
Current portion of capitalized leases ...................................... 160 | --
Direct liabilities of product lines held for sale or disposition ........... -- | 1,577
--------- | ---------
Total Current Liabilities .............................................. 20,604 | 45,706
Excess of revalued net assets acquired over equity under fresh-start |
reporting, net of accumulated amortization of $2,667 ................... 11,041 | --
Long term debt-capitalized leases .......................................... 49 | --
Deferred liabilities ....................................................... 143 | --
Liabilities subject to compromise .......................................... -- | 337,433
--------- | ---------
Total Liabilities .......................................................... 31,837 | 383,139
--------- | ---------
|
Commitments and Contingencies |
|
Stockholders' (Deficit) Equity: |
Preferred stock, $.01 and $-0- par value, respectively ; 500 and -0- shares
authorized, respectively ; no shares issued |
and outstanding ........................................................ -- | --
Common stock, $.01 and $1 par value, respectively; 9,500 and |
50,000 shares authorized, respectively; 3,400 and 20,000 |
shares issued and outstanding, respectively ........................... 34 | 20,000
Capital in excess of par value ............................................ 25,871 | 49,012
Accumulated retained earnings (deficit) ................................... 3,309 | (202,105)
Foreign currency translation adjustment ................................... -- | 581
--------- | ---------
Subtotal .............................................................. 29,214 | (132,512)
Treasury stock, at cost -0- and 1,228 shares, respectively ................ -- | (12,966)
--------- | ---------
Total Stockholders' (Deficit) Equity .................................. 29,214 | (145,478)
--------- | ---------
Total Liabilities and Stockholders' (Deficit) Equity ...................... $ 61,051 | $ 237,661
========= | =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated financial statements.
F-3
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
------------ | ----------------------------------------------
THIRTY-ONE | TWENTY-TWO FIFTY-TWO FIFTY-TWO
WEEKS ENDED | WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 3, | JUNE 4, DECEMBER 28, DECEMBER 30,
1998 | 1997 1996 1995
------------ | ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales .................................................. $ 73,091 | $ 197,984 $ 429,676 $ 442,084
Cost of Sales .............................................. 58,719 | 147,276 331,372 345,891
------------ | ------------ ------------ ------------
Gross profit ........................................... 14,372 | 50,708 98,304 96,193
------------ | ------------ ------------ ------------
Operating Expenses: |
Selling, warehouse, general and |
administrative expenses ............................ 13,650 | 35,459 79,570 92,832
Depreciation and amortization expense .................. 14 | 2,090 4,654 6,154
Total operating expenses ........................... 13,664 | 37,549 84,224 98,986
Other (income) ......................................... (947) | (1,196) (3,885) (4,028)
Amortization of excess revalued net assets |
acquired over equity ............................... (2,667) | -- -- --
------------ | ------------ ------------ ------------
Total operating expenses, net .......................... 10,050 | 36,353 80,339 94,958
------------ | ------------ ------------ ------------
Operating income ....................................... 4,322 | 14,355 17,965 1,235
|
Interest and Financing Costs (excludes contractual |
interest of $-0-, $7,513, $18,031 and $18,031, |
respectively) .......................................... 336 | 1,372 3,932 3,262
------------ | ------------ ------------ ------------
Income(loss) before reorganization costs, taxes, |
gain on sale, fresh-start revaluation and |
extraordinary item ..................................... 3,986 | 12,983 14,033 (2,027)
|
Reorganization Costs ....................................... -- | 3,379 5,144 16,575
------------ | ------------ ------------ ------------
|
Income (loss) before taxes, gain on sale, |
fresh-start revaluation and extraordinary |
item ............................................... 3,986 | 9,604 8,889 (18,602)
|
Provision (Benefit) for taxes .............................. 677 | 451 (839) (761)
------------ | ------------ ------------ ------------
|
Net Income (loss) before gain on sale, fresh- |
start revaluation and extraordinary item ........... 3,309 | 9,153 9,728 (17,841)
|
Gainon disposition of Sassco Fashions line (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 (Loss) ...................................... $ 3,309 | $ 145,494 $ 9,728 ($ 17,841)
============ | ============ ============ ============
|
Net Income (Loss) per Share - Basic .................... $ 0.97 | * $ 0.52 ($ 0.95)
============ | ============ ============ ============
- Diluted ................................... $ 0.85 | * $ 0.52 ($ 0.95)
============ | ============ ============ ============
|
Weighted Average Shares Outstanding - Basic ................ 3,400,000 | * 18,771,836 18,771,836
============ | ============ ============ ============
- Diluted ................................... 3,888,692 | * 18,771,836 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 canceled
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.
F-4
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
[TABLE 1 OF 2]
<TABLE>
<CAPTION>
EXCESS OF
ACCUMULATED
PENSION FOREIGN
COMMON STOCK CAPITAL IN OBLIGATION ACCUMULATED CURRENCY
--------------------------- EXCESS OF OVER PLAN (DEFICIT) TRANSLATION
SHARES PAR VALUE PAR VALUE ASSETS EQUITY ADJUSTMENT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 20,000,000 $ 20,000 $ 49,012 $ -- ($ 193,992) $ 11
Fiscal Year 1995
Net Loss -- -- -- -- (17,841) --
Deferred Pension Liability -- -- -- (214) -- --
Foreign Currency Translation
Adjustments -- -- -- -- -- 82
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 30, 1995 20,000,000 $ 20,000 $ 49,012 (214) ($ 211,833) $ 93
Fiscal Year 1996
Net Income -- -- -- -- 9,728 --
Deferred Pension Liability Write-
Off -- -- -- 214 -- --
Foreign Currency Translation
Adjustments -- -- -- -- -- 488
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 28, 1996 20,000,000 $ 20,000 $ 49,012 $ -- ($ 202,105) $ 581
Twenty-Two Weeks Ended June 4,
Net Income -- -- -- -- 145,494 --
Revaluation Adjustment -- -- -- -- 56,611 --
Extinguishment of Old Stock (20,000,000) (20,000) (49,012) -- -- (581)
New Stock Issuance 3,400,000 34 24,966 -- -- --
Foreign Currency Translation
Adjustments -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
REORGANIZED AS OF JUNE 4, 1997 3,400,000 $ 34 $ 24,966 $ -- $ -- $ --
=========== =========== =========== =========== =========== ===========
Balance at June 4, 1997 3,400,000 $ 34 $ 24,966 $ -- $ -- $ --
Thirty-One Weeks Ended January 3,
Net Income -- -- -- -- 3,309 --
Use of Pre-Consummation
Deferred Taxes -- -- 554 -- -- --
SFAS No. 123 - Stock Option
Compensation -- -- 351 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT JANUARY 3, 1998 3,400,000 $ 34 $ 25,871 $ -- $ 3,309 $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
[TABLE 2 OF 2]
<TABLE>
<CAPTION>
TOTAL
TREASURY STOCK STOCKHOLDERS'
--------------------------- (DEFICIT)
SHARES AMOUNT EQUITY
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1995 1,228,164 ($ 12,966) ($ 137,935)
Fiscal Year 1995
Net Loss -- -- (17,841)
Deferred Pension Liability -- -- (214)
Foreign Currency Translation
Adjustments -- -- 82
----------- ----------- -----------
BALANCE AT DECEMBER 30, 1995 1,228,164 ($ 12,966) ($ 155,908)
Fiscal Year 1996
Net Income -- -- 9,728
Deferred Pension Liability Write-
Off -- -- 214
Foreign Currency Translation
Adjustments -- -- 488
----------- ----------- -----------
BALANCE AT DECEMBER 28, 1996 1,228,164 ($ 12,966) ($ 145,478)
Twenty-Two Weeks Ended June 4,
1997
Net Income -- -- 145,494
Revaluation Adjustment -- -- 56,611
Extinguishment of Old Stock (1,228,164) 12,966 (56,627)
New Stock Issuance -- -- 25,000
Foreign Currency Translation
Adjustments -- -- --
----------- ----------- -----------
REORGANIZED AS OF JUNE 4, 1997 $ -- $ -- $ 25,000
=========== =========== ===========
Balance at June 4, 1997 -- $ -- $ 25,000
Thirty-One Weeks Ended January 3,
1998
Net Income -- -- 3,309
Use of Pre-Consummation
Deferred Taxes -- -- 554
SFAS No. 123 - Stock Option
Compensation -- -- 351
----------- ----------- -----------
BALANCE AT JANUARY 3, 1998 $ -- $ -- $ 29,214
=========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated financial statements.
F-5
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
--------- | -------------------------------------
THIRTY-ONE | TWENTY-TWO FIFTY-TWO FIFTY-TWO
WEEKS ENDED | WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 3, | JUNE 4, DECEMBER 28, DECEMBER 30,
1998 | 1997 1996 1995
--------- | --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income (loss) ......................................... $ 3,309 | $ 145,494 $ 9,728 ($ 17,841)
Adjustments to reconcile net income (loss) to net cash |
(used in) provided by operating activities: |
Depreciation and amortization .......................... 14 | 2,222 4,971 7,116
Amortization of excess net assets acquired over equity . (2,667) | -- -- --
Deferred taxes ......................................... -- | -- (1,103) (1,811)
Provision for possible losses on accounts receivable ... (182) | 199 433 1,254
Provision for compensation under stock option grants ... 351 | -- -- --
(Gain) on sale of fixed assets ......................... -- | (347) -- --
Decrease (increase) in: |
Restricted short-term investments .................... (2,989) | -- -- --
Accounts receivable .................................. 6,845 | (1,248) (9,296) 494
Inventories .......................................... (7,586) | 25,538 (5,600) 11,291
Prepaid expenses and other current assets ............ 377 | (66) 1,950 (16)
Income taxes refundable .............................. -- | -- 10,345 (1,735)
Deferred charges and other assets .................... (149) | 125 1,263 1,926
(Decrease) increase in: |
Accounts payable, accrued expenses and other current |
liabilities ....................................... (6,544) | (4,167) (11,860) 6,902
Income taxes payable ................................. (806) | (1,515) (395) (1,113)
Deferred credits and other noncurrent liabilities .... 143 | 374 470 (243)
Changes due to reorganization activities: |
Gain on disposition of Sassco Fashions line, fresh- |
start revaluation and extraordinary gain on debt |
discharge ......................................... -- | (136,341) -- --
Reorganization costs ................................. -- | 3,379 5,144 16,575
Payment of reorganization costs ...................... -- | (917) (7,757) (25,792)
Use of pre-consummation deferred taxes ............... 554 | -- -- --
--------- | --------- --------- ---------
Total adjustments ................................. (12,639) | (112,764) (11,435) 14,848
--------- | --------- --------- ---------
Net cash (used in) provided by operating activities (9,330) | 32,730 (1,707) (2,993)
--------- | --------- --------- ---------
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Capital expenditures ...................................... (859) | (3,731) (8,640) (3,977)
Proceeds from sale of assets .............................. -- | 467 -- --
Proceeds from sale of Castleberry ......................... -- | 600 -- --
Cash paid to sell/transfer the Sassco Fashions line ....... -- | (10,963) -- --
Proceeds from sale of Next Day Apparel (net of cash |
provided of $405) ...................................... -- | -- -- 3,081
--------- | --------- --------- ---------
Net cash (used in) investing activities ........... (859) | (13,627) (8,640) (896)
--------- | --------- --------- ---------
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
Proceeds from borrowings .................................. -- | -- 55,170 11,940
Repayment of borrowings ................................... -- | -- (55,170) (8,440)
Repayment of long-term debt ............................... (135) | -- -- --
Payment of obligations under the Plan of Reorganization ... (10,943) | -- -- --
--------- | --------- --------- ---------
Net cash (used in) provided by financing activities (11,078) | -- -- 3,500
--------- | --------- --------- ---------
|
Net (decrease) increase in cash and cash equivalents ...... (21,267) | 19,103 (10,347) (389)
|
Cash and cash equivalents, at beginning of period ......... 41,080 | 21,977 32,324 32,713
--------- | --------- --------- ---------
|
Cash and cash equivalents, at end of period ............... $ 19,813 | $ 41,080 $ 21,977 $ 32,324
========= | ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated financial statements.
