================================================================================
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period ended July 4, 1998 Commission File No. 1-9196
THE LESLIE FAY COMPANY, INC.
Delaware 13-3197085
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1412 Broadway
New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 221-4000
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
---- ----
There were 6,812,000 shares of Common Stock outstanding at August 14, 1998.
================================================================================
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of July 4, 1998
and January 3, 1998.................................................3
Consolidated Statements of Operations for the
Twenty-Six, Five and Twenty-Two Weeks Ended
July 4, 1998, July 5, 1997 and June 4, 1997, respectively...........4
Consolidated Statements of Operations for the
Thirteen, Five and Eight Weeks Ended July, 4, 1998,
July 5, 1997 and June 4, 1997, respectively.........................5
Consolidated Statements of Cash Flows for the
Twenty-Six, Five and Twenty-Two Weeks Ended
July 4, 1998, July 5, 1997 and June 4, 1997, respectively...........6
Notes to Consolidated Financial Statements...............................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.....................................................33
Item 2. Changes in Securities.................................................33
Item 3. Defaults Upon Senior Securities.......................................33
Item 4. Submission of Matters to a Vote of Security Holders...................33
Item 5. Other Information.....................................................35
Item 6. Exhibits and Reports on Form 8-K......................................35
SIGNATURES..............................................................................36
INDEX TO EXHIBITS.....................................................................E-1
</TABLE>
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
July 4, January 3,
ASSETS 1998 1998
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $8,568 $18,455
Restricted cash and cash equivalents 3,786 1,358
Restricted short term investments -- 2,989
Accounts receivable- net of allowances for possible losses
of $3,207 and $3,236, respectively 12,762 9,747
Inventories 33,585 26,701
Prepaid expenses and other current assets 1,045 807
---------------- ----------------
Total Current Assets 59,746 60,057
Property, Plant and Equipment, at cost, net of
accumulated depreciation of $91 and $14, respectively 1,725 845
Deferred Charges and Other Assets 105 149
---------------- ----------------
Total Assets $61,576 $61,051
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $6,606 $11,530
Accrued expenses and other current liabilities 4,494 4,542
Accrued expenses and other current confirmation liabilities 3,786 4,347
Income taxes payable 124 25
Current portion of capitalized leases 46 160
---------------- ----------------
Total Current Liabilities 15,056 20,604
Excess of revalued net assets acquired over equity under fresh-start reporting,
net of accumulated amortization of $4,952 and $2,667, respectively 8,755 11,041
Long term debt-capitalized lease 42 49
Deferred liabilities 240 143
---------------- ----------------
Total Liabilities 24,093 31,837
---------------- ----------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $ 01 par value; 500 shares authorized;
no shares issued and outstanding -- --
Common stock, $ 01 par value; 20,000 and 9,500 shares authorized, respectively;
6,812 and 6,800 shares issued and outstanding, respectively 68 68
Capital in excess of par value 28,958 25,837
Accumulated retained earnings 8,457 3,309
---------------- ----------------
Total Stockholders' Equity 37,483 29,214
Total Liabilities and Stockholders' Equity $61,576 $61,051
================ ================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements
-3-
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED AUDITED
Reorganized Predecessor
Company Company
------------------------------------ --------------
Twenty-Six Five Twenty-Two
Weeks Ended Weeks Ended Weeks Ended
July 4, July 5, June 4,
1998 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net Sales $73,934 $5,535 $197,984
Cost of Sales 54,447 4,410 147,276
-------------- -------------- --------------
Gross profit 19,487 1,125 50,708
-------------- -------------- --------------
Operating Expenses:
Selling, warehouse, general and administrative expenses 14,739 1,632 35,459
Depreciation and amortization expense 70 -- 2,090
-------------- -------------- --------------
Total operating expenses 14,809 1,632 37,549
Other income (575) (118) (1,196)
Amortization of excess revalued net assets acquired over equity (2,286) (381) --
-------------- -------------- --------------
Total operating expenses, net 11,948 1,133 36,353
-------------- -------------- --------------
Operating income (loss) 7,539 (8) 14,355
Interest and Financing Costs (excludes contractual interest of
$-0-, $-0- and $7,513, respectively) 320 (102) 1,372
-------------- -------------- --------------
Income before reorganization costs, taxes, gain
on sale, fresh-start revaluation and extraordinary item 7,219 94 12,983
Reorganization Costs -- -- 3,379
-------------- -------------- --------------
Income before taxes, gain on sale,
fresh-start revaluation and extraordinary item 7,219 94 9,604
Provision for taxes 2,072 20 451
-------------- -------------- --------------
Net Income before gain on sale, fresh-start
revaluation and extraordinary item 5,147 74 9,153
Gain on 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 discharg -- -- 136,341
-------------- -------------- --------------
Net Income $5,147 $74 $145,494
============== ============== ==============
Net Income per Common Share - Basic $0.76 $0.01 *
============== ============== ==============
- Diluted $0.72 $0.01 *
============== ============== ==============
Weighted Average Common Shares Outstanding - Basic 6,801,967 6,800,000 *
============== ============== ==============
- Diluted 7,149,484 6,800,000 *
============== ============== ==============
</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.
-4-
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
Reorganized Predecessor
Company Company
------------------------------------ --------------
Thirteen Five Eight
Weeks Ended Weeks Ended Weeks Ended
July 4, July 5, June 4,
1998 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net Sales $28,676 $5,535 $55,229
Cost of Sales 21,187 4,410 41,289
-------------- -------------- --------------
Gross profit 7,489 1,125 13,940
-------------- -------------- --------------
Operating Expenses:
Selling, warehouse, general and administrative expenses 7,203 1,632 12,354
Depreciation and amortization expense 53 -- 846
-------------- -------------- --------------
Total operating expenses 7,256 1,632 13,200
Other income (303) (118) (239)
Amortization of excess revalued net assets acquired over equity (1,143) (381) --
-------------- -------------- --------------
Total operating expenses, net 5,810 1,133 12,961
-------------- -------------- --------------
Operating income (loss) 1,679 (8) 979
Interest and Financing Costs (excludes contractual interest of
$-0-, $-0- and $3,005, respectively) 130 (102) 504
-------------- -------------- --------------
Income before reorganization costs, taxes, gain
on sale, fresh-start revaluation and extraordinary item 1,549 94 475
Reorganization Costs -- -- 2,911
-------------- -------------- --------------
Income (loss) before taxes, gain on sale,
fresh-start revaluation and extraordinary item 1,549 94 (2,436)
Provision for taxes 171 20 135
-------------- -------------- --------------
Net Income (loss) before gain on sale, fresh-start
revaluation and extraordinary item 1,378 74 (2,571)
Gain on 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 $1,378 $74 $133,770
============== ============== ==============
Net Income per Common Share - Basic $0.20 $0.01 *
============== ============== ==============
- Diluted $0.19 $0.01 *
============== ============== ==============
Weighted Average Common Shares Outstanding - Basic 6,803,956 6,800,000 *
============== ============== ==============
- Diluted 7,166,261 6,800,000 *
============== ============== ==============
</TABLE>
* Earnings per share is not presented for the eight weeks ended June 4,
1997 because such presentation would not be meaningful. The old stock was
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.
-5-
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED AUDITED
Reorganized Predecessor
Company Company
------------------------------- ---------------
Twenty-Six Five Twenty-Two
Weeks Ended Weeks Ended Weeks Ended
July 4, 1998 July 5, 1997 June 4, 1997
-------------- --------------- -----------------
<S> <C> <C> <C>
Net income $5,147 $74 $145,494
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 76 -- 2,222
Amortization of excess net assets acquired
over equity (2,286) (381) --
Provision for possible losses on accounts receivable 19 (99) 199
Provision for compensation under stock option grants 1,080 -- --
Gain on sale of fixed assets -- -- (347)
Decrease (increase) in: --
Restricted short term investment 2,989 -- --
Accounts receivable (3,034) 5,079 (1,248)
Inventories (6,884) (3,845) 25,538
Prepaid expenses and other current assets (238) (4,252) (66)
Deferred charges and other assets 44 (249) 125
(Decrease) increase in:
Accounts payable, accrued expenses and other
current liabilities (4,972) (1,736) (4,167)
Income taxes payable 99 (11) (1,515)
Deferred credits and other noncurrent liabilities 97 -- 374
Changes due to reorganization activities:
Gain on disposition of Sassco Fashions, fresh-start revaluation
charge and extraordinary gain on debt discharge -- -- (136,341)
Reorganization costs -- -- 3,379
Payment of reorganization costs -- -- (917)
Use of pre-consummation deferred taxes 2,042 -- --
-------------- --------------- -----------------
Total adjustments (10,968) (5,494) (112,764)
-------------- --------------- -----------------
Net cash (used in) provided by operating activities (5,821) (5,420) 32,730
-------------- --------------- -----------------
Capital expenditures (956) (140) (3,731)
Proceeds from sale of assets -- -- 467
Proceeds from sale of Castleberry -- -- 600
Cash paid to sell/transfer the Sassco Fashions line -- -- (10,963)
-------------- --------------- -----------------
Net cash (used in) investing activities (956) (140) (13,627)
-------------- --------------- -----------------
-- --
-- --
Repayment - capitalized leases (121) (19) --
Payment of obligations under Plan of Reorganization (561) (436) --
-------------- --------------- -----------------
Net cash (used in) financing activities (682) (455) --
-------------- --------------- -----------------
(7,459) (6,015) 19,103
19,813 41,080 21,977
-------------- --------------- -----------------
$12,354 $35,065 $41,080
============== =============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation:
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), pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from this report, as is permitted by such rules and
regulations; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the Fiscal Year ended January 3, 1998 (the "1997 Form 10-K"). Interim
taxes were provided based on the Company's estimated effective tax rate for the
year.
In the opinion of management, the information furnished reflects all
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.
Certain reclassifications have been made to the financial statements
for the twenty-two and eight weeks ended July 5, 1997 to conform to the current
quarterly presentation.
2. Reorganization Case and Fresh-Start Reporting:
On April 5, 1993 ("the Filing Date"), The Leslie Fay Companies, Inc.
("Leslie Fay") and each of Leslie Fay Licensing Corp., Spitalnick Corp. and Hue,
Inc., wholly-owned subsidiaries of Leslie Fay (collectively the "Debtors"),
filed a voluntary petition under chapter 11 of the Bankruptcy Code (the
"Bankruptcy Code"). 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 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
-7-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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.
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 6,800,000 new shares ( as adjusted for the
July 1, 1998 stock split (see Note 9) ) 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 contained in the
Company's Form 10-K for the fiscal year ended January 3, 1998, 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.
-8-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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 included in the 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, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code", the Company adopted
fresh-start reporting and reflected the consummation distributions under the
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
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 in the
"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.
-9-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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 date prior to June 4, 1997.
3. Dispositions:
As discussed in Note 2, in connection with the consummation of the
Plan, the Company sold or transferred all the assets and liabilities of its
Sassco Fashions 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 included in the Gain on
the disposition of the Sassco Fashions product line in the consolidated
statements of operations for the twenty-two and eight weeks ended June 4, 1997.
In addition, on May 26, 1997, the Company sold the assets and
liabilities of its Castleberry product line for $600,000. The resulting loss of
$1,398,000 on the sale was previously recorded as reorganization expense in
fiscal 1996 and therefore, was applied against Accrued expenses and other
current liabilities at the time of the sale.
The unaudited pro forma consolidated statements of operations for the
twenty-two and eight weeks ended June 4, 1997 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 period presented.
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
statements of operations for the twenty-two and eight weeks ended June 4, 1997.
All significant intercompany transactions have been eliminated.
-10-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
The unaudited pro forma adjustments presented in the statement are as
follows:
Column Heading Explanation
-------------- -----------
Historical Operations The Consolidated Statement of Operations as it
existed prior to the adjustments.
Disposition of Sassco The operating results of the Sassco Fashions
product 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 the July 5,
1997 period, the gain recorded on the disposition
of the Sassco Fashions line has been reversed.
Sale of Castleberry The operating results of the Castleberry product
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:
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.
-11-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Twenty-Two Weeks Ended June 4, 1997
-----------------------------------------------------------------------------
Historical Disposition of Sale of Fresh Start Pro Forma
Operations Sassco Castleberry Reporting Adjusted 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 of excess 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
Interest 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 (89,810) -- (46,531) --
-------------- ------------ ----------- --------------- -------------
Net Income (Loss) $145,494 ($98,923) $481 ($42,378) $4,674
============== ============ =========== =============== =============
Net Income (Loss) per Share
- Basic and Diluted * $0.69
============== =============
Weighted Average Shares Outstanding
- Basic and Diluted * 6,800,000
============== =============
</TABLE>
* Earnings per share 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
-12-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Eight Weeks Ended June 4, 1997
-----------------------------------------------------------------------------
Historical Disposition of Sale of Fresh Start Pro Forma
Operations Sassco Castleberry Reporting Adjusted Balance
-------------- ------------ ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net Sales $55,229 ($36,877) ($679) $ -- $17,673
Cost of Sales 41,289 (27,350) (681) (14) 13,244
-------------- ------------ ----------- --------------- -------------
Gross profit 13,940 (9,527) 2 14 4,429
-------------- ------------ ----------- --------------- -------------
Operating Expenses:
Selling, warehouse, general and
administrative expenses 12,354 (8,416) (449) 100 3,589
Depreciation and amortization expense 846 (435) (11) (400) --
-------------- ------------ ----------- --------------- -------------
Total operating expenses 13,200 (8,851) (460) (300) 3,589
Other (income) (239) 10 -- -- (229)
Amortization of excess revalued net
assets acquired over equity -- -- -- (762) (762)
-------------- ------------ ----------- --------------- -------------
Total operating expenses, net 12,961 (8,841) (460) (1,062) 2,598
-------------- ------------ ----------- --------------- -------------
Operating income 979 (686) 462 1,076 1,831
Interest and Financing Costs (excludes
contractual interest) 504 (183) -- -- 321
-------------- ------------ ----------- --------------- -------------
Income (Loss) before reorganization costs, taxes,
gain on sale, fresh-start revaluation,
and extraordinary item 475 (503) 462 1,076 1,510
Reorganization Costs 2,911 -- 64 (2,975) --
-------------- ------------ ----------- --------------- -------------
Income (Loss) before taxes, gain on sale,
fresh-start revaluation, and extraordinary item (2,436) (503) 398 4,051 1,510
Taxes 135 (142) -- -- 321 314
-------------- ------------ ----------- --------------- -------------
Net Income (Loss) before gain on sale,
fresh-start revaluation, and extraordinary item (2,571) (361) 398 3,730 1,196
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 (89,810) -- (46,531) --
-------------- ------------ ----------- --------------- -------------
Net Income (Loss) $133,770 ($90,171) $398 ($42,801) $1,196
============== ============ =========== =============== =============
Net Income (Loss) per Share
- Basic and Diluted * $0.18
=============
Weighted Average Shares Outstanding
- Basic and Diluted * 6,800,000
============== =============
</TABLE>
* Earnings per share 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
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
4. Accounts Receivable:
On June 2, 1997, a wholly-owed subsidiary of the Company entered into a
Factoring Agreement with The CIT Group/Commercial Services, Inc. ("CIT"). Under
this agreement, CIT began purchasing the accounts receivable of the Company and
remits the proceeds received to the Company as collected. In exchange for
collecting the receivables, CIT earns a factoring fee of 0.4% of receivables
purchased (with a minimum charge per invoice) as well as an interest charge of
prime plus 1% on two days cash collections.
5. Inventories:
Inventories consist of the following:
Unaudited
July 4, January 3,
1998 1998
---- ----
(In Thousands)
Raw materials $10,909 $ 9,638
Work in process 4,927 4,540
Finished goods 17,749 12,523
-------- --------
Total inventories $ 33,585 $ 26,701
======== ========
6. Debt:
On June 2, 1997, in preparation for the consummation of the Plan, a
wholly- owned subsidiary of the Company entered into a two-year financing
agreement (the "CIT Credit Agreement") with CIT to provide direct borrowings and
the issuance of letters of credit on the Company's behalf in an aggregate amount
not to exceed $30,000,000, with a sublimit on letters of credit of $20,000,000.
The CIT Credit Agreement became effective on June 4, 1997 with the consummation
of the Plan. Direct borrowings bear interest at prime plus 1.0% (9.5% at July 4,
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
$6,552,000 was committed under unexpired letters of credit as of July 4, 1998.
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THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
The CIT Credit Agreement, as amended, contains certain reporting
requirements, as well as financial and operating covenants related to capital
expenditures, a minimum tangible net worth and the maintenance of a current
assets to current liabilities ratio and an interest to earnings ratio and the
attainment of minimum earnings. As collateral for borrowings under the CIT
Credit Agreement, the Company has granted to CIT a security interest in
substantially all of its assets. In addition, the CIT Credit Agreement contains
certain restrictive covenants, including limitations on the incurrence of
additional liens and indebtedness. The Company is currently in compliance with
all requirements contained in the CIT 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 to exceed $60,000,000. Beginning January 1, 1997, the sublimit on the
revolving line of credit was $20,000,000 and the sublimit for letters of credit
was $50,000,000.
Interest on direct borrowings was charged at prime plus 1.5% (10.00% at
July 5, 1997), and the FNBB Credit Agreement required a fee, payable monthly, on
average outstanding letters of credit at a rate of 2% annually.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
7. Income Taxes:
The provision for state and foreign income taxes is $2,072,000, $20,000
and $451,000 for the twenty-six, five and twenty-two weeks ended July 4, 1998,
July 5, 1997 and June 4, 1997, respectively, and $171,000 and $135,000 for the
thirteen and eight weeks ended July 4, 1998 and June 4, 1997, respectively.
Federal income taxes for the post-consummation period are substantially offset
by the utilization of pre-consummation net operating loss carryovers, which are
limited to approximately $1,500,000 in 1998, and post-consummation net operating
loss carryforwards without limitation and deductions available for tax purposes.
Although there is no 1997 Federal income tax provision currently recognizable on
the pre-consummation earnings due to existing net operating loss carryforwards
and no Federal income tax benefit currently recognizable, the Company provided
$3,728,000 for federal and state income taxes based on the alternative minimum
tax regulations for the twenty-two weeks ended June 4, 1997 related to the gain
on the sale of the Sassco Fashions product line. These taxes are reflected net
of the gain shown in the statement of operations for the twenty-two weeks ended
June 4, 1997.
8. Commitments and Contingencies:
As discussed in Note 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 pending against the Company and
those referenced subsidiaries prior to those dates 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 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 was taken from the Order dismissing the appeal
taken by the Claimants, but 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.
-16-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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 appealed that decision to the United States District Court for the
Southern District of New York, and the Bankruptcy Court order was affirmed on
appeal.
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 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
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
well as damages. On March 7, 1997, a stipulation and settlement 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 was 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.
-18-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
In March 1993, a stockholder derivative action entitled "Isidore
Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v. John J.
Pomerantz et al." (the "Derivative Action") was instituted in the Supreme Court
of the State of New York, County of New York, against certain officers and
directors of the Company and its then auditors. This complaint alleges that the
defendants knew or should have known material facts relating to the sales and
earnings of the Company which they failed to disclose. The time to answer, move
or otherwise respond to the complaint has not yet expired. The plaintiff seeks
an unspecified amount of monetary damages, together with interest thereon, and
costs and expenses incurred in the action, including reasonable attorneys' and
experts' fees. The Company cannot presently determine the ultimate outcome of
this litigation, but believes that it should not have any unfavorable impact on
the financial statements. Pursuant to the Modification of the Third Amended and
Restated Joint Plan of Reorganization filed on April 4, 1997, a Derivative
Action Board, comprised of three persons or entities appointed by the Bankruptcy
Court, based upon nominations by the Creditors' Committee, shall determine by a
majority vote whether to prosecute, compromise and settle or discontinue the
Derivative Action. Under the Plan, any recovery in the Derivative Action will be
distributed to creditors of the Company and will not inure to the benefit of the
Company.
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
trade name. 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.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
9. Stockholders' Equity:
On June 3, 1998 the Board of Directors declared a two-for-one split of
the Company's common stock to shareholders of record on June 17, 1998 to be
distributed on July 1, 1998. An amount equal to the par value of the common
shares issued was transferred from capital in excess of par to the common stock
account. All references to number of shares, except shares authorized, and to
per share information in the consolidated financial statements have been
adjusted to reflect the stock split on a retroactive basis.
As provided under the Plan, the authorized common stock of the
reorganized Company consisted of 3,500,000 shares of common stock with a par
value $.01 per share. The authorized common stock of the reorganized Company was
increased to 9,500,000 shares of common stock with a par value of $.01 per share
in November 1997 and to 20,000,000 shares with a par value of $.01 per share in
June 1998. At June 4, 1997, 6,800,000 shares were issued and outstanding and
were being held by the plan administrator in trust. In July 1997, 5,372,254
(approximately 79%) of the shares were distributed. The remaining approximately
twenty-one (21%) percent is being held back pending the resolution of certain
disputed claims before the Bankruptcy Court. The old common stock was canceled
at June 4, 1997 and the old stockholders of the Company did not retain or
receive any value for their equity interest.
In addition, 500,000 shares of Preferred Stock of the reorganized
Company were authorized at June 4, 1997 with a par value of $.01. None of such
shares have been issued.
The Board of Directors of the Company on April 14, 1998 approved an
amendment to the Non-Employee Director Stock Option and Stock Incentive Plan to
change each non-employee director's annual compensation to include 2,000 shares
of the Company's common stock effective as of June 3, 1998. This amendment was
approved at the annual shareholders meeting on June 3, 1998. As a result, twelve
thousand shares of the Company's common stock were issued to non-employee
directors on June 3, 1998 for the one year period ending June 3, 1999. An amount
equal to the par value of the common shares issued was transferred from capital
in excess of par to the common stock account.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
10. Stock Option Plan:
The Company currently offers stock options under two plans:
The 1997 Management Stock Option Plan ("Management Plan") was
adopted in June 1997 in connection with the Company's emergence
from bankruptcy and provides that options may be granted to key
employees (including directors who are employees) of and
consultants to the Company. An amendment to this plan was approved
by the stockholders at the annual meeting on June 3, 1998. This
amendment replaced provisions for granting the "Home Run" options.
The 1997 Non-Employee Director Stock Option and Stock Incentive
Plan (the "Non- Employee Director Plan") was adopted in June 1997
and provides that options may be granted to non-employee directors
of the Company. An amendment to this plan was approved by the
stockholders at the annual meeting on June 3, 1998 to provide for
the grant of stock to non-employee directors in addition to the
grant of stock options.
Discussion of Management Plan
The Management Plan is designed to attract and retain the
best-qualified personnel for positions of substantial responsibility, to provide
additional incentive to employees of and consultants to the Company and to
promote the success of the Company's business.
The aggregate number of shares of Common Stock for which options may be
granted under the Management Plan, adjusted for the July 1, 1998 two-for-one
stock split, is 2,500,000 shares. The Management Plan is administered by the
Compensation Committee of the Board of Directors. Under the Management Plan the
following options have been granted:
On June 4, 1997, options to purchase 824,242 shares of common stock at
an exercise price of $3.09 per share were granted to five senior managers of the
Company. Vesting for these stock options occurs with respect to 33% on June 4,
1998, a second 33% on June 4, 1999, and the final 34% on June 4, 2000. Due to
the termination of employment of one of these executives, options to purchase
93,412 shares at $3.09 per share have been forfeited. As of August 10, 1998,
none of the remaining options have been exercised.
During 1997, the Board of Directors authorized the granting to 22
executives of the Company, not including any of the senior managers above,
incentive stock options to purchase 76,000 shares at exercise prices of $5.75
and $6.25 per share, the then current market price of the shares. These
incentive stock options vest 33% on the first anniversary of the grant, 33% on
the second
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
anniversary, and the final 34% on the third anniversary of the grant. As of
August 10, 1998, none of these stock options have been exercised or forfeited.