F-6
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION, RESTATEMENT OF PRIOR FINANCIAL
STATEMENTS AND RELATED EVENTS:
The 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), in accordance with
generally accepted accounting principles, which, for certain financial statement
accounts, requires the use of management's estimates. Actual results could
differ from those estimates. The Company's fiscal year ends on the Saturday
closest to December 31st. The fiscal years ended January 3, 1998, December 28,
1996 and December 30, 1995 included 53, 52 and 52 weeks, respectively.
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 reported its financial results for the twenty-two
weeks ended June 4, 1997. This period contains financial statements and notes,
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.
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.
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"). The Debtors operated their businesses 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").
Pursuant to an order of the Bankruptcy Court, the individual chapter 11 cases
were consolidated for procedural purposes only and were jointly administered by
the Bankruptcy Court.
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
F-7
<PAGE>
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. The Retail Debtors operated their
businesses as debtors in possession following the November 15, 1995 filing date
while pursuing an orderly liquidation of their assets, also under chapter 11 of
the Bankruptcy Code.
In the chapter 11 cases, substantially all liabilities as of the
Filing Date were subject to compromise under the Plan. As part of the cases, the
Debtors and Retail Debtors notified all known claimants for the purpose of
identifying all pre-petition claims against them. Pursuant to orders of the
Bankruptcy Court, all proofs of claim were required to be filed by December 10,
1993 against the Debtors and December 12, 1995 against the Retail Debtors.
Excluded from the requirement to file by the December 10, 1993 bar date, among
others, were certain claims by the Internal Revenue Service ("IRS"), which were
required to be filed by March 31, 1995. On April 8, 1996, the Debtors and Retail
Debtors filed amended schedules of liabilities with the Bankruptcy Court which
established May 8, 1996 as the supplemental bar date for certain creditors.
On October 31, 1995, the Debtors and the Committee of Unsecured
Creditors (the "Creditors Committee") filed 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 Plan provided for, among other things, the separation of
the Debtors' estates and assets into two separate reorganized entities. Under
the Plan, stockholders of the Company would not retain or receive any value for
their interest. 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.
The total number of claims, after resolution of the claims objection
process, approximated 4,300 and the claims value aggregated approximately
$338,000,000. The principal categories of claims classified as Liabilities
subject to compromise in the consolidated balance sheet at December 28, 1996 are
identified below.
Liabilities Subject to Compromise December 28, 1996
--------------------------------- -----------------
(In thousands)
Trade and expense payable $ 42,187
Unsecured debt 253,004
Accrued interest 82
Other claims 42,160
---------
Total $ 337,433
=========
The Company had accrued $13,366,000 in 1993 for interest on
pre-petition debt accrued during the post-petition period, even though all or a
significant portion of such interest may not have been payable or paid as a
consequence of the Bankruptcy Code, which excuses such an obligation
F-8
<PAGE>
under certain circumstances. For this reason, the Company decided not to accrue
interest on pre-petition debt in 1995 and 1994, and the interest payable was
reflected in pre-petition liabilities at December 29, 1995. The Plan did not
provide for the payment of this interest and, accordingly, this liability was
reclassified to provide for other claims, including an additional withdrawal
liability from a union retirement plan.
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 changed its name to Kasper A.S.L., Ltd.
on November 5, 1997, 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 product line to Sassco and the
assets and liabilities of its Dress and Sportswear product lines to three
wholly-owned subsidiaries of the Company. In addition, the Company retained
approximately $41,080,000 in cash of which $23,580,000 was to pay administrative
claims as defined in the Plan. As provided for in the Plan, the Company issued
seventy-nine (79%) percent of its 3,400,000 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. 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 hereto, and Item 1 - Recent Developments contained in the Company's
Form 10-K for the fiscal year ended December 28, 1996 for a copy of the Plan and
a summary of Plan provisions, respectively.
In accordance with the Plan, the remaining Liabilities subject to
compromise were discharged and the Company recognized a gain of $73,541,000,
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.
Fresh-Start Reporting
- ---------------------
Pursuant to the guidelines provided by SOP 90-7, the Company adopted
fresh-start reporting and reflected the consummation distributions under its
Plan in the consolidated 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
F-9
<PAGE>
acquired to zero was recorded as a deferred credit, "Excess of
revalued net assets acquired over equity under fresh-start
reporting" and is being 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 "loss
on revaluation of assets pursuant to adoption of fresh-start reporting" in the
consolidated statement of operations for the twenty-two weeks ended June 4,
1997.
The fresh-start reporting reorganization value of $25,000,000 was
established as the midpoint of a range ($20,000,000 - $30,000,000) established
by the Company's financial advisors. The calculation of the range was based on a
five-year analysis of the Company's projected operations for the remaining
operating product lines (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.
Since fresh-start reporting has been reflected in the accompanying
consolidated balance sheet as of January 3, 1998, the consolidated balance sheet
as of that date is not comparable in material respects to any such balance sheet
for any period prior to June 4, 1997.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) BUSINESS -
The Company is principally engaged in the design, manufacture and
sale of women's apparel.
(b) PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
All highly liquid investments with a remaining maturity of three
months or less at the date of acquisition are classified as cash equivalents.
The carrying amount of cash equivalents approximates fair value. Short term
investments consists of a one year U.S. Treasury Note maturing on June 30, 1998.
This note will be held to maturity and as such is valued at cost. At January 3,
1998, $1,358,000 of restricted cash and $2,989,000 in short term investments
will be used to pay administrative claims as defined in the Plan.
F-10
<PAGE>
(d) INVENTORIES -
Inventories are valued at the lower of cost (first-in, first-out;
"FIFO") or market.
(e) PROPERTY, PLANT AND EQUIPMENT -
Land, buildings, fixtures, equipment and leasehold improvements are
recorded at cost. Property under capital lease is recorded at the lower of the
net present value of the lease payments or the fair market value when acquired.
Major replacements or betterments are capitalized. Maintenance and repairs are
charged to earnings as incurred. For financial statement purposes, depreciation
and amortization are computed using the straight-line method over the estimated
useful lives of the assets.
(f) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED -
The Excess of purchase price over net assets acquired first arose in
connection with the 1984 leveraged buyout of The Leslie Fay Company and was
allocated based upon the applicable product line's proportionate contribution to
pretax income. The asset was amortized on a straight-line basis, primarily over
a forty year period. On June 4, 1997, in connection with fresh-start reporting
requirements the remaining asset of $10,366,000 and the related ($3,106,000) of
accumulated amortization was written-off as part of the revaluation adjustments
(see Note 2). In 1996, the Company determined the Excess purchase price over net
assets acquired of its Castleberry product line was no longer recoverable based
on an offer to purchase the Castleberry product line in the fourth quarter.
Therefore, the Company recognized reorganization charges of $652,000 to
write-down a portion of the excess purchase price over net assets acquired,
which the Company believed would be unrecoverable in accordance with the
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 121 - "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of."
(g) EXCESS OF REVALUED NET ASSETS ACQUIRED OVER EQUITY UNDER FRESH-START
REPORTING -
Upon consummation of the Plan, the Company revalued its assets and
liabilities in accordance with the purchase method of accounting. The revalued
net assets under fresh-start reporting exceeded the equity value of the Company
by $13,708,000. This negative goodwill amount is being amortized over a three
(3) year period.
(h) FOREIGN CURRENCY TRANSLATION -
The December 28, 1996 balance sheet accounts of the Company's
Canadian and European subsidiaries were translated into U.S. dollars at the
current exchange rate. Their income statement accounts were translated at the
average exchange rate for the period. Translation adjustments were included in
stockholders' (deficit) equity. The Company's Far East subsidiaries were
financed by U.S. dollar advances and all of their finished goods sales were to
the parent. Accordingly, the functional currency of the Far East subsidiaries
was the U.S. dollar, and remeasurement gains and losses (which
F-11
<PAGE>
were not material) were included in determining net income for the period. The
effect of exchange rate changes on cash was not significant. All foreign
subsidiaries were either closed or spun-off in reorganization prior to June 4,
1997 (see Note 2).
(i) INCOME TAXES -
The Leslie Fay Company and its subsidiaries file a consolidated
Federal income tax return and record their tax expense and liabilities under the
liability method (see Note 7). Under this method, any deferred income taxes
recorded are provided for at currently enacted statutory rates on the
differences in the basis of assets and liabilities for tax and financial
reporting purposes. If recorded, deferred income taxes are classified in the
balance sheet as current or non-current based upon the expected future period in
which such deferred income taxes are anticipated to reverse.
No provision has been made for Federal income taxes on approximately
$24,200,000 of foreign earnings of subsidiaries, repatriated as a part of the
Plan as of June 4, 1997, as the Company's net operating loss carryforward was
utilized to offset the extent of the repatriation.
(j) NET INCOME (LOSS) PER SHARE -
Net income (loss) per share, throughout the periods presented, is
based on the weighted average common shares outstanding and the common stock
equivalents that would arise from the exercise of stock options, if dilutive. In
March 1997, the FASB issued SFAS No. 128 - "Earnings Per Share", which requires
the presentation of net income (loss) per share to be replaced by basic and
diluted earnings per share. "Basic earnings (loss) per share" represents net
income divided by the weighted average shares outstanding and is consistent with
the Company's historical presentations. "Diluted earnings (loss) per share"
represents net income (loss) divided by the weighted average shares outstanding
adjusted for the incremental dilution of outstanding employee stock options and
awards, if dilutive. The Company adopted SFAS No. 128 at June 4, 1997.
Restatement of prior periods is not meaningful due to the consummation of the
Plan, the extinguishment of the existing stock and the issuance of new stock.
Had the provisions of SFAS No. 128 been applied as of December 28, 1996, the
Company believes it would not have a material impact on Net Income (Loss) per
share.
As of January 3, 1998, the basic weighted average common shares
outstanding is 3,400,000, and the weighted average shares outstanding assuming
dilution is 3,888,692. The difference of 488,692 relates to incremental shares
issuable relating to dilutive stock options.
(k) COMPREHENSIVE INCOME -
SFAS No.130, "Reporting Comprehensive Income" establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose financial statements. The objective of SFAS No.130 is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners ("comprehensive income"). Comprehensive income is the total of net
F-12
<PAGE>
income and all other non-owner changes in equity which is presented in the
consolidated financial statements.
(l) SEGMENT DISCLOSURE -
SFAS No. 131, "Disclosures about Segments of and Enterprise and
Related Information" was issued in June 1997. This statement is effective for
the Company's fiscal year ending January 2, 1999. This statement changes the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports. Adoption of SFAS No. 131 relates to
disclosure within the financial statements and is not expected to have a
material effect on the Company's financial statements.
(m) PRIOR YEARS' RECLASSIFICATION -
Certain items previously reported in specific captions in the
accompanying financial statements have been reclassified to conform with the
current year's classifications.
(n) ACCOUNTING ESTIMATE -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and losses at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
4. INVENTORIES:
Inventories, net of assets of product lines held for sale and
disposition (see Note 12) consist of the following:
January 3, | December 28,
1998 | 1996
-------- | --------
(In thousands) |
|
Raw materials $ 9,638 | $ 33,151
Work in process 4,540 | 2,711
Finished goods 12,523 | 68,521
-------- | --------
|
Total inventories $ 26,701 | $104,383
======== | ========
The balances at December 28, 1996 include the inventories related to
the Sassco Fashions product line which was subsequently sold.
F-13
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, net of assets of product lines held
for sale and disposition (see Note 12), consist of the following:
January 3, | December 28, Estimated
1998 | 1996 Useful Life
-------- | --------
(In thousands) |
|
Land and buildings $ -- | $ 170 25-40 years
Machinery, equipment and fixtures 284 | 23,395 5 - 10 years
Leasehold improvements 38 | 9,948 Various
Construction in progress 537 | 3,611 N/A
-------- | --------
|
Property, plant and equipment, at cost 859 | 37,124
Less: Accumulated depreciation and |
amortization (14) | (19,549)
-------- | --------
|
Total property, plant and |
equipment, net $ 845 | $ 17,575
======== | ========
The balances at December 28, 1996 include the property, plant and
equipment related to the Sassco Fashions product line which was sold/transferred
on June 4, 1997 as provided in the Plan. In addition, all non-current assets
were written-off at June 4, 1997 under fresh-start reporting (see Note 2).