At the June 3, 1998 annual meeting of stockholders, an amendment to the
Management Plan was approved to replace the "Home Run" option provisions that
were included as part of the Company's emergence from bankruptcy. These "Home
Run" option provisions called for the granting of options to purchase up to
618,182 shares at an exercise price of $3.09 per share in the event of a
reorganization, merger, sale or disposition of substantially all the assets of
the Company, the underwritten equity offering of 50% or more of the outstanding
Common Stock or other similar corporate transaction if the transaction achieved
minimum imputed enterprise value targets. These minimum targets escalated at
each anniversary of the Company's emergence from bankruptcy. The replacement
provision grants the remaining four original senior executives options to
purchase 365,758 shares at an exercise price of $3.09. These options were
granted as of January 4, 1998. 25% of these vested immediately, with the
remaining options vesting in equal installments at each of the following three
anniversaries of the January 4, 1998 grant date. As of August 10, 1998, none of
these stock options have been exercised or forfeited.
Adjusted for the July 1, 1998 two-for-one stock split, there are
currently options granted but not exercised under the Management Plan to
purchase 1,172,586 shares at a weighted average exercise price of $3.26 per
share.
Discussion of Non-Employee Director Plan
The Non-Employee Director Plan is designed to attract and retain the
best-qualified personnel for director positions and to provide for the long-term
growth and financial success of the Company's business.
The aggregate number of shares of Common Stock for which options may be
granted or stock awarded under the Non-Employee Director Plan, adjusted for the
July 1, 1998 two-for-one stock split, is 200,000 shares. The Non-Employee
Director Plan is administered by the Compensation Committee of the Board of
Directors. The Plan calls for the issuance of stock options or stock grants as
follows:
On June 4, 1997, each of the five original non-employee directors of
the Company was granted options to purchase 20,000 shares at an exercise price
of $3.09 per share. Each new non-employee director has been granted options to
purchase 10,000 shares at an exercise price equal to the fair market value of
the Common Stock at the day of the grant. These options vest over three years
from the date of the grant, one-third on each of the first anniversary, the
second anniversary and the third anniversary. As of August 10, 1998, none of
these options have been exercised. There are currently options granted but not
exercised under the Non-Employee Director Plan to purchase 140,000 shares at a
weighted
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
average exercise price of $4.09 per share.
The Non-Employee Director Plan also provides that a stock grant for
2,000 shares of Common Stock will be issued to each non-employee director of the
Company as of the conclusion of each annual meeting of stockholders of the
Company. There are no restrictions on the receipt or sale of the shares, except
such as may be imposed by federal or state security laws. This grant of stock is
designed to offset the reduction in the portion of directors' fee paid in cash.
The Company has granted 12,000 shares of Common Stock to its six non-employee
directors.
Accounting for Stock Based Compensation
On June 4, 1997, effective with the Company's emergence from
bankruptcy, the Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under SFAS No. 123, the Company has recorded
$1,080,000 and $351,000 of non-cash compensation expense included in Selling,
warehouse, general and administrative expenses for the twenty-six and
fifty-three weeks ended July 4, 1998 and January 3, 1998, respectively. These
amounts were offset as adjustments to Capital in excess of par value in the
consolidated balance sheets at July 4, 1998 and January 3, 1998, respectively.
-23-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
11. New Accounting Pronouncements:
Effective January 4, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No.130, "Reporting
Comprehensive Income" which modifies the financial statement presentation of
comprehensive income and its components. Adoption of this statement expands and
modifies disclosures and accordingly has no effect on the Company's financial
position or operating results during the periods presented.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivative Instruments and Hedging Activities. The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
The Company has not engaged in hedging activities and has not purchased
any derivative instruments. The Company believes the adoption of SFAS No. 133
would have no impact on these consolidated financial statements.
12. Net Income (Loss) Per Share:
As of July 4, 1998, the basic weighted average common shares
outstanding is 6,801,967, and the weighted average shares outstanding assuming
dilution is 7,149,484. The difference of 347,517 represents the incremental
shares issuable upon exercise of dilutive stock options.
-24-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(a) Results of Operations
Twenty-six Weeks Ended July 4, 1998 as Compared to
Twenty-seven Weeks Ended July 5, 1997
The Company recorded net sales of $73,934,000 for the twenty-six weeks
ended July 4, 1998, compared with $203,519,000 for the twenty-seven weeks ended
July 5, 1997, a net decrease of $129,585,000 or 63.7%. The primary factors
contributing to this decrease were the sale of the Sassco Fashions and
Castleberry product lines, the closing of the Outlander product line and the
extra week of shipping volume in the first quarter 1997, offset by sales of new
product lines in the first half of 1998. The Sassco, Castleberry and Outlander
lines generated $136,107,000, $2,808,000 and $2,641,000, respectively, in net
sales for the twenty-seven weeks ended July 5, 1997. The extra week's shipping
volume in the continuing product lines accounted for $1,225,000 in net sales
during the twenty-seven week period ended July 5, 1997. The Company's newly
released product line, Haberdashery by Leslie Fay Sportswear, generated net
sales of $2,413,000 for the twenty-six week period ending July 4, 1998. After
excluding the effect of the above mentioned businesses, the extra week and
$13,000 of returns relating to the closed Outlander product line, the continuing
product lines had a net sales increase of $10,796,000, or 17.8%, for the
twenty-six weeks ended July 4, 1998 as compared to the comparably adjusted
period ended July 5, 1997. The Dress product lines generated an increase for the
period of $10,231,000 or 24.4% directly as a result of increased production of
the Spring and Summer season lines to service anticipated increases in customer
demand. Net sales for the comparable continuing Sportswear product lines,
excluding the Haberdashery line, increased by $565,000 or 3.0%.
-25-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Gross profit for the twenty-six weeks ended July 4, 1998 was
$19,487,000 and 26.4% of net sales compared with $51,833,000 and 25.5% for the
twenty-seven weeks ended July 5, 1997. The Sassco Fashions, Castleberry and
Outlander product lines generated $34,534,000, $546,000 and ($331,000),
respectively, in gross profit for the twenty-seven weeks ended July 5, 1997. The
extra week of shipping during the quarter ended July 5, 1997 generated $443,000
of gross profit. The newly offered Haberdashery line and discontinued Outlander
line generated gross profit (loss) of $831,000 and ($17,000), respectively, for
the twenty-six weeks ended July 4, 1998. The comparable continuing businesses
increased gross profit by $2,032,000 for the twenty-six weeks ended July 4, 1998
versus the prior year while the gross margin as a percentage of net sales
decreased to 26.1% from 27.4%. Increased production of the Spring and Summer
seasons as discussed above generated the additional gross margin volume in the
Dress and Sportswear product lines. The lower gross profit percentage is due
mostly to additional discounts taken in the Dress product line due to higher
levels of off-price sales and to discounts offered on late shipments. The gross
profit from the Dress line, excluding the effect of the additional week, rose
$2,244,000 but the percentage to net sales fell to 27.4% from 28.7%. The gross
profit produced by the Sportswear line for the twenty-six weeks ended July 4,
1998, excluding the effect of the extra week and the new product line, decreased
by $212,000 and the percentage of net sales decreased to 22.7% from 24.5% for
the comparable period ended July 5, 1997. This decrease resulted primarily from
the competitive repricing strategy of the Leslie Fay Sportswear product line
that was implemented during the second half of 1997.
Selling, warehouse, general and administrative ("SG&A") expenses were
$14,739,000 or 19.9% of net sales and $37,091,000 or 18.2% of net sales for the
twenty-six and twenty-seven weeks ended July 4, 1998 and July 5, 1997,
respectively. After excluding the costs associated with the product lines sold,
the pro forma remaining business had expenses of $12,675,000 or 19.6% of net
sales for the twenty-seven weeks ended July 5, 1997. The expense increase of
$2,064,000 was caused by several items that affected direct comparability. In
the year ago period, SG&A expenses included a $520,000 reduction resulting from
collecting receivables in excess of the bad debt reserve established before the
Company emerged from bankruptcy. The year ago period included $814,000 in
transitional, bankruptcy-related expenses that were eliminated following the
emergence from bankruptcy. Also, the year ago period included revenue payments
for support provided the Sassco Fashions product line of $250,000. Adjusting for
these items, SG&A expenses for the 1998 period increased by $2,108,000. This
year includes an accrual of $1,080,000 for non-cash, stock based compensation
for stock options that were granted after the Company's emergence from
bankruptcy. Also an additional $303,000 in professional fees have been incurred
due to requirements of public filings and investor relations, by contracting
Arthur Andersen LLP to also serve as internal auditors for the company, and by
contracting an engineering firm to work with the Company to improve operating
efficiency. The Company has invested an additional $200,000 in advertising in
support of its customers as well as to launch the Haberdashery by Leslie Fay
Sportswear product line. Shipping expenses also rose $318,000 despite improved
operating productivity due to additional costs caused to ship product received
late from the Company's suppliers. The remaining $207,000 increase represents a
growth over 1997 of under 2% that supported a 17.8% sales increase.
-26-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Other income was $575,000 and $1,314,000 for the twenty-six and
twenty-seven weeks ended July 4, 1998 and July 5, 1997, respectively. The
decrease is due to the licensing revenues related to trade names which were
spun-off with the Sassco Fashions product line, renegotiated minimum payment
terms for the HUE legwear license and excess 1996 licensing revenues received
and recognized as income during the first quarter of 1997.
Depreciation and amortization expense for the twenty-six weeks ended
July 4, 1998 was $70,000 due to the write-off of fixed assets at June 4, 1997
under fresh-start reporting. In addition, the Company realized income of
$2,286,000 from amortization of excess revalued net assets acquired over equity
(see Note 2). Depreciation and amortization expense for the twenty-seven weeks
ended July 5, 1997 consisted of depreciation on fixed assets of $1,617,000,
including $1,119,000 related to product lines sold, and amortization of the
excess purchase price over net assets acquired of $473,000, including $257,000
of amortization related to the lines sold. This amortization expense related to
the leveraged buyout of The Leslie Fay Company on June 28, 1984.
Interest and financing costs were $320,000 and $1,270,000 for the
twenty-six and twenty-seven weeks ended July 4, 1998 and July 5, 1997,
respectively. The financing fees under the new CIT Credit Agreement were offset
by income earned on the cash invested for the twenty-six weeks ended July 4,
1998. The financing fees incurred were significantly below those incurred during
the twenty-seven weeks ended July 5, 1997 due to the higher line needed to
finance the operations of the Sassco Fashions and Castleberry product lines.
The provision for federal, state and local income taxes was $2,072,000
and $471,000 for the twenty-six and twenty-seven weeks ended July 4, 1998 and
July 5, 1997, respectively. The expense was lower for the twenty-seven weeks
period ended July 5, 1997 due to the expected availability of the net operating
loss carryforwards available in full for the period up to and including the June
4, 1997 Consummation Date (see Note 7).
-27-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Thirteen Weeks Ended July 4, 1998 as Compared to
Thirteen Weeks Ended July 5, 1997
The Company recorded net sales of $28,676,000 for the thirteen weeks
ended July 4, 1998, compared with $60,764,000 for the thirteen weeks ended July
5, 1997, a net decrease of $32,088,000 or 52.8%. The primary factors
contributing to this decrease were the sale of the Sassco Fashions and
Castleberry product lines and the closing of the Outlander product line, offset
by sales of new product lines. The Sassco, Castleberry and Outlander lines
generated $36,877,000, $679,000 and $644,000, respectively, in net sales for the
thirteen weeks ended July 5, 1997. The Company's newly released product line,
Haberdashery by Leslie Fay Sportswear, generated net sales of $1,121,000 for the
thirteen week period ending July 4, 1998. On a comparable basis, after excluding
the effect of the above mentioned businesses and $7,000 of sales in 1998 related
to the closed Outlander product line, the continuing product lines had a net
sales increase of $4,984,000, or 22.1%, for the thirteen weeks ended July 4,
1998 as compared to the comparably adjusted period ended July 5, 1997. The Dress
product lines generated an increase for the period of $4,700,000 or 27.9%
directly as a result of increased production of the Spring and Summer season
lines to service anticipated increases in customer demand. Net sales for the
comparable continuing Sportswear product lines, excluding the Haberdashery line,
increased by $284,000 or 4.9%.
Gross profit for the thirteen weeks ended July 4, 1998 was $7,489,000
and 26.1% of net sales compared with $15,065,000 and 24.8% for the thirteen
weeks ended July 5, 1997. The Sassco Fashions, Castleberry and Outlander product
lines generated $9,527,000, $2,000 and ($97,000), respectively, in gross profit
for the thirteen weeks ended July 5, 1997. The newly offered Haberdashery line
generated gross profit of $428,000 for the thirteen weeks ended July 4, 1998.
The comparable continuing businesses increased gross profit by $1,428,000 for
the thirteen weeks ended July 4, 1998 versus the prior year while the gross
margin as a percentage of comparable net sales decreased to 25.0% from 25.6%.
Increased production of the Spring and Summer seasons as discussed above
generated the additional gross margin volume in both the Dress and Sportswear
product lines. The lower gross profit percentage is due mostly to additional
discounts taken in the Dress product line due to higher levels of off-price
sales and to discounts offered on late shipments. The gross profit from the
Dress line rose $1,381,000 but the percentage of net sales fell to 25.9% from
26.6%. The gross profit produced by the Sportswear line for the thirteen weeks
ended July 4, 1998, excluding the effect of the new product line, increased by
$47,000 and the percentage of net sales increased to 22.4% from 22.0% for the
comparable period ended July 5, 1997.
-28-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
SG&A expenses were $7,203,000 or 25.1% of net sales and $13,986,000 or
23.0% of net sales for the thirteen weeks ended July 4, 1998 and July 5, 1997,
respectively. After excluding the costs associated with the product lines sold,
the pro forma remaining business had expenses of $5,221,000 or 22.5% of net
sales for the comparably adjusted thirteen weeks ended July 5, 1997. The expense
increase of $1,982,000 was caused by several items that affected direct
comparability. In the year ago period, SG&A expenses included a $520,000
reduction resulting from collecting receivables in excess of the bad debt
reserve established before the Company emerged from bankruptcy. The year ago
period included $427,000 in transitional, bankruptcy-related expenses that were
eliminated following the emergence from bankruptcy. Also, the year ago period
included revenue payments for support provided the Sassco Fashions product line
of $100,000. Adjusting for these items, SG&A expenses for the 1998 period
increased by $1,789,000. This year includes an accrual of $684,000 for non-cash,
stock based compensation for stock options that were granted after the Company's
emergence from bankruptcy. Also an additional $259,000 in professional fees have
been incurred due to requirements of public filings and investor relations, by
contracting of Arthur Andersen LLP to also serve as internal auditors for the
Company, and by contracting an engineering firm to work with the Company to
improve operating efficiency. The Company has invested an additional $117,000 in
advertising in support of its customers as well as to launch the Haberdashery by
Leslie Fay Sportswear product line. Shipping expenses also rose $243,000 despite
improved operating productivity due to additional costs caused to ship product
received late from the Company's suppliers. The quarter also included an $85,000
increase reflecting new contracts for the four senior managers which included
base salary increases effective January 4, 1998. The remaining $401,000 increase
represents a growth over 1997 of under 8% that supported a 22.1% sales increase.
Other income was $303,000 and $357,000 for the thirteen weeks ended
July 4, 1998 and July 5, 1997, respectively. The decrease is due to the
renegotiated minimum payment terms for the HUE legwear license.
Depreciation and amortization expense for the thirteen weeks ended July
4, 1998 was $53,000 due to the write-off of fixed assets at June 4, 1997 under
fresh-start reporting. In addition, the Company realized income of $1,143,000
from amortization of excess revalued net assets acquired over equity (see Note
2). Depreciation and amortization expense for the thirteen weeks ended July 5,
1997 consisted of depreciation on fixed assets of $657,000, including $344,000
related to product lines sold, and amortization of the excess purchase price
over net assets acquired of $189,000, including $102,000 of amortization related
to the lines sold. This amortization expense related to the leveraged buyout of
The Leslie Fay Company on June 28, 1984.
Interest and financing costs were $130,000 and $402,000 for the
thirteen weeks ended July 4, 1998 and July 5, 1997, respectively. The financing
fees under the new CIT Credit Agreement were offset by income earned on the cash
invested for the thirteen weeks ended July 4, 1998. The financing fees incurred
were significantly below those incurred during the thirteen weeks ended July
-29-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
5, 1997 due to the higher line needed to finance the operations of the Sassco
Fashions and Castleberry product lines.
The provision for federal, state and local income taxes was $171,000
and $155,000 for the thirteen weeks ended July 4, 1998 and July 5, 1997,
respectively.
(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 July 4, 1998 the Company was utilizing approximately $6,552,000 of
the CIT Credit Agreement for the letters of credit.
At July 4, 1998, there were no cash borrowings outstanding under the
CIT Credit Agreement, and the Company's cash and cash equivalents amounted to
$12,354,000. Of this amount, $3,786,000 is restricted to pay remaining
administrative claims as defined in the Plan. Working capital increased
$5,237,000, to $44,690,000 for the twenty-six weeks ended July 4, 1998. The
primary changes in the components of working capital were a decrease in cash,
cash equivalents and short term investments of $10,448,000, offset by an
increase in net accounts receivable and inventories of $3,015,000 and
$6,884,000, respectively, and a decrease of $5,533,000 in accounts payable,
accrued expenses and other current liabilities. Accounts receivable increased
due to additional shipping volume in the Summer season as well as earlier than
planned Fall shipments. Inventories sold during the period were offset by new
inventory purchases to accommodate the upcoming Fall season.
Although, the Company's results of operations indicated an operating
income of $7,539,000 for the twenty-six weeks ended July 4, 1998, these results
are not necessarily indicative of results for an entire year.
Capital expenditures were $956,000 for the twenty-six weeks ended July
4, 1998. Capital expenditures are expected to be $3,000,000 for the fiscal year
1998. The anticipated capital expenditures of $2,044,000 for the remainder of
the year are primarily related to improvements in management information systems
and fixturing the Company's in-store shops that are planned to be opened in
1998. The Company believes that its financing arrangements and anticipated level
of internally generated funds will be sufficient to finance its capital spending
during 1998.
At its April 14, 1998 meeting, the Company's Board of Directors
authorized the repurchase of up to $5,000,000 of the Company's common stock. The
repurchase will be based upon the trading price of the stock and will be
supervised by a subcommittee of the Board of Directors. While there is no
assurance that any stock will be repurchased, any repurchase made would
adversely affect the overall liquidity of the Company.
-30-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
The Company is currently preparing definitive documentation for the
purchase of selected assets of The Warren Apparel Group Ltd. a manufacturer of
dresses that are sold at "better" price points in departments stores. This
acquisition , if completed, will require the modification of the Company's
existing credit facility to provide a substantially higher credit line and other
modifications to covenants and other terms. The Company is currently negotiating
these modifications with its lender.
In August 1998 the Company entered into a modification of its lease for
its showroom and offices at 1412 Broadway, New York, New York. This modification
extended the lease through August 2008 and included the leasing of approximately
an additional 20,333 square feet of space.
The Company is not restricted from paying cash dividends or
repurchasing its stock under the CIT Credit Agreement as long as those
disbursements do not cause the Company to be in violation of the restrictive
covenants, as amended, and they do not exceed $5,000,000 in either fiscal years
1998 or 1999. (Reference is made to the 1997 Form 10-K Note 6(a) to the
Consolidated Financial Statements.) The Company has no plans to pay cash
dividends in the foreseeable future.
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 complete 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 in 1998 through 1999 at an estimated cost of approximately
$1,500,000 plus the utilization of internal staff and other resources. On May 4,
1998, the Company implemented the first phase of its plan by placing in
operation a new purchase order management and invoicing system. Through August
10, 1998, the Company implemented the second phase of its plan by placing in
operation Year 2000 compliant versions of its accounts payable, general ledger
and EDI translation systems.
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
-31-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
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.
-32-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has previously reported the proceedings under chapter 11 of
the Bankruptcy Code and other pending legal proceedings in Item 3. - "Legal
Proceedings" in the 1997 Form l0-K. The Company's Plan of Reorganization was
approved by the creditors and on April 21, 1997, the Bankruptcy Court confirmed
the Plan. On June 4, 1997, the Plan was consummated and the Company no longer
operates under chapter 11. For information concerning legal proceedings at the
end of the second quarter of 1998, reference is made to Note 8 of the Notes to
Consolidated Financial Statements contained herein.
No other legal proceedings were terminated during the second quarter of
1998 or thereafter, other than ordinary routine litigation incidental to the
business of the Company.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Date of Annual Meeting of Stockholders - June 3, 1998
(b) The Election of Eight Directors.
STOCKHOLDER VOTES
-----------------
For Withheld
--- --------
Clifford B. Cohn 2,455,851 410
Mark B. Dickstein 2,456,258 3
Chaim Y. Edelstein 2,456,258 3
Mark Kaufman 2,456,258 3
Bernard Olsoff 2,456,258 3
John J. Pomerantz 2,456,258 3
Robert L. Sind 2,456,258 3
John A. Ward 2,456,258 3
-33-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
(c) Approval of an amendment to the Amended and Restated Certificate of
Incorporation of the Company to increase the number of authorized
shares of Common Stock from 9,500,000 to 20,000,000 shares.
STOCKHOLDER VOTES
-----------------
For: 1,877,643
Against: 578,777
Abstentions: 21
Broker Non-Votes: --
(d) Approval of an amendment to the Amended and Restated Certificate of
Incorporation of the Company to permit stockholder action by written
consent.
STOCKHOLDER VOTES
-----------------
For: 2,443,808
Against: 12,450
Abstentions: 3
Broker Non-Votes: --
(e) Approval of the provision of the Company's 1997 Management Stock Option
Plan limiting the number of shares for which options may be granted to
any one employee over the life of such plan and the amendment to such
plan to modify the terms of certain options contemplated thereunder.
STOCKHOLDER VOTES
-----------------
For: 2,265,095
Against: 191,091
Abstentions: 153
Broker Non-Votes: --
(f) Approval of an amendment to the Company's 1997 Non-Employee Director
Stock Option and Stock Incentive Plan to permit the grant of stock
awards thereunder.
STOCKHOLDER VOTES
-----------------
For: 2,443,306
Against: 12,790
Abstentions: 153
Broker Non-Votes: --
-34-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
(g) Ratification of the action of the Board of Directors in appointing
Arthur Andersen LLP as independent accountants of the Company.
STOCKHOLDER VOTES
-----------------
For: 2,448,710
Against: 7,547
Abstentions: 3
Broker Non-Votes: --
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibits are set forth on the "Index to Exhibits" on
page E-1 hereof.
-35-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 18, 1998 THE LESLIE FAY COMPANY, INC.
----------------------------
(Company)
By:/s/ Warren T. Wishart
-----------------------------------
Warren T. Wishart
Senior Vice President - Administration
and Finance, Chief Financial Officer
and Treasurer
-36-
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ---------- -----------
10.10 Employment Agreement dated as of January 4, 1998 between the
Company and John J. Pomerantz
10.11 Employment Agreement dated as of January 4, 1998 between the
Company and John Ward.
10.12 Employment Agreement dated as of January 4, 1998 between the
Company and Warren T. Wishart.
10.13 Employment Agreement dated as of January 4, 1998 between the
Company and Dominick Felicetti.
10.14 Amended Lease Agreement dated August 11, 1998 between Fashion
Gallery Owners (formerly 1412 Broadway Associates) and the
Company, for certain premises located at 1412 Broadway, New
York, New York.
27 Financial Data Schedule.
E-1
EMPLOYMENT AGREEMENT
(John J. Pomerantz)
AGREEMENT, dated as of January 4, 1998, between The Leslie Fay Company,
Inc., a Delaware corporation, with its principal office at 1412 Broadway, New
York, New York (the "Corporation"), and John J. Pomerantz, residing at Hidden
Spring Farm, 19 Winfield Avenue, Harrison, New York 10528 (the "Executive").
RECITALS
A. The Executive has served as the Chairman and Chief Executive Officer
of the Corporation since June 2, 1997, and prior thereto as Chairman and Chief
Executive Officer of The Leslie Fay Companies, Inc., predecessor-in-interest to
the Corporation ("Old Leslie Fay").