6. DEBT:
(a) CIT CREDIT AGREEMENT -
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
to issue letters of credit on the Company's behalf in an aggregate amount not
exceeding $30,000,000, with a sublimit on letters of credit of $20,000,000. The
CIT Credit Agreement became effective on June 4, 1997 with the consummation of
the Plan. Direct borrowings bear interest at prime plus 1.0% (9.5% at January 3,
1998) 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
$8,514,000 was committed under unexpired letters of credit as of January 3,
1998.
The CIT Credit Agreement, as amended, contains certain reporting
requirements, as well as financial and operating covenants. Financial covenants
include the attainment of a current assets to current liabilities ratio, an
interest to earnings ratio and minimum earnings. In addition, the CIT Credit
Agreement contains certain restrictive covenants, including limitations on the
incurrence of additional liens and indebtedness, a prohibition on paying
dividends, and limitation on capital expenditures. As collateral for borrowings
under the CIT Credit Agreement, the Company has granted to CIT a security
interest in substantially all of its assets. The Company is currently in
compliance with all requirements contained in the CIT Credit Agreement.
F-14
<PAGE>
The Company paid $150,000 in commitment and related fees in
connection with the credit facility which was written-off as part of fresh-start
reporting. Another $250,000 in commitment fees was paid in June 1997. These fees
are being amortized as interest and financing costs over the two year term of
the CIT Credit Agreement.
The provisions of the Company's Credit Agreement with CIT have been
modified three times:
On August 18, 1997, CIT waived the provision contained in section
10.17 of the Credit Agreement that set a minimum ratio of current assets to
current liabilities for the quarter ended July 5, 1997. This waiver was required
due to the later than anticipated consummation of the Plan of Reorganization
that caused a higher level of confirmation expenses to remain unpaid as of July
5, 1997. Such unpaid confirmation expenses were collateralized by an equal
amount of cash and securities.
On February 23, 1998, CIT amended several of the provisions of the
Credit Agreement in order to adjust for the fresh start accounting adjustments
made in accordance with generally accepted accounting principles following the
Company's exit from bankruptcy. As part of the initial financing agreement
entered into by the Company with CIT on June 2, 1997, CIT had agreed to make the
appropriate amendments caused by "fresh start."
This February 23, 1998 amendment also included an increase in the
level of allowed annual capital expenditures to conform to the Company's
requirements.
On March 31, 1998, CIT amended numerous sections of the Credit
Agreement in order to permit the Company to:
o Purchase, acquire or invest in businesses, subject to
the approval of CIT. Such acquisitions or investments
may include the assumption of debt, liens, guarantees,
or contingent liabilities.
o Pay dividends or repurchase the Company's common stock
up to an aggregate amount of $5,000,000 in each fiscal
year 1998 and 1999. Such payment may also be limited by
not experiencing or incurring an event of default under
the Credit Agreement that includes other restrictive
covenants. Further, such payment must also leave the
Company with no less than $5,000,000 in undrawn
availability.
o Incur additional capital expenditures to the extent the
prior year's actual capital expenditures were less than
the amount allowed for that year. The Company's 1997
capital expenditures from June 4, 1997 through the end
of the fiscal year were $859,000. This amount was
$641,000 below the 1997 covenant. Effectively, this
raises the 1998 limit on capital expenditures to
$3,141,000.
F-15
<PAGE>
(b) FNBB CREDIT AGREEMENT/DIP CREDIT AGREEMENT -
The Company previously had a facility for a $60,000,000 credit
agreement with The First National Bank of Boston ("FNBB") and BankAmerica
Business Credit, Inc. ("BABC"), as Facility Agents and FNBB as Administrative
Agent (the "FNBB Credit Agreement"). In connection with the consummation of the
Plan, the Company entered into an agreement (the "Paydown Agreement") with its
lenders under the FNBB Credit Agreement to paydown any remaining obligations
under the FNBB Credit Agreement and terminate the FNBB Credit Agreement on June
4, 1997. The FNBB Credit Agreement had expired on May 31, 1997, but continued in
effect until the consummation of the Plan with the consent of both the lenders
and the Company.
The FNBB Credit Agreement provided for post-petition direct
borrowings and the issuance of letters of credit on the Debtors' behalf in an
aggregate amount not exceeding $60,000,000, subject to being permanently reduced
on a dollar-for-dollar basis for any net cash proceeds received from the sale of
assets after March 20, 1995 for which the proceeds exceeded $20,000,000 in the
aggregate up to a maximum of $40,000,000 on a cumulative basis. No qualifying
asset sales were made which would have reduced the facility borrowing limits.
Beginning January 1, 1997, the sublimit on the revolving line of credit was
$20,000,000 and the sublimit for letters of credit was $50,000,000.
There were no direct borrowings outstanding under the FNBB Credit
Agreement and approximately $32,169,000 was committed under unexpired letters of
credit as of December 28, 1996.
Direct borrowings bore interest at prime plus 1.5% (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.
The Company incurred $473,000, $1,234,000 and $1,876,000,
respectively, in commitment and related fees in connection with the credit
facilities for the twenty-two, fifty-two and fifty-two weeks ended June 4, 1997,
December 28, 1996 and December 30, 1995. These fees were amortized as interest
and financing costs over the terms of the respective agreements.
(c) SENIOR DEBT -
On January 4, 1990, the Company issued $50,000,000 of 9.53% unsecured
Senior Notes ("Senior Notes") and $25,000,000 of 10.54% unsecured Senior
Subordinated Notes ("Subordinated Notes"), pursuant to note agreements. The
Senior Notes and Subordinated Notes were payable in annual installments of
$7,142,857 beginning January 1994 and $8,333,333 beginning January 2000,
respectively.
F-16
<PAGE>
The Company defaulted on these notes with its chapter 11 filings and these notes
were settled as part of the Plan.
As a result of the chapter 11 filings (see Notes 1 and 2), all
long-term debt outstanding at April 5, 1993 was classified as Liabilities
subject to compromise. The Company breached covenants in substantially all of
its then existing debt instruments as a result of the accounting irregularities
and the chapter 11 filing.
Debt consisted of the following:
<TABLE>
<CAPTION>
January 3, | December 28,
(In thousands) 1998 | 1996
-------- | --------
<S> <C> <C>
CIT Credit Agreement $ -- | $ --
FNBB Credit Agreement -- | --
|
Financing Agreement: |
Revolver; variable interest |
rates, due through December 31, 1994 -- | 78,004
Lines of credit; variable interest rates, |
due through December 31, 1994 -- | 100,000
| --------
Total debt under financing agreement -- | 178,004
-------- | --------
|
Senior debt: |
Senior notes; 9.53% interest rate, due |
January 15, 2000 -- | 50,000
Senior subordinated notes; 10.54% interest |
rate, due January 15, 2002 -- | 25,000
-------- | --------
Total senior debt -- | 75,000
| --------
|
Total debt -- | 253,004
|
Less: Liabilities subject to compromise -- | 253,004
| --------
|
Total long-term debt $ -- | $ --
======== | ========
</TABLE>
In accordance with the Plan, the Liabilities subject to compromise
were discharged on June 4, 1997.
F-17
<PAGE>
7. INCOME TAXES:
For the thirty-one, twenty-two, fifty-two and fifty-two weeks ended
January 3, 1998, June 4, 1997, December 28, 1996 and December 30, 1995,
respectively, the following provisions (benefits) for income taxes were made:
(In thousands)
<TABLE>
Thirty-One | Twenty-Two Fifty-Two Fifty-Two
Weeks Ended | Weeks Ended Weeks Ended Weeks Ended
January 3, | June 4, December 28, December 30,
1998 | 1997 1996 1995
------- | ------- ------- -------
<S> <C> <C> <C> <C>
Current: |
Federal $ 460 | $ 1,400 $ 130 $ (37)
State 217 | 2,428 39 100
Foreign -- | 351 95 987
------- | ------- ------- -------
677 | 4,179 264 1,050
------- | ------- ------- -------
Deferred: |
Federal -- | -- -- --
State -- | -- -- --
Foreign -- | -- (1,103) (1,811)
------- | ------- ------- -------
-- | -- (1,103) (1,811)
------- | ------- ------- -------
|
Total tax provision (benefit) |
for income taxes 677 | 4,179 (839) (761)
|
Less: Taxes on sale |
of Sassco Fashions line -- | (3,728) -- --
------- | ------- ------- -------
|
Tax provision (benefit) |
for income taxes $ 677 | $ 451 $ (839) $ (761)
======= | ======= ======= =======
</TABLE>
The Company recognized Federal and state income taxes for the
thirty-one weeks ended January 3, 1998 of $677,000. There is no Federal tax
provision currently recognizable, other than based on the alternative minimum
tax regulations, due to existing net operating loss carryforwards and the
benefits of significant temporary differences recognized in the period ended
January 3, 1998.
The Company recognized Federal, state and foreign income taxes for
the twenty-two weeks ended June 4, 1997 of $451,000. 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. An
additional $3,728,000 of Federal and state taxes were recorded against the Gain
on the disposition of the Sassco Fashions product line. For the fifty-two weeks
ended December 28, 1996 and December 30, 1995, the Company recognized an income
tax credit of $1,103,000 and $1,811,000, respectively, representing a reduction
of foreign income tax liabilities as a result of negotiated settlements on prior
years' estimated taxes, which offset the Federal, state, local and foreign taxes
of $264,000 and $1,050,000 in 1996 and 1995, respectively.
F-18
<PAGE>
In connection with the adoption of fresh start reporting (see Note
2), the net book values of all non-current assets existing at the consummation
date were eliminated by negative goodwill. As a consequence, tax benefits
realized for book purposes for any period after the consummation for cumulative
temporary differences, net operating loss carryforwards and tax credit
carryforwards existing as of the consummation date will be reported as an
addition to paid-in-capital in excess of par value rather than as a reduction in
the tax provision in the statement of operations.
The difference between the Company's effective income tax rate and
the statutory Federal income tax rate is as follows:
(In thousands, except percentages)
<TABLE>
<CAPTION>
Thirty-One | Twenty-Two Fifty-Two Fifty-Two
Weeks Ended | Weeks Ended Weeks Ended Weeks Ended
January 3, | June 4, December 28, December 30,
1998 | 1997 1996 1995
-------- | ---------- -------- ---------
<S> <C> <C> <C> <C>
Tax provision (benefit) for |
income taxes $ 677 | $ 4,179 $ (839) $ (761)
|
Income (Loss) before |
provision (benefit) for |
income taxes $ 3,986 | $ 149,673 $ 8,889 $ (18,602)
======== | ========== ======== =========
|
Effective Tax Rate 17.0% | 2.8% 9.4% 4.1%
|
Net state tax (5.4%) | (1.3%) (0.3%) 0.4%
Net foreign tax -- | (0.2%) 11.3% (11.4%)
Intangibles 23.4% | -- (7.1%) 7.9%
Operating losses not utilized -- | -- -- 34.2%
Utilization of net operating |
losses -- | 35% 23.2% --
Other -- | (1.3%) (1.5%) (0.2%)
-------- | ---------- -------- ---------
|
Federal statutory rate 35.0% | 35.0% 35.0% 35.0%
======== | ========== ======== =========
</TABLE>
F-19
<PAGE>
The amounts comprising the temporary differences (the differences
between financial statement carrying values and the tax basis of assets and
liabilities) at the end of the respective periods are as follows:
<TABLE>
<CAPTION>
(In thousands)
Thirty-One | Twenty-Two Fifty-Two Fifty-Two
Weeks Ended | Weeks Ended Weeks Ended Weeks Ended
January 3, | June 4, December 28, December 30,
1998 | 1997 1996 1995
-------- | -------- -------- --------
<S> <C> <C> <C> <C>
Customer reserves and allowances $ 4,108 | $ 3,812 $ 11,550 $ 12,000
Restructuring and investigation 300 | 10,963 30,770 37,700
Depreciation 6,713 | 7,304 1,700 (300)
Inventory 2,553 | 2,337 12,640 16,500
Multi-employer pension payments -- | -- -- (316)
Worker's compensation |
insurance 572 | 572 4,280 2,500
Vacation pay accrual 490 | 421 1,200 1,300
Others 308 | 921 1,420 4,500
-------- | -------- -------- --------
|
Total temporary differences $ 15,044 | $ 26,330 $ 63,560 $ 73,884
======== | ======== ======== ========
</TABLE>
The following is a summary of the estimated deferred income taxes,
i.e., future Federal income tax benefits at currently enacted rates, which have
been reflected in the financial statements as indicated below:
<TABLE>
<CAPTION>
(In thousands, except percentages)
Thirty-One | Twenty-Two Fifty-Two Fifty-Two
Weeks Ended | Weeks Ended Weeks Ended Weeks Ended
January 3, | June 4, December 28, December 30,
1998 | 1997 1996 1995
-------- | -------- -------- --------
<S> <C> <C> <C> <C>
Temporary differences $ 15,044 | $ 26,330 $ 63,560 $ 73,884
Tax rate 35% | 35% 35% 35%
-------- | -------- -------- --------
Tax effect of temporary differences 5,265 | 9,216 22,246 25,859
Valuation Allowance (5,265) | (9,216) (22,246) (25,859)
-------- | -------- -------- --------
|
Deferred tax assets recognized $ -- | $ -- $ -- $ --
-------- | -------- -------- --------
</TABLE>
At June 4, 1997 there were consolidated tax net operating losses of
approximately $50 million available to offset future taxable income, if any,
through fiscal year 2010. The utilization of these loss carryforwards to offset
future taxable income is subject to limitation under the "change in control"
provision of Section 382 of the Internal Revenue Code. The Company estimated
that the annual limitation imposed on the utilization of these loss
carryforwards by Section 382 will be approximately $1,500,000
F-20
<PAGE>
per year, resulting in an aggregate limitation on the use of these loss
carryforwards of approximately $21,000,000 through 2010.