B. The Corporation desires to secure the continued services of the
Executive, and the Executive desires to continue to furnish services to the
Corporation, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties hereto hereby agree as
follows:
1. Definitions. Unless otherwise defined herein, the following terms
shall have the respective meanings specified below and be equally applicable to
the singular and plural of terms defined:
(a) "Adjusted Incentive EBITDA" shall mean, for any fiscal
year during the Term, the lesser of (i) Incentive EBITDA and (ii) the projected
EBITDA for such fiscal year as set forth in the Corporation's business plan for
such fiscal year approved by the Board.
(b) "Base Salary" shall have the meaning set forth in Section
5 hereof.
(c) "Board" shall mean the Board of Directors of the
Corporation.
(d) "Bonus" shall mean, for any year during the Term, the
Executive's allocable portion of the Cash Bonus Pool for such year, determined
in accordance with Section 6 hereof.
(e) "Cash Bonus Pool" shall have the meaning set forth in
Section 6 hereof.
(f) "Cause" shall mean (i) conviction of the Executive in
respect of a felony, (ii) perpetration by the Executive of (x) an illegal act
which causes significant economic injury to the Corporation or (y) a common law
fraud against the Corporation, or (iii) willful violation by the Executive (a
"Material Insubordination") of a specific written direction from the Board
concerning one or more matters of a material nature for the Corporation or its
business or operations (following
<PAGE>
a warning in writing in respect thereto from the Board).
(g) "Change of Control" shall mean the occurrence of any of
the following:
(i) any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act), other than Dickstein Partners, Inc.
and/or any of its affiliates (as defined in Rule 12b-2 under the
Exchange Act), acquiring "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of fifty percent
(50%) or more of the aggregate voting power of the capital stock of the
Corporation; or
(ii) the sale of all or substantially all of the Corporation's
assets in one or more related transactions; or
(iii) any merger, consolidation, reorganization or similar
event of the Corporation or any of its subsidiaries, as a result of
which the holders of the voting stock of the Corporation immediately
prior to such merger, consolidation, reorganization or similar event do
not hold at least fifty-one percent (51%) of the aggregate voting power
of the capital stock of the surviving entity.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Compensation Committee" shall mean the compensation
committee of the Board, all of whose members are "outside directors" within the
meaning of Section 162(m) of the Code.
(j) "Corporation Senior Managers" shall mean the Chief
Executive Officer, the President, the Senior Vice President--Manufacturing and
Sourcing, the Senior Vice President-- Administration and Finance (Chief
Financial Officer) and such other employees of the Corporation as determined by
the Compensation Committee in consultation with the Chief Executive Officer.
(k) "Disabled" shall mean, with respect to the Executive,
being physically or mentally disabled, whether totally or partially, so that he
is substantially unable to perform his services hereunder for a consecutive
period of more than six (6) months or for shorter periods aggregating six months
during any twelve-month period.
(l) "EBITDA" shall mean for any fiscal year of the
Corporation, the consolidated earnings before interest, taxes, depreciation and
amortization of the Corporation and its consolidated subsidiaries, and before
any non-cash accruals for stock-based compensation, as determined pursuant to
generally accepted accounting principles in effect in the United States of
America from time to time, provided that for purposes of determining EBITDA
hereunder, EBITDA shall be calculated before determination of the Cash Bonus
Pool.
-2-
<PAGE>
(m) "Effective Date" shall mean January 4, 1998.
(n) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(o) "Good Reason" shall mean the continuation of any of the
following events for more than ten (10) days after the Corporation's receipt
from the Executive of written notice thereof:
(i) the Executive shall fail to be reelected as a
Director of the Corporation and as Chairman of the Board and Chairman
of the Executive Committee of the Board (if any) or shall be removed
from any such positions or from the position of Chief Executive Officer
of the Corporation at any time during the Term (other than for Cause);
(ii)the Executive shall fail to be vested with the
powers and authority of Chief Executive Officer of the Corporation as
described in Section 4(a) hereof, or the powers and authority of such
position or his responsibilities with respect thereto shall be
diminished in any material respect;
(iii) the Executive shall have assigned to him
without his express written consent any duties, functions, authority or
responsibilities that are inconsistent with the Executive's positions
described in Section 4 hereof;
(iv)the Executive's principal place of employment is
changed to a location more than twenty-five (25) miles from the prior
location without the Executive's prior written consent;
(v) any material failure by the Corporation to
fulfill any of its obligations under this Agreement (other than
pursuant to Section 4(b)), including, without limitation, the failure
to make any material payment required to be made by the Corporation
pursuant to Sections 5 and 6 hereof within five (5) business days after
the date such payment is required to be made;
(vi)any purported termination by the Corporation of
the Executive's employment otherwise than as expressly permitted by,
and in compliance with all conditions and procedures of, this
Agreement;
(vii) the Corporation shall fail to comply with the
provisions of Section 14 or Section 19(a) hereof; or
(viii) there shall occur a Change of Control and any
designee of the Executive pursuant to Section 4(b) hereof shall fail to
be reelected or shall be removed as a Director during the Term, or the
size of the Board shall be expanded and the Executive shall not be
given reasonable opportunity to designate one or more additional
Directors such that
-3-
<PAGE>
the Executive and all Directors designated by the Executive shall
comprise at least twenty-eight percent (28%) of the membership of the
Board.
(p) "Incentive EBITDA" shall mean Eleven Million Five Hundred
Thousand Dollars ($11,500,000).
(q) "Old Leslie Fay" shall have the meaning set forth in the
Recitals.
(r) "Target EBITDA" shall mean Five Million Four Hundred
Forty-Three Thousand Dollars ($5,443,000).
(s) "Term" shall have the meaning set forth in Section 3
hereof.
2. Employment. The Corporation shall employ the Executive, and the
Executive shall serve the Corporation, upon the terms and conditions hereinafter
set forth.
3. Term.
(a) Term of Employment. Subject to the terms and conditions
hereinafter set forth, the term of the Executive's employment hereunder shall
commence as of the Effective Date and shall continue until the third anniversary
of the Effective Date, unless earlier terminated pursuant to the provisions of
Section 8, 9 or 10 hereof (the "Term").
(b) Renewal. During the third year of the Term, the
Corporation will conduct, in good faith and on a timely basis, negotiations with
the Executive concerning the renewal of the Executive's employment with the
Corporation.
4. Duties and Extent of Services.
(a) Chief Executive Officer. During the Term, the Executive
shall serve as Chief Executive Officer of the Corporation faithfully and to the
best of his ability, and shall devote substantially all of his business time,
energy and skill to such employment, it being understood and agreed that the
Executive may serve on the boards of directors or equivalent governing bodies of
other business corporations or other business organizations; provided, however,
that (i) such other corporations or other organizations are not in direct
competition with the Corporation and/or its subsidiaries and (ii) such service
does not materially interfere with the performance by the Executive of his
duties hereunder. The Executive shall be invested with the duties and authority
that are customarily delegated to a chief executive officer of a corporation,
and shall report to and be subject to the direction of the Board of Directors of
the Corporation. The Executive shall also perform such specific duties and
services of a senior executive nature as the Board of Directors of the
Corporation shall request, including, without limitation, serving as a senior
officer and/or director of any of the Corporation's subsidiaries.
-4-
<PAGE>
(b) Board Membership. Although it is understood that the right
to elect directors of the Corporation is by law vested in the stockholders of
the Corporation, (i) the Executive shall serve as Chairman of the Board and of
the Executive Committee of the Board (if any) and (ii) the Executive shall be
entitled to designate one or more additional Directors such that the Executive
and all Directors designated by the Executive shall at all times comprise at
least twenty-eight percent (28%) of the membership of the Board. For so long as
John Ward shall be a Director of the Corporation, Mr. Ward shall be deemed a
designee of the Executive for purposes of this Section 4(b).
5. Base Salary. During the Term, the Corporation shall pay the
Executive a base salary ("Base Salary") of Five Hundred Thousand Dollars
($500,000), or such higher amount as the Board may from time to time determine,
payable in equal weekly installments.
6. Incentive Compensation.
(a) Amount. If the Corporation's EBITDA for any fiscal year
(except as noted, references in this Section to EBITDA or Incentive EBITDA are
to the corresponding quantity for such fiscal year) during the Term is greater
than or equal to eighty-five percent (85%) (the "Minimum Percentage") of Target
EBITDA, the Corporation shall pay a bonus ("Cash Bonus Pool") to the Corporation
Senior Managers in an amount equal to the sum of:
(x) nine and six-tenths percent (9.6%) of EBITDA, plus
(y) two-tenths percent (0.2%) of the Corporation's EBITDA for
each percentage point, if any, of Target EBITDA by which EBITDA exceeds
the Minimum Percentage; provided, however, that in no event shall the
combined amount under clause (x) above and this clause (y) exceed
twelve and one-half percent (12.5%) of EBITDA, plus
(z) five percent (5%) of the amount by which EBITDA exceeds
the sum of (I) Incentive EBITDA plus (II) the sum for all prior fiscal
years (excluding the fiscal year for which the amount of the Cash Bonus
Pool is being determined) of the positive difference, if any, for each
such fiscal year between (i) Adjusted Incentive EBITDA for such fiscal
year and (ii) EBITDA for such fiscal year less (III) any amount under
clause (II) applied in any prior year to reduce the amount of the Cash
Bonus Pool that would otherwise have been payable in such year.
The amount of the Cash Bonus Pool for any fiscal year only a part of which is
within the Term shall be equal to the amount of the Cash Bonus Pool that would
have been payable for such fiscal year had it been entirely within the Term,
times a fraction, the numerator of which is the number of days of such fiscal
year occurring during the Term, and the denominator of which is three hundred
and sixty-five (365).
The Executive and each other Corporation Senior Manager shall
be entitled to receive such portion of the Cash Bonus Pool for any fiscal year
during the Term as determined by the Chief
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Executive Officer, but only if approved by the Compensation Committee not later
than the end of the first quarter of such fiscal year. Other than with respect
to allocation, all of the Corporation Senior Managers shall participate in the
Cash Bonus Pool on the same terms and conditions.
(b) Manner of Payment. The Cash Bonus Pool for any fiscal year
during the Term shall be determined after the close of such fiscal year.
However, the Executive shall be permitted to draw during each fiscal year, on a
quarterly basis, against his anticipated allocation of the Cash Bonus Pool for
such year, as follows:
(i) Following each fiscal quarter, the Corporation shall
determine a pro-rated Cash Bonus Pool amount for the period from the
beginning of the fiscal year through the end of such fiscal quarter,
calculated as set forth in clauses (x), (y) and (z) of Section 6(a)
hereof. For purposes of such determination, Target EBITDA, Incentive
EBITDA, Adjusted Incentive EBITDA and the amount described under
subclause (II) of said clause (z), if any, shall be prorated for the
relevant year-to-date period.
(ii) The Executive shall be permitted to draw up to two-thirds
of his allocated amount of the pro-rated Cash Bonus Pool, less the
amount of all prior draws for the same fiscal year.
(iii) Following the end of the fiscal year, the Corporation
shall determine whether the amount of the Cash Bonus Pool allocable to
the Executive exceeds or is less than the Executive's draws under the
pro-rated Cash Bonus Pool for such fiscal year.
(iv) If the allocated amount of the Cash Bonus Pool to which
the Executive is entitled exceeds the amount of the Executive's draws
for the fiscal year, the Corporation shall pay the difference to the
participant not later than ninety (90) after the end of the fiscal
year. If the allocated amount of the Cash Bonus Pool to which the
Executive is entitled is less than the amount of the Executive's draws
for the fiscal year, the Executive shall repay the difference to the
Corporation within one hundred twenty (120) days after the Corporation
informs the Executive in writing of the deficiency, with a calculation
thereof in reasonable detail. The amount required to be repaid shall
bear interest at the applicable federal rate from the date of the
respective draw(s) until repayment. If the Executive shall dispute the
amount of the deficiency, the Executive shall inform the Corporation in
writing of such dispute on or before the date payment of the deficiency
is otherwise due, shall provide the Corporation with a statement of the
basis for the dispute in reasonable detail and shall pay to the
Corporation any undisputed amount thereof on or prior to the aforesaid
payment date. Thereafter, the Executive and the Corporation shall in
good faith attempt to resolve the dispute, but if the dispute cannot be
resolved prior to the expiration of thirty (30) days from the aforesaid
payment date, the dispute shall be submitted to arbitration in
accordance with the procedures set forth in Section 25.
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(v) The Executive's repayment obligations under the preceding
clause (iv) of this Section 6(b) shall be secured by all unexercised
options, vested or unvested, to acquire capital stock of the
Corporation granted by the Corporation to the Executive.
(c) If any payment is required to be made under Section 8, 9
or 10 hereof on the basis of the Cash Bonus Pool for any fiscal year, and the
Cash Bonus Pool for such fiscal year cannot be determined until after the time
that such payment is otherwise required to be made, then the payment of that
amount which is based upon the determination of the Cash Bonus Pool for such
fiscal year shall be deferred until after such time as the determination of the
Cash Bonus Pool for such fiscal year can reasonably be made, and such payment
shall be made as soon thereafter as practicable.
(d) Payment of the Cash Bonus Pool shall be subject to the
approval of the Corporation's stockholders to the extent necessary such that all
payments under the Cash Bonus Pool will be fully deductible under Section 162(m)
of the Code, and the Corporation shall used its reasonable best efforts to
obtain such approval on a timely basis consistent with the provisions of this
Section 6.
7. Employee Benefits.
(a) During the Term, the Executive shall receive coverage
and/or benefits under any and all medical insurance, life insurance, long-term
disability insurance and pension plans and other employee benefit plans of the
Corporation generally made available to senior executives of the Corporation
from time to time.
(b) During the Term, the Corporation shall provide (x) the
Executive and members of his immediate family with (i) supplemental disability
coverage and (ii) medical insurance for all medical costs and services incurred
by the foregoing, including costs of dental, vision and custodial care, and (y)
the Executive with the services of an automobile selected by him and a driver
for his use.
(c) The Executive shall be entitled to paid vacations (taken
consecutively or in segments), in accordance with the standard vacation policy
of the Corporation for senior executives, but in no event less than four (4)
weeks each calendar year during the Term. Such vacations shall be taken at times
consistent with the effective discharge of the Executive's duties.
(d) During the Term, the Executive shall be accorded office
facilities and secretarial assistance commensurate with his position as Chief
Executive Officer of the Corporation and adequate for the performance of his
duties hereunder.
(e) The Executive shall be awarded, as of January 1, 1998, ten
year options to acquire 190,399 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share, of which options to acquire 131,878
shares will vest in three equal annual installments beginning June 4, 1998
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and options to acquire 58,521 shares will vest in four equal installments
beginning January 4, 1998, subject to acceleration and expiration as provided in
the aforesaid plan.
8. Termination--Death or Disability.
(a) In the event of the termination of the Executive's
employment because of the death of the Executive during the Term, the
Corporation shall pay to any one or more beneficiaries designated by the
Executive pursuant to notice to the Corporation, or, failing such designation,
to the Executive's estate, (i) the unpaid Base Salary owing to the Employee
through the end of the month of his death, in a lump sum within five (5)
business days after his death, and (ii) a Bonus for the year in which such
termination occurs, equal to the Bonus (if any) that would have been paid for
such year if no such termination had occurred, times a fraction, the numerator
of which is the number of months in such year through the end of the month in
which such termination occurs, and the denominator of which is twelve (12).
(b) In the event that the Executive shall become Disabled, the
Corporation shall have the right to terminate the Executive's employment
hereunder by giving him written notice of such termination. Upon receipt of such
notice, the Executive's employment hereunder shall terminate. In the event of
such termination, the Corporation shall pay to the Executive (i) the unpaid Base
Salary owing to the Executive through the end of the month of such termination,
in a lump sum within five (5) business days of such termination, and (ii) a
Bonus for the year in which such termination occurs, equal to the Bonus (if any)
that would have been paid for such year if no such termination had occurred,
times a fraction, the numerator of which is the number of months in such year
through the end of the month in which such termination occurs, and the
denominator of which is twelve (12).
(c) If the Executive has made interim draws against his Bonus,
in accordance with Section 6(b) hereof, for any fiscal year prior to the date of
his death or termination for disability for which a year-end reconciliation has
not been made in accordance with clause (iv) of such Section, any Bonus payment
required pursuant to Section 8(a) or 8(b) shall be adjusted, and the Corporation
shall make a payment to the Executive or his estate or the Executive or his
estate shall make a payment to the Corporation, as required by Section 6(b)(iv).
9. Termination for Cause by Corporation.
(a) The Executive's employment hereunder may be terminated by
the Corporation for Cause upon compliance with the provisions of Section 9(b)
hereof. In the event that Executive's employment hereunder shall validly be
terminated by the Corporation for Cause pursuant to this Section 9, the
Corporation shall promptly pay accrued but unpaid Base Salary to the date of
termination and reimburse or pay any other accrued but unpaid amounts due under
Sections 6 and 13 hereof as of the date of termination, and thereafter shall
have no further obligations under this Agreement. Upon termination of the
Executive's employment hereunder for Cause, the Executive shall nonetheless
remain bound by the obligations provided for in Sections 11 and 12 hereof. For
purposes of this Section 9(a), the amount accrued to the Executive under Section
6 hereof shall mean
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a Bonus accrued but unpaid for all fiscal years prior to the fiscal year in
which the termination of the Executive occurs. If the Executive has made interim
draws against his Bonus, in accordance with Section 6(b) hereof, for the fiscal
year during which his termination occurs, the Executive shall promptly repay the
amount of all such draws to the Corporation, and, to the extent not repaid, such
amount may be offset by the Corporation against any amounts owing to the
Executive under this Section 9(a).
(b) Termination for Cause shall be effected only by action of
a majority of the Board then in office (excluding the Executive) at a meeting
duly called and held upon at least ten (10) days' prior written notice to the
Executive specifying the particulars of the action or inaction alleged to
constitute "Cause" (and at which meeting the Executive and his counsel were
entitled to be present and given reasonable opportunity to be heard).
10. Termination for Good Reason by the Executive or Without Cause
by the Corporation; Change of Control; Non-Renewal.
(a) Termination by Executive for Good Reason. The Executive's
employment hereunder may be terminated by the Executive for Good Reason by
providing written notice to the Corporation to such effect (such termination to
be effective on the date specified in such notice, which date shall not be more
than sixty (60) days nor less than thirty (30) days after the date of such
notice).
(b) Severance. If at any time (other than following a Change
of Control) the Executive terminates his employment for Good Reason or the
Corporation terminates the Executive's employment without Cause, then, in lieu
of any other amounts that might otherwise have been payable hereunder, the
Corporation shall promptly pay to the Executive:
(i) all accrued but unpaid Base Salary and any other accrued
but unpaid amounts due under Sections 6 and 13 hereof as of the date of
termination; and
(ii) (I) if the termination occurs at any prior to the second
anniversary of the Effective Date, an amount equal to twice the Base
Salary in effect on the date of termination for each year or partial
year remaining during the Term; or (II) if the termination occurs on or
after the second anniversary of the Effective Date, an amount equal to
(x) twice the Base Salary in effect on the date of termination, plus
(y) the amount of the Bonus, if any, payable to the Executive in
respect of the second year of the Term.
If the employment of the Executive is terminated as provided in this Section
9(b) or Section 9(c) below and the Executive has made interim draws against his
Bonus, in accordance with Section 6(b) hereof, for the fiscal year during which
such termination occurs, the Executive shall promptly repay the amount of all
such draws to the Corporation, and, to the extent not repaid, such amount may be
offset by the Corporation against any amounts owing to the Executive under this
Section 9(b) or Section 9(c) below.
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(c) Change of Control. If a Change of Control occurs and
thereafter the Executive terminates his employment for Good Reason or the
Corporation terminates the Executive's employment without Cause, the Corporation
shall promptly pay to the Executive an amount equal to the greater of:
(i) the maximum amount that may be paid to the Executive
which, when taken together with all other amounts that would be deemed
to be "parachute payments" under Section 280G of the Code (disregarding
Section 280G(b)(2)(A)(ii) thereof), would not cause the Corporation to
make an "excess parachute payment" to the Executive, within the meaning
of Section 280G of the Code; and
(ii) the sum of (x) the amount payable to the Executive under
Section 10(b) above, and (y) the Gross-Up Payment.
(d) Gross-Up Payment.
(i) For purposes of Section 10(c), "Gross-Up Payment" means an
additional amount such that the net amount retained by the Executive, after
deduction of the Excise Tax (as defined below) on any payments or benefits under
this Agreement and/or under any option plan or agreement of the Corporation
received by the Executive from the Corporation as a result of a Change of
Control (within the meaning of section 280G(b)(2) of the Code) (collectively,
the "Payments") and any federal, state and local income tax and the Excise Tax
upon the Gross-Up Payment, and any interest, penalties or additions to tax
payable by the Executive with respect thereto (other than such interest,
penalties or additions to tax payable solely as a result of action or inaction
by the Executive), shall be equal to the total amount of the Payments. "Excise
Tax" means the tax imposed by Section 4999 of the Code. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amounts of such Excise Tax, (x) the total amount of the Payments shall be
treated as "parachute payments" within the meaning of section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to
the extent that, in the opinion of independent counsel selected by the
Corporation and reasonably acceptable to the Executive ("Independent counsel"),
a Payment (in whole or in part) does not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the Code, or such "excess parachute
payments" (in whole or in part) are not subject to the Excise Tax; (y) the
amount of the Payments that shall be treated as subject to the Excise Tax shall
be equal to the lesser of (A) the total amount of the Payments or (B) the amount
of "excess parachute payments" within the meaning of section 280G(b)(1) of the
Code (after applying clause (1) hereof); and (z) the value of any noncash
benefits or any deferred payment or benefit shall be determined by Independent
Counsel in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rates of federal income taxation applicable to the individuals in the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation applicable to individuals as are
in effect in the state and locality of the Executive's residence in the calendar
year in which the Gross-Up Payment
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is to be made, net of the maximum reduction in federal income taxes that can be
obtained from deduction of such state and local taxes, taking into account any
limitations applicable to individuals subject to federal income tax at the
highest marginal rates.
(ii) The Gross-Up Payments referred to in Section 10(d)(i)
hereof shall be made, subject to applicable withholding requirements, upon the
earlier of (x) the payment to the Executive of any Payment or (y) the imposition
upon the Executive or payment by the Executive of any Excise Tax.
(iii) If it is established pursuant to a final determination
of a court or an Internal Revenue Service proceeding or the opinion of
Independent Counsel that the Excise Tax exceeds the amount taken into account
hereunder (including by reasons of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Corporation shall
make an additional Gross-Up Payment in respect of such excess within thirty (30)
days of the Corporation's receipt of notice of such final determination or
opinion.
(iv) In the event that the Internal Revenue Service makes any
claim, gives notice of any potential claim or institutes a proceeding against
the Executive asserting that any Excise Tax or additional Excise Tax is due in
respect of the Payments, the Executive shall promptly give the Corporation
notice of any such claim, potential claim or proceeding. The Corporation shall
have the right to conduct all discussions, negotiations, defenses, actions and
proceedings solely to the extent relating to any Excise Tax payable in respect
of the Payments, and the Executive shall cooperate with and assist the
Corporation, at the Corporation's expense, in any such discussions,
negotiations, defenses, actions and proceedings, to the extent reasonably
requested by the Corporation. The Executive will not settle any claim or
proceeding solely to the extent relating to the Excise Tax payable in respect of
the Payments without the consent of the Corporation, which consent shall not be
unreasonably withheld. The Executive shall file, at the Corporation's expense,
all requests for refunds of the Gross-Up Amount, or any portion thereof, paid to
any taxing authority as shall be reasonably requested by the Corporation and
shall pay over to the Corporation (net of any tax payable thereon) any such
refunds, together with any interest thereon, when and as such refunds and
interest are received by the Executive.
(v) All fees and expenses of Independent Counsel shall be
borne by the Corporation.