The Company has also generated approximately $9,000,000 of loss
carryforwards during the period ended January 3, 1998 as a result of recognizing
various cumulative temporary differences arising in prior periods. These loss
carryforwards may be available to offset future taxable income, if any, without
limitation.
On February 26, 1996, the Company received $7,970,000 for the refund
from the amended tax returns for 1989 through 1991 plus interest of $2,375,000.
8. COMMITMENTS AND CONTINGENCIES:
(a) LEASES -
The Company rents real and personal property under leases expiring at
various dates through 2002. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses. Total rent expense charged to
operations for the thirty-one, twenty-two, fifty-two and fifty-two weeks ended
January 3, 1998, June 4, 1997, December 28, 1996 and December 30, 1995, amounted
to $1,365,000, $4,599,000, $8,007,000 and $13,926,000, respectively. All capital
lease assets were written-off under fresh-start reporting (see Note 2).
Minimum annual rental commitments under operating and capitalized
leases in effect at January 3, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Capitalized
Fiscal Real Equipment Equipment
Years Estate & Other (including interest)
----- ------ ------- --------------------
(In thousands)
<S> <C> <C> <C> <C>
1998 $1,431 $ 228 $ 160
1999 1,551 196 54
2000 1,658 181 18
2001 1,377 166 --
2002 342 -- --
------ ------ ------
Total minimum lease payments $ 6,359 $ 771 $ 232
======= ====== ======
</TABLE>
(b) LEGAL PROCEEDINGS -
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. Certain alleged
F-21
<PAGE>
creditors who asserted age and other discrimination claims against the Company,
and whose claims were expunged (the "Claimants") pursuant to an Order of the
Bankruptcy Court (see below) appealed the Confirmation Order to the United
States District Court for the Southern District of New York. The Company moved
to dismiss the appeal from the Confirmation Order and the motion was granted and
the appeal was dismissed. An appeal to the United States Court of appeals for
the Second Circuit from the Order dismissing the appeal taken by the Claimants
subsequently was withdrawn, without prejudice, and may be refiled in the future.
In addition, the Claimants and two other persons commenced an adversary
proceeding in the Bankruptcy Court to revoke the Confirmation Order. The Company
has moved to dismiss the adversary proceeding to revoke the Confirmation Order
and that motion has been fully briefed, but has not yet been argued to the
Bankruptcy Court.
Both prior to and subsequent to the Filing Dates, various class
action suits were commenced on behalf of persons who were stockholders of the
Company prior to April 5, 1993. Any claims against the Company arising out of
these suits were discharged as part of, and in accordance with the terms of the
Plan.
The Claimants, who are former employees of the Company who were
discharged prior to the filing of the chapter 11 cases, asserted age and other
discrimination claims, including punitive damage claims against the Company in
the approximate aggregate sum of $80 million. Following a trial on the merits,
the Bankruptcy Court expunged and dismissed those claims in their entirety. The
Claimants have appealed that decision to the United States District Court for
the Southern District of New York, the appeal has been fully briefed and argued
and the parties are awaiting a decision.
Several former employees, who are included among the Claimants in the
above-described pending appeal, have commenced an action alleging employment
discrimination against certain former officers and directors of the Company in
the United States District Court for the Southern District of New York. The
Court has dismissed all of the causes of action arising under federal and state
statutes, and the only remaining claims are those arising under the New York
City Human Rights Law. Discovery is complete and a pre-trial order has been
filed.
In addition to, and concurrent with, the proceedings in the
Bankruptcy Court, the Company is involved in or settled the following legal
proceedings of significance:
In November 1992, a class action entitled "Stephen Warshaw and
Phillis Warshaw v. The Leslie Fay Companies, Inc. et al." was instituted in the
United States District Court for the Southern District of New York. In January
1993 and February 1993, the plaintiffs served amended complaints and thereafter
twelve other similar actions were commenced against the Company, certain of its
officers and directors and its then auditors, BDO Seidman. The complaints in
these cases, which purported to be on behalf of all persons who purchased or
acquired stock of the Company during the period from February 4, 1992 to and
including February 1, 1993, alleged that the defendants knew or should have
known material facts relating to the sales and earnings which they failed to
disclose and that if these facts had been disclosed, they would have affected
the price at which the Company's common stock was traded. A pre-trial order was
entered which had the effect of consolidating all of these actions and, in
accordance therewith, the plaintiffs have served the defendants with a
consolidated class action complaint which, because of the
F-22
<PAGE>
chapter 11 filing by the Company, does not name the Company as a defendant. In
March 1994, plaintiffs filed a consolidated and amended class action complaint.
This complaint added certain additional parties as defendants, including Odyssey
Partners, L.P. ("Odyssey"), and expanded the purported class period from March
28, 1991 to and including April 5, 1993. In March 1995, BDO Seidman filed an
answer and cross-claims against certain of the officers and directors of the
Company previously named in this action and filed third-party complaints against
Odyssey, certain then current and former executives of the Company and certain
then current and former directors of the Company. These cross-claims and
third-party complaints allege that the Company's senior management and certain
of its directors engaged in fraudulent conduct and negligent misrepresentation.
BDO Seidman sought contribution from certain of the defendants and each of the
third-party defendants if it were found liable in the class action, as well as
damages. On March 7, 1997, a stipulation and agreement was signed pursuant to
which all parties agreed to settle the above described litigation for an
aggregate sum of $34,700,000. The officers' and directors' share of the
settlement is covered by the Company's officers' and directors' liability
insurance. The settlement specifically provides that the officers and directors
deny any liability to the plaintiffs and have entered into the settlement solely
to avoid substantial expense and inconvenience of litigation. The Company has no
obligations under this settlement. The District Court approved this settlement
and signed the final order of dismissal on May 8, 1997. The settlement has been
fully consummated.
In February 1993, the Securities and Exchange Commission obtained an
order directing a private investigation of the Company in connection with, among
other things, the filing by the Company of annual and other reports that may
have contained misstatements, and the purported failure of the Company to
maintain books and records that accurately reflected its financial condition and
operating results. The Company is cooperating in this investigation.
In February 1993, the United States Attorney for the Middle District
of Pennsylvania issued a Grand Jury Subpoena seeking the production of documents
as a result of the Company's announcement of accounting irregularities. In 1994,
Donald F. Kenia, former Controller of the Company, was indicted by a federal
grand jury in the Middle District of Pennsylvania and pled guilty to the crime
of securities fraud in connection with the accounting irregularities. On or
about October 29, 1996, Paul F. Polishan, former Senior Vice President and Chief
Financial Officer of the Company, was indicted by the federal grand jury in the
Middle District of Pennsylvania for actions relating to the accounting
irregularities. The trial of the case against Paul F. Polishan has not yet
occurred.
In March 1993, a stockholder derivative action entitled "Isidore
Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v. John J.
Pomerantz et al." (the "Derivative Action") was instituted in the Supreme Court
of the State of New York, County of New York, against certain officers and
directors of the Company and its then auditors. This complaint alleges that the
defendants knew or should have known material facts relating to the sales and
earnings of the Company which they failed to disclose. The time to answer, move
or otherwise respond to the complaint has not yet expired. The plaintiff seeks
an unspecified amount of monetary damages, together with interest thereon, and
costs and expenses incurred in the action, including reasonable attorneys' and
experts' fees. The Company cannot presently determine the ultimate outcome of
this litigation, but believes that it should not have any unfavorable impact on
the financial statements. Pursuant to the Modification of the Third Amended and
Restated Joint Plan of Reorganization filed on April 4, 1997, a Derivative
Action Board, comprised of three persons or entities
F-23
<PAGE>
appointed by the Bankruptcy Court, upon nomination by the Creditors' Committee,
shall determine by a majority vote whether to prosecute, compromise and settle
or discontinue the Derivative Action.
On February 23, 1996, Albert Nipon and American Pop Marketing Group,
Inc. commenced an action against the Company in the United States Bankruptcy
Court, Southern District of New York seeking, inter alia, a declaratory judgment
with respect to the use of the Company's "Albert Nipon" trademark and tradename.
The Company has asserted counter claims. Upon a record of stipulated facts and
submissions of memorandum of law, an oral argument on this matter was heard on
May 9, 1997. On December 23, 1997, the court ruled in favor of the Company
finding the plaintiffs in violation of the Federal and New York Trademark
Statutes and of unfair competition under common law. The plaintiffs have
appealed and the Company has cross appealed to recover its costs and expenses in
the litigation.
(c) MANAGEMENT AGREEMENTS -
In connection with the Plan, the Company entered into one-year
management contracts with several officers and key employees with annual
salaries of $1,900,000.
(d) CONCENTRATIONS OF CREDIT RISK -
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
trade accounts receivable. The Company's customers are not concentrated in any
specific geographic region, but are concentrated in the retail apparel business.
For the fifty-three weeks ended January 3, 1998, excluding the Sassco Fashion
and Castleberry product lines, three customers of the continuing Leslie Fay
business accounted for 33%, 12% and 8% of the reorganized Company's sales. In
1996 for continuing businesses only, three customers accounted for 35%, 19%, and
4.5% of the Company's sales. The Company has established an allowance for
possible losses based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
On June 2, 1997 the Company entered into a factoring agreement with
CIT, whereby CIT provides a guarantee of collection for all shipments approved
by CIT. Under the factoring agreement these receivables are purchased by CIT. On
January 3, 1998 the Company's accounts receivable included $8,800,000 due from
CIT net of reserves.
9. STOCKHOLDERS' (DEFICIT) EQUITY
The authorized common stock of the reorganized Company consists of
9,500,000 shares of common stock with a par value $.01 per share. 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 for the
benefit of its creditors pending the resolution of certain disputed claims
before the Bankruptcy Court. The old common stock was extinguished at June 4,
1997 and the old stockholders of the Company did not retain or receive any value
for their equity interest.
F-24
<PAGE>
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.
10. STOCK OPTION PLAN:
Information regarding the Company's stock option plan is summarized
below:
Number of Shares Option Price Per Share
---------------- ----------------------
Outstanding at December 30, 1995 148,875 $ 3.31 - $14.00
Granted -- -- - --
Exercised or surrendered -- -- - --
Canceled (22,000) 3.50 - 14.00
-------
Outstanding at December 28,1996 126,875 3.31 - 14.00
Termination of old plan (126,875) 3.31 - 14.00
Granted 508,621 6.18 - 11.50
Exercised or surrendered -- -- - --
Canceled -- -- - --
-------
Outstanding at January 3, 1998 508,621 6.18 - 11.50
The Plan provides stock options to certain senior management equal to
seventeen and one-half (17.5%) percent of the reorganized Company's common stock
outstanding (assuming the exercise of all options). Of this amount, the first
ten (10%) or 412,121 options were granted as of June 4, 1997, one-third of which
will vest on each of the first three anniversaries of the Consummation Date. In
addition, each non-employee director of the Company has been granted 10,000
stock options for a total of 50,000 options. The options may be exercised for
between $6.18 and $11.50 per share. The Plan provided that 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) will be granted upon a sale of the Company
where the imputed enterprise value exceeds $37,500,000. No options were
exercisable at January 3, 1998.