(e) Non-Renewal. In the event that the employment of the
Executive is not renewed by the Corporation following the end of the Term on
terms that are no less favorable to the Executive than the terms of this
Agreement, the Corporation shall pay to the Executive, promptly after the end of
the Term, an amount equal to (x) twice the Base Salary in effect at the end of
the Term, plus (y) the amount of the Bonus, if any, payable to the Executive in
respect of the third year of the Term; provided that such payment shall not be
less than three times the Base Salary in effect at the end of the Term. If the
Corporation is willing to renew the employment of the Executive at the end of
the Term on terms no less favorable to the Executive than the terms of this
Agreement but
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the Executive is unwilling to accept such employment, no amount shall be payable
to the Executive under this Section 10(d).
11. Confidential Information. In addition to any other confidentiality
obligation the Executive may have to the date hereof, and until the end of the
original Term, the Executive shall keep secret and retain in strictest
confidence, and shall not use for his benefit or the benefit of others, any and
all confidential information relating to the Corporation and its subsidiaries,
including, without limitation, customer lists, financial plans or projections,
pricing policies, marketing plans or strategies, business acquisition or
divestiture plans, new personnel acquisition plans, designs, and, except in
connection with the performance of his duties hereunder, the Executive shall not
disclose any such information to anyone outside the Corporation and any of its
subsidiaries, except as required by law (provided prior written notice thereof
is given by the Executive to the Corporation) or except with the Corporation's
prior consent, unless such information is known generally to the public or the
trade through sources other than the Executive's unauthorized disclosure.
12. Competitive Activity. The Executive hereby agrees that, during his
employment hereunder, and, following a termination of his employment, for the
balance of the Term (if any), the Executive shall not, without the prior consent
of the Board (i) directly or indirectly, engage or be interested in (as owner,
partner, shareholder, employee, director, officer, agent, consultant or
otherwise), with or without compensation, any business wherever located in the
world engaged in the manufacture, distribution, design marketing or sale of
women's apparel, if such business is a material competitor of the Corporation,
or (ii) induce or attempt to persuade any employee of the Corporation or of any
subsidiary of the Corporation, or any person who was employed by the Corporation
or any subsidiary of the Corporation within the preceding six months, to leave
the employ of the Corporation or any subsidiary of the Corporation (but the
foregoing shall not be deemed to prevent the Executive in his capacity as Chief
Executive Officer of the Corporation from hiring or dismissing any employee of
the Corporation or any subsidiary for the benefit of the Corporation). The
provisions of clause (i) of the preceding sentence shall not apply in the case
of a termination by the Executive for Good Reason or by the Corporation without
Cause. Nothing in this Section 12 shall prohibit the Executive from acquiring or
holding not more than five percent (5%) of any class of publicly traded
securities of any business.
13. Expenses. The Corporation shall reimburse the Executive for all
reasonable expenses incurred by the Executive in the performance of the
Executive's duties hereunder; provided, however, that, in connection with such
reimbursement, the Executive shall account to the Corporation for such expenses
in the manner customarily prescribed by the Corporation for its senior
executives.
14. Directors' and Officers' Insurance; Indemnification. The Executive
shall be provided with directors' and officers' insurance in connection with his
employment hereunder and service as a Director as contemplated hereby with such
coverage (including with respect to unpaid wages and taxes not remitted when
done) as shall be reasonably satisfactory to the Executive and with aggregate
limits of liability for all covered officers and directors of not less than
Thirty-Five Million Dollars ($35,000,000), and the Corporation shall maintain
such insurance in effect for the period of the
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Executive's employment hereunder and for not less than five (5) years
thereafter; provided, however, that, in the event that the Corporation shall not
obtain such insurance, it shall provide or cause the Executive to be provided
with indemnity (or a combination of indemnity and directors' and officers'
insurance) in connection with his employment hereunder with substantially
equivalent coverage and amounts, and the Corporation shall maintain such
indemnity (or combination of indemnity and directors' and officers' insurance)
or cause such indemnity (or such combination) to be maintained for the period of
the Executive's employment hereunder and for not less than five (5) years
thereafter.
15. No Duty to Mitigate. The Executive shall have no duty to mitigate
the severance amounts or any other amounts payable to the Executive hereunder,
and such amounts shall not be subject to reduction for any compensation received
by the Executive from employment in any capacity or other source following the
termination of Executive's employment with the Corporation and its subsidiaries.
16. Entire Agreements; Amendments; No Waiver. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof. This Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. No failure on
the part of either party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any partial exercise of
any right hereunder preclude any further exercise thereof.
17. Survival of Provisions. The provisions of Sections 10(d), 11, 12,
23, 25 and 26(a) shall survive the termination or expiration of this Agreement
as provided therein. Such provisions are unique and extraordinary, which give
them a value peculiar to the Corporation, and cannot be reasonably or adequately
compensated in damages for its loss and any breach by the Executive of such
provisions shall cause the Corporation irreparable injury and damage. Therefore,
the Corporation, in addition to all other remedies available to it, shall be
entitled to injunctive and other available equitable relief in any court of
competent jurisdiction to prevent or otherwise restrain a breach of such
provisions for the purposes of enforcing such provisions.
18. Withholding. The Corporation shall be entitled to withhold from any
and all amounts payable to the Executive hereunder such amounts as may from time
to time be required to be withheld pursuant to applicable tax laws and
regulations.
19. Succession, Assignability and Binding Effect. (a) The Corporation
will require any successor or successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such agreement prior to the
effectiveness of any such succession shall constitute Good Reason for
resignation by the Executive.
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(b) This Agreement shall inure to the benefit of and shall be
binding upon the Corporation and its successors and permitted assigns and upon
the Executive and his heirs, executors, legal representatives, successors and
permitted assigns; provided, however, that neither party may assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of
its or his rights hereunder without the prior written consent of the other
party, and any such attempted assignment, transfer, pledge, encumbrance,
hypothecation or other disposition without such consent shall be null and void
and without effect.
20. Headings. The paragraph headings contained herein are included
solely for convenience of reference and shall not control or affect the meaning
or interpretation of any of the provisions of this Agreement.
21. Notices. Any notices or other communications hereunder by either
party shall be in writing and shall be deemed to have been duly given if
delivered personally to the other party or, if sent by registered or certified
mail, upon receipt, to the other party at his or its address set forth at the
beginning of this Agreement or at such other address as such other party may
designate in conformity with the foregoing.
22. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
giving effect to the principles thereof relating to the conflict of laws.
23. Legal Fees and Expenses. In order to induce the Executive to enter
into this Agreement and to provide the Executive with reasonable assurance that
the purposes of this Agreement shall not be frustrated by the cost of its
enforcement, the Corporation shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of the failure by the Corporation to perform this Agreement or any
provision hereof to be performed by it or in connection with any action which
may be brought, by or in the name or for the benefit of the Corporation or any
subsidiary contesting the validity or enforceability of this Agreement or any
provision hereof to be performed by the Corporation, which action shall have
been dismissed by a final, nonappealable court order.
24. Opportunity to Review. The Executive acknowledged that he has been
given the opportunity to discuss this Agreement, including this Section 24, with
his private legal counsel and has availed himself of that opportunity to the
extent he wishes to do so.
25. Arbitration.
(a) Disputes Subject to Arbitration. In the event that the
Corporation terminates the Executive's employment on the grounds set forth in
clause (iii) of the definition of "Cause", the Corporation and the Executive
mutually consent to the resolution by arbitration of any dispute between the
Corporation and the Executive as to whether such Cause has occurred. Unless the
Corporation and the Executive otherwise agree, no other disputes, issues, claims
or controversies
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arising out of the Executive's employment (or its termination), or any other
matter whatsoever, shall be submitted to or resolved by arbitration.
(b) Arbitration Procedures.
(i) The Corporation and the Executive agree that, except as
provided in this Agreement, any arbitration shall be in accordance with
the then current Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA") before an arbitrator who is
licensed to practice law in the state in which the arbitration is
convened (the "Arbitrator"). The arbitration shall take place in or
near the city in which the Executive is or was last employed by the
Corporation.
(ii) Upon designation as a Dispute, the AAA shall give each
party a list of eleven (11) arbitrators drawn from its panel of labor
and employment arbitrators. The Corporation and the Executive may
strike all names on the list which it deems unacceptable. If only one
common name remains on the lists of all parties, said individual shall
be designated as the Arbitrator. If more than one common name remains
on the lists of all parties, the parties shall strike names
alternatively until only one remains. If no common name remains on the
lists of all parties, the AAA shall furnish an additional list and the
parties shall alternate striking names on such second list until an
arbitrator is selected.
(iii) The Arbitrator shall apply the law of the State of New
York applicable to contracts made and to be performed wholly in that
state (without giving effect to the principles thereof relating to
conflicts of law). The Federal Rules of Evidence shall apply. The
Arbitrator, and not any federal, state, or local court or agency, shall
have exclusive authority to resolve any dispute relating to the
interpretation, applicability or formation of the term "Cause". The
Arbitrator shall render a decision within thirty (30) days of the date
upon which the Arbitrator is selected pursuant to Section 25(b)(ii),
which decision shall be final and binding upon the parties. In the
event that the Arbitrator decides that Material Insubordination has (x)
occurred, then the Executive's employment shall be deemed to have been
terminated for cause pursuant to Section 9(a) hereof or (y) not
occurred, then the Executive's employment shall be deemed to have been
terminated without Cause pursuant to Section 10(b) hereof.
(iv) The Arbitrator shall have jurisdiction to hear and rule
on pre-hearing disputes and is authorized to hold prehearing
conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall have the authority to entertain a
motion to dismiss and/or a motion for summary judgment by any party and
shall apply the standards governing such motions under the Federal
Rules of Civil Procedure.
(v) Either party, at its expense, may arrange for and pay the
costs of a court reporter to provide a stenographic report of
proceedings.
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(vi) Either party, upon request at the close of hearing, shall
be given leave to file a post-hearing brief. The time for filing such a
brief shall be set by the Arbitrator.
(vii) Either party may bring an action in any court of
competent jurisdiction to compel arbitration under this Section 25.
Except as otherwise provided in this Section 25, both the Corporation
and the Executive agree that neither such party shall initiate or
prosecute any lawsuit or administrative action in any way related to
any Dispute covered by this Section 25.
(viii) The arbitrator shall render an opinion in the form
typically rendered in labor arbitrations.
(c) Arbitration Fees and Costs. The Corporation and the
Executive shall equally share the fees and costs of the Arbitrator. Each party
shall deposit funds or post other appropriate security for its share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, ten (10)
days before the first day of hearing. Each party shall pay for its own costs and
attorneys' fees, if any. However, if any party prevails on a statutory claim
that affords the prevailing party attorneys' fees, the Arbitrator may award
reasonable fees to the prevailing party.
(d) Opportunity to Review. The Executive acknowledged that he
has been given the opportunity to discuss this Agreement, including this Section
25, with his private legal counsel and has availed himself of that opportunity
to the extent he wishes to do so.
(e) Law Governing. The parties agree that the arbitration
provisions set forth in this Section 25 shall be governed by the Federal
Arbitration Act, 9 U.S.C.ss.ss. 1-16, ("FAA"). The parties further agree that
all Disputes, whether arising under state or federal law, shall be subject to
the FAA, notwithstanding any state or local laws to the contrary.
26. Other Matters.
(a) Health Insurance. So long as the annual cost thereof does
not exceed Twenty Thousand Dollars ($20,000), and unless the employment of the
Executive shall be terminated by the Corporation for Cause or by the Executive
without Good Reason, the Corporation shall continue in effect, for the rest of
the Executive's life, the health insurance provided for the Executive by Old
Leslie Fay as of the Effective Date.
(b) Prior Employment Agreement. The employment agreement,
dated as of June 2, 1997 between the Executive and the Corporation is hereby
terminated as of the Effective Date, except that the provisions of section 26(b)
of such employment agreement in respect of the Executive's employment contract
with Old Leslie Fay shall survive.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
THE LESLIE FAY COMPANY, INC.
By: /s/ John A. Ward
-------------------------------
Name: John A. Ward
Title: President
/s/ John J. Pomerantz
-------------------------------
John J. Pomerantz
Executive
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EMPLOYMENT AGREEMENT
(John A. Ward)
AGREEMENT, dated as of January 4, 1998, between The Leslie Fay Company,
Inc., a Delaware corporation, with its principal office at 1412 Broadway, New
York, New York (the "Corporation"), and John A. Ward, residing at 80 Glenville
Road, Greenwich, Connecticut 06831 (the "Executive").