On or about March 16, 1998, the Compensation Committee of the
Compnay's Board of Directors proposed new contracts for four employees: John J.
Pomerantz, John A. Ward, Dominick Felicetti and Warren T. Wishart. While no
agreement has been completed, and the Board of Directors has not approved the
contracts, the proposal included provisions that would restructure the 309,091
of additional options referred to above. The proposal would lower the number of
options granted but the grant would not be conditioned upon a sale of the
Company.
Effective as of the Consummation Date, the Company adopted the
provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." Under SFAS
No.123 utilizing the fair value based method, compensation cost is measured at
the grant date based upon the value of the award and is recognized over the
service period. The fair value of the options granted on June 4, 1997 was
estimated using the Black-Scholes option pricing model based upon the following
assumptions: risk free interest rate of 6.47%, expected life of 5 years, and
volatility of 34%. The compensation expense of approximately $1.8 million is
being recognized over the service period of three years. Had SFAS No. 123 been
adopted prior to the Consummation Date in fiscal years 1995, 1996 and the
twenty-two weeks ended June 4, 1997, there would have been no effect on the
Company's financial statements.
The consummation of the Plan terminated all options under a Stock
Option Plan which had provided for the grant of up to an aggregate of 1,000,000
shares of its common stock to its key
F-25
<PAGE>
employees. In December 1992, the Board of Directors approved an increase in the
aggregate number of shares which could be granted to 1,500,000. This increase
was subject to stockholder approval which was never solicited.
Under the plan, incentive stock options were granted to purchase
shares of common stock at not less than the fair market value of such shares at
the date of the grant. Additionally, non-qualified options were granted to
purchase shares of common stock at an amount not less than 98% of the fair
market value of such shares at the date of grant. In general, the options vested
over a four year period and were exercisable no later than five years from the
date of grant.
11. RETIREMENT PLANS:
(a) DEFINED BENEFIT PLAN -
In January 1992, the Company established a non-contributory defined
benefit pension plan covering certain salaried, hourly and commission-based
employees. Plan benefits are based upon the participants' salaries and years of
service. The plan was amended to freeze benefit accruals effective December 31,
1994 and, in connection with the Company's reorganization, to terminate the plan
effective December 31, 1996. Investments are made primarily in U.S. Government
obligations and common stock. The following major assumptions were used in the
actuarial valuations:
1997 1996 1995
---- ---- ----
Discount rate 7.5% 7.5% 8.8%
Long-term rate of return on assets 8.8% 8.8% 8.8%
Average increase in compensation N/A N/A N/A
Net periodic pension cost recognized in the thirty-one, twenty-two,
fifty-two and fifty-two weeks ended January 3, 1998, June 4, 1997, December 28,
1996 and December 30, 1995 were $0, $0, $195,000 and $341,000, respectively. The
components of this cost are as follows:
<TABLE>
<CAPTION>
THIRTY-ONE | TWENTY-TWO FIFTY-TWO FIFTY-TWO
WEEKS ENDED | WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 3, | JUNE 4, DECEMBER 28, DECEMBER 30,
1998 | 1997 1996 1995
----- | ----- ----- -----
<S> <C> <C> <C> <C>
Service costs $-- | $-- $-- $--
Interest cost 47 | 38 127 223
Actual return on assets (74) | (98) (111) 417
Recognition of partial settlement |
of pension obligations -- | -- 106 200
Net amortization and deferral 27 | 60 73 (499)
----- | ----- ----- -----
|
Net periodic pension cost $-- | $-- $ 195 $ 341
===== | ===== ===== =====
</TABLE>
F-26
<PAGE>
The following table summarizes the funding status of the plan at
January 3, 1998, June 4, 1997, December 28, 1996 and December 30, 1995:
<TABLE>
<CAPTION>
(In thousands)
THIRTY-ONE | TWENTY-TWO FIFTY-TWO FIFTY-TWO
WEEKS ENDED | WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 3, | JUNE 4, DECEMBER 28, DECEMBER 30,
1998 | 1997 1996 1995
------------ | ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of |
benefit obligations: |
|
Accumulated benefit obligations |
Vested $ -- | $ (1,867) $ (2,034) $ (1,639)
Non-vested -- | -- (97) (196)
------------ | ----------- ----------- -----------
|
Total accumulated benefit obligation $ -- | $ (1,867) $ (2,131) $ (1,835)
============ | =========== =========== ===========
|
Projected benefit obligation -- | (1,867) (2,131) (1,835)
Estimated fair value of assets -- | 1,054 1,062 1,359
------------ | ----------- ----------- -----------
Excess of projected benefit |
obligation over plan assets -- | (813) (1,069) (476)
Unrecognized prior service costs -- | -- -- 262
Unrecognized net loss -- | -- -- 313
Additional minimum liability under -- | -- -- (575)
SFAS No. 87 |
------------ | ----------- ----------- -----------
|
Accrued Pension Costs $ -- | $ (813) $ (1,069) $ (476)
============ | =========== =========== ===========
</TABLE>
Under the requirements of SFAS No. 87 - "Employers' Accounting for
Pensions", an additional minimum pension liability representing the excess of
accumulated benefits over plan assets and accrued pension costs, was recognized
at December 30, 1995. A corresponding amount was recognized as an intangible
asset to the extent of unrecognized prior service costs with the balance
recorded as a separate reduction of stockholders' equity. As a result of the
plan termination, in the fourth quarter of 1996, the Company recorded an
additional $676,000 as reorganization expense to write-off these assets and
record an additional liability of $813,000 to fully fund the plan.
(b) DEFINED CONTRIBUTION PLAN -
The Company also maintains a qualified voluntary contributory profit
sharing plan covering certain salaried, hourly and commission-based employees.
Certain Company matching contributions to the plan are mandatory. Other
contributions to the plan are discretionary. Total contributions to the plan may
not exceed the amount permitted as a deduction pursuant to the Internal Revenue
Code. The contributions charged to operations for the thirty-one, twenty-two,
fifty-two and fifty-two weeks ended January 3, 1998, June 4, 1997, December 28,
1996 and December 30, 1995 amounted to $75,000, $113,000, $321,000 and $531,000,
respectively.
F-27
<PAGE>
(c) OTHER -
The Company participates in a multi-employer pension plan. Such plans
were underfunded as of January 1, 1994. The plans provide defined benefits to
unionized employees. Amounts charged to operations for contributions to the
pension funds in 1996 and 1995 amounted to approximately $965,000 and
$1,295,000. The Company increased the established reserve within Liabilities
subject to compromise in 1996 to the expected settlement of $14,875,000. This
claim was settled upon consummation of the Plan.
The Company does not provide for post-employment or post-retirement
benefits other than the plans described above.
12. ASSETS OF PRODUCT LINES HELD FOR SALE OR DISPOSITION:
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 product line on June 4, 1997 for an estimated exchange value of
$230,000,000. This value was the estimated reorganization value of the Sassco
Fashions product line which was calculated in a manner similar to the Company's
reorganization value (see Note 2). The resulting gain of $89,810,000, net of
taxes of $3,728,000, recorded from these transactions is reflected as a Gain
from the sale of the Sassco Fashions line in the consolidated statements of
operations.
The assets and liabilities sold and transferred 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 line. In addition, the Company
transferred to Sassco its 100% equity interest in several subsidiaries
associated with the Sassco Fashions line. As provided in the Plan, the creditors
of the Company became the shareholders of Sassco.
The gain on the disposition of the assets and liabilities of the
Sassco Fashions line is a taxable event and a substantial portion of the net
operating loss carryforwards available to the Company was utilized to offset a
significant portion of the taxes recognized on this transaction.
In 1996, the Company decided to sell its Castleberry product line and
recorded a restructuring charge of $2,004,000 for its disposition, including
$1,100,000 to increase the reserve to cover the write-off of the Excess of
purchase price over net assets acquired and projected additional losses on the
sale of net assets. On May 26, 1997, the Company sold the assets and liabilities
of its Castleberry line for $600,000. The resulting loss of $1,398,000 on the
sale was applied against Accrued expenses and other current liabilities at the
time of the sale.
F-28
<PAGE>
The components of Assets and Direct liabilities of product lines held
for sale and disposition at December 28, 1996 include:
<TABLE>
<CAPTION>
(In thousands)
Continuing Held
Total Operations For Sale
----- ---------- --------
<S> <C> <C> <C>
Accounts receivable, net $ 63,930 $ 63,456 $ 474
Inventories 106,836 104,383 2,453
Prepaid expenses and other current assets 2,335 2,290 45
Property, plant and equipment, net 17,606 17,575 31
Deferred charges and other assets 1,182 1,182 --
--------
Total assets of product lines held for sale or disposition -- -- $ 3,003
========
Accounts payable $ 20,521 $ 20,341 $ 180
Accrued expenses and other current liabilities 24,551 23,154 1,397
--------
Total direct liabilities of product lines held for
sale or disposition $ 1,577
=========
</TABLE>
Unaudited pro forma consolidated statements for the twenty-two weeks
ended June 4, 1997 and for the fiscal year ended December 28, 1996 are presented
below and include adjustments to give effect to the sales and the Plan (see Note
2) as if they occurred as of the beginning of the periods presented. A pro forma
consolidated balance sheet as of June 4, 1997 is not presented because the
transactions recording the Plan and the sale transactions are already reflected
in the balance sheet.
The unaudited pro forma financial statements have been prepared in
accordance with guidelines established by the Securities and Exchange
Commission. The historical balances were derived from the consolidated statement
of operations for the twenty-two weeks ended June 4, 1997 or from the financial
statements of the Company included in the December 28, 1996 Form 10-K. All
significant intercompany transactions have been eliminated.
F-29
<PAGE>
The unaudited proforma adjustments presented in the statements are as
follows:
Column Heading Explanation
Column 1 Historical Operations The Consolidated Statement of Operations
as it existed prior to the adjustments.
Column 2 Disposition of Sassco The operating results of the Sassco
Fashions line have been eliminated to
give effect to the disposition as of the
beginning of the period presented,
including depreciation expense on its
property, plant and equipment, an
allocated corporate charge based on
workload by department related to the
Sassco Fashions line and direct charges
associated with financing fees on its
factoring agreement and fees incurred on
letters of credit issued on its behalf.
For periods including June 4, 1997, the
gain recorded on the disposition of the
Sassco Fashions line has been reversed.
Column 3 Sale of Castleberry The operating results of the Castleberry
line have been eliminated to give effect
to the disposition as of the beginning of
the period presented, including
depreciation expense on its property,
plant and equipment and an allocated
corporate charge based on workload by
department related to the Castleberry
line.
Column 4 Fresh Start Reporting To record the estimated effect of the
Plan as if it had been effective as of
the beginning of period presented. This
includes adjustments for the following
items:
a) The elimination of the historical
depreciation and amortization for the
remaining product lines, including the
amounts in cost of sales, on the
beginning of period asset balances and
the recording of the amortization credit
for 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.
F-30
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-TWO WEEKS ENDED JUNE 4, 1997
-----------------------------------------------------------------------
PRO FORMA
HISTORICAL DISPOSITION OF SALE OF FRESH START ADJUSTED
OPERATIONS SASSCO CASTLEBERRY REPORTING 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 ................. 35,459 (23,666) (1,000) 250 11,043
Depreciation and amortization expense ..... 2,090 (1,078) (41) (971) --
--------- --------- --------- --------- ---------
Total operating expenses ................ 37,549 (24,744) (1,041) (721) 11,043
Other (income) ............................ (1,196) 260 -- -- (936)
Amortization in excess of revalued net
assets acquired over equity .............. -- -- -- (1,905) (1,905)
--------- --------- --------- --------- ---------
Total operating expenses, net ................. 36,353 (24,484) (1,041) (2,626) 8,202
Operating income .............................. 14,355 (10,050) 495 2,658 7,458
Interesting and Financing Costs (excludes
contractual interest) ................... 1,372 (595) -- -- 777
--------- --------- --------- --------- ---------
Income (loss) before reorganization costs,
taxes, gain on sale, fresh start
revaluation and extraordinary item ...... 12,983 (9,455) 495 2,658 6,681
Reorganization Costs .......................... 3,379 -- 14 (3,393) --
--------- --------- --------- --------- ---------
Income (loss) before taxes, gain on sale,
fresh start revaluation and extraordinary
item .................................... 9,604 (9,455) 481 6,051 6,681
Taxes ......................................... 451 (342) -- 1,898 2,007
--------- --------- --------- --------- ---------
Net Income (loss) before gain on sale,
fresh start revaluation and extraordinary
item .................................... 9,153 (9,113) 481 4,153 4,674
Gain on disposition of Sassco Fashions line,
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 ($108,923) $ 481 ($ 32,378) $ 4,674
========= ========= ========= ========= =========
Net Income (loss) per Share
- Basic................................... * $ 1.38
========= =========
Net Income (loss) per Share
- Diluted................................. * $ 1.21
========= =========
Weighted Average
Shares Outstanding - Basic............... * 3,400,000
========= =========
Weighted Average
Shares Outstanding - Diluted............. * 3,862,121
========= =========
</TABLE>
*Earnings per share for the twenty-two weeks ended June 4, 1997 on a historical
basis is based on the old stock outstanding. The old stock was canceled 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.
F-31
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED DECEMBER 28, 1996
-------------------------------------------------------------------
PRO FORMA
HISTORICAL DISPOSITION OF SALE OF FRESH START ADJUSTED
OPERATIONS SASSCO CASTLEBERRY REPORTING BALANCE
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales ................................ $ 429,676 $(311,550) $ (8,073) $ -- $ 110,053
Cost of Sales ........................... 331,372 (238,477) (6,066) (85) 86,744
--------- --------- --------- --------- ---------
Gross profit ......................... 98,304 (73,073) (2,007) 85 23,309
--------- --------- --------- --------- ---------
Operating Expenses:
Selling, warehouse, general and
administrative expenses ............ 79,570 (50,936) (2,585) 600 26,649
Depreciation and amortization expense 4,654 (1,982) (31) (2,641) --
--------- --------- --------- --------- ---------
Total operating expenses, net ............ 84,224 (52,918) (2,616) (2,041) 26,649
Other income ......................... (3,885) 1,038 -- -- (2,847)
Amortization in excess revalued net assets
acquired over equity .................. -- -- -- (4,572) (4,572)
Total operating expenses ................. 80,339 (51,880) (2,616) (6,613) 19,230
--------- --------- --------- --------- ---------
Operating income ......................... 17,965 (21,193) 609 6,698 4,079
Interesting and Financing Costs (excludes
contractual interest) .............. 3,932 (1,634) -- -- 2,298
--------- --------- --------- --------- ---------
Income (loss) before fresh-start
reorganization costs and taxes ..... 14,033 (19,559) 609 6,698 1,781
Reorganization Costs ..................... 5,144 -- (2,004) (3,140) --
--------- --------- --------- --------- ---------
Income (loss) before taxes ........... 8,889 (19,559) 2,613 9,838 1,781
Taxes .................................... (839) 969 -- -- 130
--------- --------- --------- --------- ---------
Net Income (loss) .................... $ 9,728 $ (20,528) $ 2,613 $ 9,838 $ 1,651
========= ========= ========= ========= =========
Net Income (loss) per Share
- Basic.............................. * $ .49
========= =========
Net Income (loss) per Share
- Diluted*........................... * $ .43
========= =========
Weighted Average Common
Shares Outstanding - Basic.......... * 3,400,000
========= =========
Weighted Average
Shares Outstanding - Diluted........ * 3,862,121
========= =========
</TABLE>
*Earnings per share for the fifty-two weeks ended December 28, 1996 on a
historical basis is based on the old stock outstanding. The old stock was
canceled 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.
F-32
<PAGE>
13. REORGANIZATION COSTS:
The Company recognized reorganization costs during the thirty-one,
twenty-two, fifty-two and fifty-two week periods ended January 3, 1998, June 4,
1997, December 28, 1996 and December 30, 1995 as follows:
<TABLE>
<CAPTION>
(In thousands)
THIRTY-ONE | TWENTY-TWO FIFTY-TWO FIFTY-TWO
WEEKS ENDED | WEEKS ENDED WEEKS ENDED WEEKS ENDED
JANUARY 3, | JUNE 4, DECEMBER 28, DECEMBER 30,
1998 | 1997 1996 1995
-------- | -------- -------- --------
<S> <C> <C> <C>
Professional fees and other | $ 2,951 $ 3,719 $ 7,995
costs |
Closed facilities and operations -- | -- 1,082 10,138
Write-down of excess purchase -- | -- 652 3,181
price |
Plan Administration Costs -- | 1,000 -- --
Retirement plan termination -- | -- 676 --
Employee retention plan -- | -- (509) --
Interest income -- | (572) (476) (4,739)
| -------- -------- --------
Total reorganization costs | $ 3,379 $ 5,144 $ 16,575
| ======== ======== ========
</TABLE>
At June 4, 1997, costs of $800,000 were 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 and $1,000,000
to administer the Plan.
14. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
The components of Accrued expenses and other current liabilities, net
of direct liabilities of product lines held for sale or disposition (see Note
12), were as follows:
January 3, | December 28,
1998 | 1996
------- | -------
Bonus and Profit Sharing $ 1,240 | $ 2,109
Professional Fees 601 | 375
Vacation 490 | 1,098
Reorganization Costs 301 | 9,229
Duty 399 | 3,626
Other Accrued Confirmation |
Expenses 4,046 | --
Other 1,812 | 6,717
------- | -------
Total $ 8,889 | $23,154
======= | =======
F-33
<PAGE>
15. SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) for interest and income taxes for the
thirty-one, twenty-two and fifty-two weeks ended January 3, 1998, June 4, 1997,
December 28, 1996 and December 30, 1995 were as follows:
Thirty-One | Twenty-Two Fifty-Two Fifty-Two
Weeks Ended | Weeks Ended Weeks Ended Weeks Ended
January 3, | June 4, December 28, December 30,
1998 | 1997 1996 1995
|
Interest $ 367 | $ 1,412 $ 1,047 $ 2,542
Income taxes 928 | (2,694) (7,311) (218)
16. UNAUDITED QUARTERLY RESULTS:
Unaudited quarterly financial information for 1997 and 1996 is set forth as
follows:
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 March June 4 | July 5 September December
----- ------ | ------ --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $142,755 $ 55,229 | $ 5,535 $ 41,562 $ 25,994
Gross profit 36,768 13,940 | 1,125 9,730 3,517
Net income (loss) 11,724 133,770 | 73 4,511 (1,275)
Net income (loss) |
per share |
- - Basic * * | $ 0.02 $ 1.33 ($0.38)
- - Diluted * * | $ 0.02 $ 1.17 ($.033)
1996 March June 4 | July 5 September December
----- ------ | ------ --------- --------
Net sales $121,202 | $ 82,940 $134,907 $ 90,626
Gross profit 29,694 | 19,525 33,511 15,574
|
|
|
Net income (loss) 5,924 | 99 8,045 (4,340)
Net income (loss) |
per share |
- Basic * | * * *
- Diluted * | * * *
</TABLE>
* Earnings per share is not presented because such presentation would not be
meaningful. The old stock was canceled under the Plan of reorganization and
the new stock was not issued until the consummation date.
F-34
<PAGE>
SCHEDULE II
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESERVES BEGINNING
RELATED TO BALANCE
BALANCE AT SOLD RELATED TO COSTS BALANCE AT
BEGINNING PRODUCT CONTINUING CHARGED TO END
DESCRIPTION OF PERIOD LINES OPERATIONS EXPENSE DEDUCTIONS OF PERIOD
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
THIRTY-ONE WEEKS ENDED
JANUARY 3, 1998
Reserve for Allowances $ 2,534 -- $ 2,534 $ 5,505 ($ 4,941) $ 3,098
Other Receivable Reserves 88 -- 88 (64) -- 24
Reserve for Discounts (1) 934 -- 934 -- (934) --
Reserve for Doubtful Accounts 230 -- 230 (172) (10) 48
Reserve for Returns 29 -- 29 992 (955) 66
-------- -------- -------- -------- -------- --------
Total Receivable Reserves $ 3,815 -- $ 3,815 $ 6,261 $ (6,840) $ 3,236
======== ======== ======== ======== ======== ========
Taxation Valuation Allowance $ 9,216 $ -- $ 9,216 $ -- $ (3,951) $ 5,265
======== ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------
TWENTY-TWO WEEKS ENDED
JUNE 4, 1997
Reserve for Allowances $ 8,619 ($ 6,074) $ 2,545 $ 2,952 ($ 2,963) $ 2,534
Other Receivable Reserves 4,881 (4,212) 669 (581) -- 88
Reserve for Discounts (1) 588 -- 588 3,498 (3,152) 934
Reserve for Doubtful Accounts 895 (349) 546 (360) 44 230
Reserve for Returns 98 (69) 29 488 (488) 29
-------- -------- -------- -------- -------- --------
Total Receivable Reserves $ 15,081 ($10,704) $ 4,377 $ 5,997 ($6,559) $ 3,815
======== ======== ======== ======== ======== ========
Taxation Valuation Allowance $ 22,246 ($ 8,900) $ 13,346 $ -- ($ 4,130) $ 9,216
======== ======== ======== ======== ======== ========
FIFTY-TWO WEEKS ENDED
DECEMBER 28, 1996
Reserve for Allowances $ 14,154 $ -- $ 14,154 $ 37,384 ($42,919) $ 8,619
Other Receivable Reserves 5,051 -- 5,051 (170) -- 4,881
Reserve for Discounts (2) 2,280 -- 2,280 27,827 (29,519) 588
Reserve for Doubtful Accounts 1,183 -- 1,183 (1,074) 786 895
Reserve for Returns 423 -- 423 9,354 (9,679) 98
-------- -------- -------- -------- -------- --------
Total Receivable Reserves $ 23,091 $ -- $23, 091 $ 73,321 ($81,331) $ 15,081
======== ======== ======== ======== ======== ========
Taxation Valuation Allowance $ 25,859 $ -- $ 25,859 $ -- ($ 3,613) $ 22,246
======== ======== ======== ======== ======== ========
</TABLE>
(1) On June 2, 1997, the Company entered into a factoring agreement with CIT,
whereby CIT provides a guarantee of collection of all shipments approved
by CIT. Discounts given are no longer a risk/reserve of the Company as
receivables are sold to CIT net of discounts.
(2) On January 23, 1996, the Company entered into a factoring agreement with
Heller Financial for its Sassco Fashions product line, whereby Heller
provides a guarantee of collection for all shipments approved by Heller.
Discounts given by the Company for its Sassco products subsequent to
January 23, 1996 were no longer a risk/reserve of the Company as
receivables are sold to Heller net of discounts.
F-35
<PAGE>
================================================================================
Exhibits
to
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998 COMMISSION FILE NO. 1-9196
THE LESLIE FAY COMPANY, INC.
DELAWARE 13-3197085
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1412 BROADWAY
NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000
================================================================================
<PAGE>
THE LESLIE FAY COMPANY, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2 Amended Joint Plan of Reorganization.(1)
3.1(a) Restated Certificate of Incorporation of the Company.(1)
3.1(b) Amendment to Restated Certification of Incorporation of the
Company.(3)
3.2 Amended and Restated By-laws of the Company.(1)
4.1 Revolving Credit Agreement dated June 2, 1997 (the "Revolving
Credit Agreement) between Leslie Fay Marketing, Inc. ("LFM")
and the CIT Group/Commercial Services, Inc. ("CIT").(1)
4.2 Waiver Agreement dated August 18, 1997 to the Revolving Credit
Agreement between LFM and CIT.(5)
4.3 Amendment One dated February 23, 1998 to the Revolving Credit
Agreement between LFM and CIT.(5)
4.4 Amendment Two dated March 31, 1998 to the Revolving Credit
Agreement between LFM and CIT.(5)
10.1* Employment Agreement dated as of June 4, 1997 between the
Company and John J. Pomerantz.(2)
10.2* Employment Agreement dated as of June 4, 1997 between the
Company and John Ward.(2)
10.3* Employment Agreement dated as of June 4, 1997 between the
Company and Warren T. Wishart.(3)
10.4* Employment Agreement dated as of June 4, 1997 between the
Company and Dominick Felicetti.(3)
10.5* 1997 Non-Employee Director Stock Option Plan.(5)
10.6* Severance Agreement dated as of January 9, 1998 between
Catharine Bandel-Wirtshafter and the Company.(5)
10.7 Factoring Agreement dated June 4, 1997 between LFM and CIT.(1)
10.8 Lease Agreement dated December 13, 1989 between 1412 Broadway
Associates and the Company, modified as of July 31, 1990 and
August 1, 1990, for certain premises located at 1412 Broadway,
New York, New York.(4)
10.9 Lease Agreement dated August 1, 1997 between John J. Passan
and the Company for certain premises located at One Passan
Drive, Borough of Laflin, Luzerne County, Pennsylvania.(2)
21 List of Subsidiaries.(5)
27 Financial Data Schedule.(5)
- ------------------------------
E-1
<PAGE>
(1) Incorporated by reference to Current Report on Form 8-K for an event dated
June 4, 1997.
(2) Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal
quarter ended July 5, 1997.
(3) Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal
quarter ended October 4, 1997.
(4) Incorporated by reference to Annual Report on Form 10-K for the fiscal
year ended December 28, 1996.
(5) Filed herewith.
* Management contract or compensation plan or arrangement required to be
noted as provided in Item 14(a)3.
E-2
WAIVER AGREEMENT
DATED AS OF AUGUST 18, 1997
Waiver Agreement dated as of August 18, 1997 to the Revolving Credit
Agreement and Factoring Facilities between The CIT Group/Commercial Services,
Inc. and Leslie Fay Marketing, Inc. dated as of June 2, 1997.
Waiver. In response to the Borrower's request, the Lender hereby
waives compliance by the Borrower with the requirements of Section 10.17 with
respect to the fiscal quarter ending July 5, 1997.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first written above.
LESLIE FAY MARKETING, INC.
By: /s/Warren T. Wishart
----------------------------
Warren T. Wishart
Secretary and Chief Financial Officer
THE CIT GROUP/COMMERCIAL SERVICES
By: /s/John Hendrickson
----------------------------
John Hendrickson
Vice President
The CIT Group/
Commercial Services, Inc.
1211 Avenue of the Americas
New York, NY 10036
February 23, 1998
Leslie Fay Marketing, Inc.
1412 Broadway
New York, New York 10018
Gentlemen:
Reference is made to the Revolving Credit Agreement between us, dated as of June
2, 1997, as supplemented and amended (herein the "Agreement"). Capitalized terms
used herein and defined in the Agreement shall have the same meanings as set
forth therein unless otherwise specifically defined herein.
Pursuant to mutual understanding, effective as of December 31, 1997, the
Agreement is hereby amended as follows:
1. Section 10.15 of Article X of the Agreement entitled "Negative
Covenants" is hereby deleted in its entirety and shall hereafter read as
follows:
"10.15. Minimum Consolidated Tangible Net
Worth. The Borrower will not permit the Parent's
Consolidated Tangible Net Worth to be less than the
following amounts during and at the end of each of the
following fiscal months: (a) $34 million for each of the
fiscal months of April, May, June, July and August of
1997, (b) $35 million for each of the fiscal months of
September, October and November of 1997, (c) $35 million
for each of the fiscal months of December of 1997 and
January, February, March, April, May, June, July, and
August of 1998, and (d) $37 million for each fiscal month
thereafter."
2. Section 10.17 of Article X of the Agreement entitled "Negative
Covenants" is hereby deleted in its entirety and shall hereafter read as
follows:
"10.17. Minimum Ratio of Consolidated Current
Assets to Consolidated Current Liabilities. The Borrower
will not permit the ratio of the Parent's Consolidated
Current Assets to the Parent's Consolidated Current
<PAGE>
-2-
Liabilities to be less than (a) 2.60 to 1.00 as of the end
of the second fiscal quarter of 1997, (b) 2.60 to 1.00 as
of the end of the third fiscal quarter of 1997 (c) 2.60 to
1.00 as of the end of the fourth fiscal quarter of 1997
(d) 3.00 to 1.00 as of the end of the first fiscal quarter
of 1998 (e) 3.10 to 1.00 as of the end of the second,
third and fourth fiscal quarters of 1998 and (f) 3.30 to
1.00 as of the end of each fiscal quarter thereafter."
3. Section 10.20 of Article X of the Agreement entitled "Negative
Covenants" is hereby deleted in its entirety and shall hereafter read as
follows:
"10.20. Capital Expenditures. The Borrower
shall not make Capital Expenditures in an amount greater
than (i) $1.5 million in the aggregate for the period from
the Closing Date through January 3, 1998, (ii) $2.5
million in the aggregate for the 1998 fiscal year, and
(iii) $2.5 million in the aggregate for the 1999 fiscal
year, and for each fiscal year thereafter."
Except to the extent specifically set forth herein, no other change or waiver of
any of the terms or provisions of the Agreement is intended or implied, and all
of the terms and conditions of the Agreement shall continue in full force and
effect. This letter shall not constitute a waiver by us of any other default
under the Agreement, whether or not we have knowledge of same and shall not
constitute a waiver of any other defaults whatsoever.
If the foregoing is in accordance with your understanding of our agreement,
kindly so indicate by signing and returning the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By /s/John Hendrickson
Name: John Hendrickson
Title: Vice President
Read and Agreed to:
LESLIE FAY MARKETING, INC.
By /s/Warren Wishart
Name: Warren Wishart
Title: Chief Financial Officer
The CIT Group/
Commercial Services, Inc,
1211 Avenue of the Americas
New York, NY 10036
March 31, 1998
Leslie Fay Marketing, Inc.
1412 Broadway
New York, New York 10018
Gentlemen:
Reference is made to the Revolving Credit Agreement between us, dated as of June
2, 1997, as supplemented and amended (herein the "Agreement"). Capitalized terms
used herein and defined in the Agreement shall have the same meanings as set
forth therein unless otherwise specifically defined herein.
Pursuant to mutual consent and understanding, effective as of April 1, 1998, the
following sections of Article X of the Agreement entitled "Negative Covenants"
shall be, and hereby are, amended as follows:
1. (a) The reference in subparagraph (i) of Section 10.02 of the
Agreement to "clauses (a)-(h) above" shall be, and hereby is, amended to read
"clauses (a)-(i) above", and subparagraph (i)shall hereafter be renamed to be
subparagraph "(j)"; and
(b) The following new subparagraph "(i)" shall be added to
Section 10.02 prior to subparagraph (j) referenced above:
"(i) Liens related to an acquisition by the Borrower which
acquisition has been previously approved, in writing, by CIT."
2. (a) The reference in subparagraph (h) of Section 10.03 of the
Agreement to "clauses (a)-(g) above" shall be, and hereby is, amended to read
"clauses (a)-(h) above", and subparagraph (h) shall hereafter be renamed to be
subparagraph "(i)"; and
(b) The following new subparagraph "(h)" shall be added to
Section 10.03 prior to subparagraph (i) referenced above:
<PAGE>
-2-
"(h) Indebtedness related to an acquisition by the
Borrower which acquisition has been previously approved, in writing,
by CIT."
3. (a) The reference in subparagraph (d) of Section 10.04 of the
Agreement to "clauses (a)-(c) above" shall be, and hereby is, amended to read
"clauses (a)-(d) above", and subparagraph (d) shall hereafter be renamed to be
subparagraph "(e)"; and
(b) The following new subparagraph "(d)" shall be added to
Section 10.03 prior to subparagraph (e) referenced above:
"(d) guarantees and contingent liabilities related to an
acquisition by the Borrower which acquisition has been approved, in
writing, by CIT."
4. The following new subparagraph "(e)" shall be added to the end of
Section 10.05 of the Agreement:
"(e) an acquisition by the Borrower which has been
previously approved, in writing, by CIT."
5. The following language shall be added to the end of Section 10.06
of the Agreement:
"; provided, however, the Borrower shall be permitted to pay
dividends or repurchase stock in the aggregate amount of
$5,000,000.00 in each of fiscal year 1998 and fiscal year 1999,
provided that: (1) at the time of, and after giving effect to, the
payment of dividends or repurchase of stock, no Event of Default
shall have occurred and be continuing, and (2) the undrawn
Availability before and after said dividend payment or stock
repurchase shall not be less than $5,000,000.00."
6. The following subparagraph "(d)" shall be added to the end of
Section 10.09 of the Agreement:
"(d) the Borrower may acquire the assets of an affiliate, provided,
however, such acquisition is previously approved, in writing, by
CIT."
7. The following sentence shall be added to the end of Section 10.17
of the Agreement:
"CIT will not unreasonably withhold approval to amend the foregoing
ratios in the event a violation is solely the result of a dividend
payout
<PAGE>
-3-
or stock repurchase permitted in Section 10.06 hereinabove, and there
are no other Events of Default that shall have occurred."
8. The following sentence shall be added to the end of Section 10.20
of the Agreement:
"The unused portion of allowable Capital Expenditures in any fiscal
year can be carried over to the next fiscal year."
Except to the extent specifically set forth herein, no other change or waiver of
any of the terms or provisions of the Agreement is intended or implied, and all
of the terms and conditions of the Agreement shall continue in full force and
effect. This letter shall not constitute a waiver by us of any other default
under the Agreement, whether or not we have knowledge of same and shall not
constitute a waiver of any other defaults whatsoever.
If the foregoing-is in accordance with your understanding of our agreement,
kindly so indicate by signing and returning the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By /s/John Hendrickson
Name: John Hendrickson
Title: Vice President
Read and Agreed to:
LESLIE FAY MARKETING, INC.
By /s/Warren Wishart
Name
Title
THE LESLIE FAY COMPANY, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION CONTRACT
THIS NONQUALIFIED STOCK OPTION CONTRACT entered into as of June 10,
1997 between THE LESLIE FAY COMPANY, INC., a Delaware corporation (the
"Company"), and _________________ ("Optionee").
W I T N E S S E T H:
1. The Company, in accordance with the terms and conditions of the 1997
Non-Employee Director Stock Option Plan of the Company (the "Plan"),
hereby grants to the Optionee an option to purchase an aggregate of
10,000 shares of Common Stock (the "Option Shares") at an exercise
price of $6.18 per share, being equal to the fair market value of
such shares on the date hereof. This option is not intended to
constitute an incentive stock option within the meaning of section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. The term of this option shall be 10 years from the date hereof,
subject to earlier termination as provided in the Plan. This option
shall vest and become exercisable as follows:
(a) General. This option shall become exercisable (i) with
respect to 3,333 of the shares of Common Stock subject thereto on the
first anniversary of the date of grant; (ii) with respect to an
additional 3,333 of the shares of Common Stock subject thereto on the
second anniversary of the date of grant; and (iii) with respect to an
additional 3,334 shares of Common Stock subject thereto on the third
anniversary of the date of grant.
(b) Change of Control. This option shall become fully
exercisable upon the occurrence of a Change of Control.
The right to purchase Option Shares under this option shall
be cumulative, so that if the full number of Option Shares
purchasable in a period shall not be purchased, the balance may be
purchased at any time or from time to time thereafter, but not after
the expiration of the option.
3. This option shall be exercised by giving five business days' written
notice to the Company at its then principal office stating that the
Optionee is exercising the option hereunder, specifying the number of
shares being purchased and accompanied by payment in full of the
aggregate purchase price therefor (a) in cash or by certified check,
(b) with previously acquired shares of Common Stock which have been
held by the Optionee for the applicable period required by any
Company plan or agreement with the Company pursuant
<PAGE>
to which such shares were issued and if not so restricted, which have
been held for at least six months, or (c) a combination of the
foregoing. Notwithstanding the foregoing, the purchase price may be
paid by delivery by the Optionee of a properly executed notice,
together with a copy of his irrevocable instructions to a broker
acceptable to the Board, to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay such purchase
price.
4. The Company may withhold cash or shares of Common Stock to be issued
to the Optionee in the amount that the Company determines is
necessary to satisfy its obligation to withhold taxes or other
amounts incurred by reason of the grant or exercise of this option or
the disposition of the underlying shares of Common Stock.
Alternatively, the Company may require the Optionee to pay the
Company such amount in cash promptly upon demand.
5. Notwithstanding the foregoing, this option shall not be exercisable
by the Optionee unless (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act") with
respect to the shares of Common Stock to be received upon the
exercise of this option shall be effective and current at the time of
exercise or (b) there is an exemption from registration under the
Securities Act for the issuance of the shares of Common Stock upon
such exercise. The Optionee hereby represents and warrants to the
Company that, unless such a Registration Statement is effective and
current at the time of exercise of this option, the shares of Common
Stock to be issued upon the exercise of this option will be acquired
by the Optionee for his or her own account, for investment only and
not with a view to the resale or distribution thereof.
6. Notwithstanding anything herein to the contrary, if at any time the
Board shall determine, in its discretion, that the listing or
qualification of the shares of Common Stock subject to this option on
any securities exchange or under any applicable law, or the consent
or approval of any governmental agency or regulatory body, is
necessary or desirable as a condition to, or in connection with, the
granting of an option or the issue of shares of Common Stock
hereunder, this option may not be exercised in whole or in part
unless such listing, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to
the Board.
7. The Company may affix appropriate legends upon the certificates for
shares of Common Stock issued upon exercise of this option and may
issue such "stop transfer" instructions to its transfer agent in
respect of such shares as it determines, in its discretion, to be
necessary or appropriate to (a) prevent a violation of, or to perfect
an exemption from, the registration requirements of the Securities
Act, or (b) implement the provisions of the Plan or this Contract or
any other agreement between the Company and the Optionee with respect
to such shares of Common Stock.
-2-
<PAGE>
8. Nothing in the Plan or herein shall confer upon the Optionee any
right to continue in the service of the Company or any Affiliate, or
interfere in any way with any right of the Com pany or any Affiliate
to terminate such service at any time.
9. The Company and the Optionee (by his or her acceptance of this
option) agree that they will both be subject to and bound by all of
the terms and conditions of the Plan, a copy of which is attached
hereto and made a part hereof. Any capitalized term not defined
herein shall have the meaning ascribed to it in the Plan. In the
event of a conflict between the terms of this Contract and the terms
of the Plan, the terms of the Plan shall govern.
10. The Optionee (by his or her acceptance of this option) represents and
agrees that he or she will comply with all applicable laws relating
to the Plan and the grant and exercise of this option and the
disposition of the shares of Common Stock acquired upon exercise of
the option, including, without limitation, federal and state
securities and "blue sky" laws.
11. This option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee or the
Optionee's legal representatives.
12. This Contract shall be binding upon and inure to the benefit of any
successor or assign of the Company and to any heir, distributee,
executor, administrator or legal representative entitled to the
Optionee's rights hereunder.
13. This Contract shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to
the conflicts of law rules thereof.
14. The invalidity, illegality or unenforceability of any provision
herein shall not affect the validity, legality or enforceability of
any other provision.
15. The Optionee (by his or her acceptance of this option) agrees that
the Company may amend the Plan and the option granted to the Optionee
under the Plan, subject to the limitations contained in the Plan.
IN WITNESS WHEREOF, the parties hereto have executed this Contract as
of the day and year first above written.
THE LESLIE FAY COMPANY,
INC.
------------------------------
Name: John J. Pomerantz
Title: Chairman of the Board
-3- ------------------------------
[Optionee]
AGREEMENT, GENERAL RELEASE, WAIVER AND SETTLEMENT
-------------------------------------------------
CONSULT WITH A LAWYER BEFORE SIGNING THIS AGREEMENT. BY SIGNING
THIS AGREEMENT YOU GIVE UP AND WAIVE IMPORTANT LEGAL RIGHTS.
I, Catharine Bandel Wirtshafter, understand and, of my own free will,
enter into this AGREEMENT AND GENERAL RELEASE ("AGREEMENT") with The Leslie Fay
Company, Inc. and its wholly owned subsidiary Leslie Fay Marketing, Inc.
(collectively referred to herein as the "COMPANY") and, in consideration of the
severance and termination payment and benefit (collectively "termination
benefit") described herein, agree as follows:
1(a). The COMPANY and I agree that my employment with the COMPANY is
to be terminated without cause, and that I have a right to receive, pursuant to
my Employment Agreement, dated June 4, 1997, and for additional consideration,
the following benefits, including a total lump sum payment of $159,287.22,
payable within ten (10) days of signing this agreement, as detailed on Exhibit A
attached hereto and having been adjusted as required by law.
1(b). I further understand that I will continue to participate in all
of the Company's Employee benefit plans provided in my Employment Agreement, for
the period from January 1, 1998 through June 9, 1988, as detailed in Exhibit B
attached hereto. Thereafter, I will be eligible to make a COBRA election to pay
for the continuation of medical and dental benefits for eighteen months, or
other applicable COBRA continuation period.
1(c). I have been advised that the Board of Directors has resolved
that I will be permitted to exercise 33% of 70,040 Stock Options, priced at
$6.18, at any time between the effective date of this Agreement and the first
anniversary thereof, pursuant to the Stock Option Agreement dated June 4, 1997,
as amended by the Resolution of the Board of Directors, attached hereto as
Exhibit C.
2. I hereby confirm that my employment with the COMPANY terminated as
of December 9, 1997, and I ceased being an employee and an officer of the
COMPANY as of that date.
3. I understand that this AGREEMENT does not constitute an admission
by the COMPANY of any: (a) violation of any statute, law or regulation; (b)
breach of contract, actual or implied; or (c) commission of any tort.
4. I realize there are many laws and regulations prohibiting
employment discrimination or otherwise regulating employment or claims related
to employment pursuant to which I may have rights or claims. These include Title
VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in
Employment Act of 1967, as amended (the "ADEA"); the
<PAGE>
Americans with Disabilities Act of 1990; the National Labor Relations Act, as
amended; the Employee Retirement Income Security Act of 1974, as amended; the
Civil Rights Act of 1991; the Worker Adjustment and Retraining Notification Act
("WARN"). 42 U.S.C. Section 1981 and federal, state, and local human rights,
fair employment and other laws. I also understand there are other statutes and
laws of contract and tort otherwise relating to my employment. I INTEND TO WAIVE
AND RELEASE ANY RIGHTS OR CLAIMS I MAY HAVE UNDER THESE AND OTHER LAWS, BUT I DO
NOT INTEND TO NOR AM I WAIVING ANY RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE
DATE I SIGN THIS AGREEMENT.
5(a). In exchange for my receipt of all of the termination benefits
provided for herein, including the COMPANY's release in paragraph 5(b), on
behalf of myself, my heirs and personal representatives, I release and discharge
the COMPANY from any and all charges, claims and actions arising out of my
employment or the termination of my employment with the COMPANY, including but
not limited to, any claims for attorney's fees and/or expenses. I hereby settle,
waive and will immediately withdraw with prejudice any charges, claims and
actions that I or persons acting on my behalf have brought before signing this
AGREEMENT. I agree that I will not seek personal recovery from the COMPANY
relating to the subject matter of this paragraph 5(a).
5(b). In exchange for the execution of this release and other good
and valuable consideration, the COMPANY releases and discharges me from any and
all charges, claims and actions arising out of my employment or the termination
of my employment with the COMPANY, including but not limited to, any claims for
attorney's fees and/or expenses.
5(c). As referred to in this paragraph, the COMPANY includes its
parents, subsidiaries, affiliates and divisions and their respective successors
and assigns and their directors, officers, representatives, shareholders,
agents, employees and their respective heirs and personal representatives.
6. This AGREEMENT shall be deemed to have been made within the County
of New York, State of New York, and shall be interpreted and construed and
enforced in accordance with the laws of the State of New York, and before the
Courts of the State of New York, in the County of New York.
7. I understand that this AGREEMENT may not affect the rights and
responsibilities of the Equal Employment Opportunity Commission ("Commission")
to enforce the ADEA, or used to justify interfering with the protected right of
an employee to file a charge or participate in an investigation or proceeding
conducted by the Commission under the ADEA.
8(a). I understand that in addition to any other obligation I have
pursuant to this AGREEMENT or otherwise, I will not in any capacity or manner
whatsoever, either directly or indirectly, for a six (6) month period following
the effective date of this AGREEMENT, solicit any person to leave the COMPANY.
-2-
<PAGE>
8(b). I further understand and agree that, I will not disclose any
confidential information, including without limitation, information concerning
business practices, finances, developments, trade secrets, intellectual
property, designs, sketches, patterns, records, data and other proprietary
information, which I had access to during my employment with the COMPANY.
9(a). The provisions and terms (collectively "provisions") of this
AGREEMENT are severable.
9(b). In the event that one or more of the provisions of this
AGREEMENT shall be ruled unenforceable or void, the provision(s) so affected
shall be deemed amended and shall be construed so as to enable the provision(s)
to be applied and enforced to the maximum lawful extent.
9(c). My rights and the rights of the COMPANY referred to in this
Paragraph 9(a) through (c) are in addition to any other rights or claims the
parties may have, including, without limitation, any rights or claims one party
may have against the other for breach of this AGREEMENT. Further, if either
party breaches its release in paragraph 5, it shall pay all costs and expenses
defending against the suit incurred by the other party.
10. I will not at any time talk about, write about or otherwise
publicize the terms or existence of this AGREEMENT or any fact concerning its
negotiation, execution or implementation, except in the course of obtaining
legal and/or tax advice or to enforce the terms of this Agreement. I will not
testify or give evidence in any forum concerning my affiliation or employment
with the COMPANY unless required by law or requested in writing by an authorized
official of the COMPANY. Notwithstanding the foregoing, if I am requested in
writing to do so by an authorized official of the COMPANY, I will reasonably
cooperate with the COMPANY in any investigation it may conduct in connection
with any events which occurred while I was an employee of the COMPANY.
11. The COMPANY agrees to provide me with a letter of reference as
attached hereto as Exhibit D. In addition, the COMPANY also agrees to release a
statement in the form attached hereto as Exhibit E, regarding my employment and
the termination thereof. The COMPANY also agrees that it shall not authorize
anyone to make or publish any statements which are materially inconsistent with
those contained in Exhibits D or E.
12. The COMPANY agrees to continue in full force and effect my rights
to indemnification and insurance under the COMPANY's Directors and Officers
Insurance Policies as may be applicable for my actions or inactions while I was
employed by the COMPANY, as in effect on December 9, 1997. Furthermore, nothing
contained in this Agreement shall affect or impair my right to such indemnity or
insurance pursuant to my Employment Agreement, the COMPANY's Certificate of
Incorporation and By Laws, or under applicable law.
-3-
<PAGE>
13. I understand that if I breach this AGREEMENT, in whole or in
part, the COMPANY will suffer irreparable harm for which it may have no adequate
remedy at law. I therefore consent without limiting any other rights the COMPANY
may have, to enforcement of any provision or provisions of this AGREEMENT by the
COMPANY by means of injunctive relief.
14. I was given a copy of this AGREEMENT on December 9, 1997. I have
had an opportunity to consult an attorney and any other advisor(s) of my
choosing before signing it and was given a period of at least twenty one (21)
days, which is a reasonable period of time, within which to consider this
AGREEMENT. I acknowledge that in signing this AGREEMENT, I have relied only on
the promises written in this AGREEMENT and not on any other promise made by the
COMPANY.
15. I have seven (7) days to revoke this AGREEMENT after I sign it.
This AGREEMENT will not become effective or enforceable until (7) days after the
COMPANY has received my signed copy of this AGREEMENT.
16. This AGREEMENT may not be modified or changed orally.
PLEASE WRITE THE FOLLOWING IN THE SPACE PROVIDED IF IT IS TRUE:
I have read this AGREEMENT, GENERAL RELEASE, WAIVER AND SETTLEMENT
and I understand all of its terms. I enter into and sign this AGREEMENT
knowingly and voluntarily, with full knowledge of what it means.
I have read this agreement, general release, waiver and settlement
and I understand all of its terms. I enter into and sign this agreement
knowingly and voluntarily, with full knowledge of what it means.
By: /s/Warren Wishart /s/Catherine Bandel Wirtshafter
----------------- -------------------------------
COMPANY's Representative EMPLOYEE's Signature
-4-
SUBSIDIARIES
Leslie Fay Marketing, Inc.
Leslie Fay Licensing Enterprises Corp.
Leslie Fay Systems Corp.
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