RECITALS
A. The Executive has served as the President of the Corporation since
June 2, 1997, and prior thereto as the Chairman, Leslie Fay Sportswear Group of
The Leslie Fay Companies, Inc., predecessor-in-interest to the Corporation.
B. The Corporation desires to secure the continued services of the
Executive, and the Executive desires to continue to furnish services to the
Corporation, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties hereto hereby agree as
follows:
1. Definitions. Unless otherwise defined herein, the following terms
shall have the respective meanings specified below and be equally applicable to
the singular and plural of terms defined:
(a) "Adjusted Incentive EBITDA" shall mean, for any fiscal
year during the Term, the lesser of (i) Incentive EBITDA and (ii) the projected
EBITDA for such fiscal year as set forth in the Corporation's business plan for
such fiscal year approved by the Board.
(b) "Base Salary" shall have the meaning set forth in Section
5 hereof.
(c) "Board" shall mean the Board of Directors of the
Corporation.
(d) "Bonus" shall mean, for any year during the Term, the
Executive's allocable portion of the Cash Bonus Pool for such year, determined
in accordance with Section 6 hereof.
(e) "Cash Bonus Pool" shall have the meaning set forth in
Section 6 hereof.
(f) "Cause" shall mean (i) conviction of the Executive in
respect of a felony, (ii) perpetration by the Executive of (x) an illegal act
which causes significant economic injury to the Corporation or (y) a common law
fraud against the Corporation, or (iii) willful violation by the Executive (a
"Material Insubordination") of a specific written direction from the Board
concerning one or more matters of a material nature for the Corporation or its
business or operations (following a warning in writing in respect thereto from
the Board).
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(g) "Change of Control" shall mean the occurrence of any of
the following:
(i) any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act), other than Dickstein Partners, Inc.
and/or any of its affiliates (as defined in Rule 12b-2 under the
Exchange Act), acquiring "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of fifty percent
(50%) or more of the aggregate voting power of the capital stock of the
Corporation; or
(ii) the sale of all or substantially all of the Corporation's
assets in one or more related transactions; or
(iii) any merger, consolidation, reorganization or similar
event of the Corporation or any of its subsidiaries, as a result of
which the holders of the voting stock of the Corporation immediately
prior to such merger, consolidation, reorganization or similar event do
not hold at least fifty-one percent (51%) of the aggregate voting power
of the capital stock of the surviving entity.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Compensation Committee" shall mean the compensation
committee of the Board, all of whose members are "outside directors" within the
meaning of Section 162(m) of the Code.
(j) "Corporation Senior Managers" shall mean the Chief
Executive Officer, the President, the Senior Vice President--Manufacturing and
Sourcing, the Senior Vice President-- Administration and Finance (Chief
Financial Officer) and such other employees of the Corporation as determined by
the Compensation Committee in consultation with the Chief Executive Officer.
(k) "Disabled" shall mean, with respect to the Executive,
being physically or mentally disabled, whether totally or partially, so that he
is substantially unable to perform his services hereunder for a consecutive
period of more than six (6) months or for shorter periods aggregating six months
during any twelve-month period.
(l) "EBITDA" shall mean for any fiscal year of the
Corporation, the consolidated earnings before interest, taxes, depreciation and
amortization of the Corporation and its consolidated subsidiaries, and before
any non-cash accruals for stock-based compensation, as determined pursuant to
generally accepted accounting principles in effect in the United States of
America from time to time, provided that for purposes of determining EBITDA
hereunder, EBITDA shall be calculated before determination of the Cash Bonus
Pool.
(m) "Effective Date" shall mean January 4, 1998.
(n) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
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<PAGE>
(o) "Good Reason" shall mean the continuation of any of the
following events for more than ten (10) days after the Corporation's receipt
from the Executive of written notice thereof:
(i) the Executive shall fail to be reelected as a
Director of the Corporation or shall be removed from such position or
from the position of President of the Corporation at any time during
the Term (other than for Cause);
(ii) the Executive shall fail to be vested with the
powers and authority of President of the Corporation as described in
Section 4(a) hereof, or the powers and authority of such position or
his responsibilities with respect thereto shall be diminished in any
material respect;
(iii) the Executive shall have assigned to him
without his express written consent any duties, functions, authority or
responsibilities that are inconsistent with the Executive's positions
described in Section 4 hereof;
(iv) the Executive's principal place of employment is
changed to a location more than twenty-five (25) miles from the prior
location without the Executive's prior written consent;
(v) any material failure by the Corporation to
fulfill any of its obligations under this Agreement (other than
pursuant to Section 4(b)), including, without limitation, the failure
to make any material payment required to be made by the Corporation
pursuant to Sections 5 and 6 hereof within five (5) business days after
the date such payment is required to be made;
(vi) any purported termination by the Corporation of
the Executive's employment otherwise than as expressly permitted by,
and in compliance with all conditions and procedures of, this
Agreement; or
(vii) the Corporation shall fail to comply with the
provisions of Section 14 or Section 19(a) hereof.
(p) "Incentive EBITDA" shall mean Eleven Million Five Hundred
Thousand Dollars ($11,500,000).
(q) "Target EBITDA" shall mean Five Million Four Hundred
Forty-Three Thousand Dollars ($5,443,000).
(r) "Term" shall have the meaning set forth in Section 3
hereof.
2. Employment. The Corporation shall employ the Executive, and the
Executive shall serve the Corporation, upon the terms and conditions hereinafter
set forth.
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<PAGE>
3. Term.
(a) Term of Employment. Subject to the terms and conditions
hereinafter set forth, the term of the Executive's employment hereunder shall
commence as of the Effective Date and shall continue until the third anniversary
of the Effective Date, unless earlier terminated pursuant to the provisions of
Section 8, 9 or 10 hereof (the "Term").
(b) Renewal. During the third year of the Term, the
Corporation will conduct, in good faith and on a timely basis, negotiations with
the Executive concerning the renewal of the Executive's employment with the
Corporation.
4. Duties and Extent of Services.
(a) President. During the Term, the Executive shall serve as
President of the Corporation faithfully and to the best of his ability, and
shall devote substantially all of his business time, energy and skill to such
employment, it being understood and agreed that the Executive may serve on the
boards of directors or equivalent governing bodies of other business
corporations or other business organizations; provided, however, that (i) such
other corporations or other organizations are not in direct competition with the
Corporation and/or its subsidiaries and (ii) such service does not materially
interfere with the performance by the Executive of his duties hereunder. The
Executive shall be invested with the duties and authority that are customarily
delegated to a president of a corporation, and shall report to and be subject to
the direction of the Board of Directors of the Corporation. The Executive shall
also perform such specific duties and services of a senior executive nature as
the Board of Directors of the Corporation shall request, including, without
limitation, serving as a senior officer and/or director of any of the
Corporation's subsidiaries.
(b) Board Membership. Although it is understood that the right
to elect directors of the Corporation is by law vested in the stockholders of
the Corporation, the Executive shall serve as a member of the Board of Directors
of the Corporation.
5. Base Salary. During the Term, the Corporation shall pay the
Executive a base salary ("Base Salary") of Four Hundred Fifty Thousand Dollars
($450,000), or such higher amount as the Board may from time to time determine,
payable in equal weekly installments.
6. Incentive Compensation.
(a) Amount. If the Corporation's EBITDA for any fiscal year
(except as noted, references in this Section to EBITDA or Incentive EBITDA are
to the corresponding quantity for such fiscal year) during the Term is greater
than or equal to eighty-five percent (85%) (the "Minimum Percentage") of Target
EBITDA, the Corporation shall pay a bonus ("Cash Bonus Pool") to the Corporation
Senior Managers in an amount equal to the sum of:
(x) nine and six-tenths percent (9.6%) of EBITDA, plus
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(y) two-tenths percent (0.2%) of the Corporation's EBITDA for
each percentage point, if any, of Target EBITDA by which EBITDA exceeds
the Minimum Percentage; provided, however, that in no event shall the
combined amount under clause (x) above and this clause (y) exceed
twelve and one-half percent (12.5%) of EBITDA, plus
(z) five percent (5%) of the amount by which EBITDA exceeds
the sum of (I) Incentive EBITDA plus (II) the sum for all prior fiscal
years (excluding the fiscal year for which the amount of the Cash Bonus
Pool is being determined) of the positive difference, if any, for each
such fiscal year between (i) Adjusted Incentive EBITDA for such fiscal
year and (ii) EBITDA for such fiscal year less (III) any amount under
clause (II) applied in any prior year to reduce the amount of the Cash
Bonus Pool that would otherwise have been payable in such year.
The amount of the Cash Bonus Pool for any fiscal year only a part of which is
within the Term shall be equal to the amount of the Cash Bonus Pool that would
have been payable for such fiscal year had it been entirely within the Term,
times a fraction, the numerator of which is the number of days of such fiscal
year occurring during the Term, and the denominator of which is three hundred
and sixty-five (365).
The Executive and each other Corporation Senior Manager shall
be entitled to receive such portion of the Cash Bonus Pool for any fiscal year
during the Term as determined by the Chief Executive Officer, but only if
approved by the Compensation Committee not later than the end of the first
quarter of such fiscal year. Other than with respect to allocation, all of the
Corporation Senior Managers shall participate in the Cash Bonus Pool on the same
terms and conditions.
(b) Manner of Payment. The Cash Bonus Pool for any fiscal year
during the Term shall be determined after the close of such fiscal year.
However, the Executive shall be permitted to draw during each fiscal year, on a
quarterly basis, against his anticipated allocation of the Cash Bonus Pool for
such year, as follows:
(i) Following each fiscal quarter, the Corporation shall
determine a pro-rated Cash Bonus Pool amount for the period from the
beginning of the fiscal year through the end of such fiscal quarter,
calculated as set forth in clauses (x), (y) and (z) of Section 6(a)
hereof. For purposes of such determination, Target EBITDA, Incentive
EBITDA, Adjusted Incentive EBITDA and the amount described under
subclause (II) of said clause (z), if any, shall be prorated for the
relevant year-to-date period.
(ii) The Executive shall be permitted to draw up to two-thirds
of his allocated amount of the pro-rated Cash Bonus Pool, less the
amount of all prior draws for the same fiscal year.
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<PAGE>
(iii) Following the end of the fiscal year, the Corporation
shall determine whether the amount of the Cash Bonus Pool allocable to
the Executive exceeds or is less than the Executive's draws under the
pro-rated Cash Bonus Pool for such fiscal year.
(iv) If the allocated amount of the Cash Bonus Pool to which
the Executive is entitled exceeds the amount of the Executive's draws
for the fiscal year, the Corporation shall pay the difference to the
participant not later than ninety (90) after the end of the fiscal
year. If the allocated amount of the Cash Bonus Pool to which the
Executive is entitled is less than the amount of the Executive's draws
for the fiscal year, the Executive shall repay the difference to the
Corporation within one hundred twenty (120) days after the Corporation
informs the Executive in writing of the deficiency, with a calculation
thereof in reasonable detail. The amount required to be repaid shall
bear interest at the applicable federal rate from the date of the
respective draw(s) until repayment. If the Executive shall dispute the
amount of the deficiency, the Executive shall inform the Corporation in
writing of such dispute on or before the date payment of the deficiency
is otherwise due, shall provide the Corporation with a statement of the
basis for the dispute in reasonable detail and shall pay to the
Corporation any undisputed amount thereof on or prior to the aforesaid
payment date. Thereafter, the Executive and the Corporation shall in
good faith attempt to resolve the dispute, but if the dispute cannot be
resolved prior to the expiration of thirty (30) days from the aforesaid
payment date, the dispute shall be submitted to arbitration in
accordance with the procedures set forth in Section 25.
(v) The Executive's repayment obligations under the preceding
clause (iv) of this Section 6(b) shall be secured by all unexercised
options, vested or unvested, to acquire capital stock of the
Corporation granted by the Corporation to the Executive.
(c) If any payment is required to be made under Section 8, 9
or 10 hereof on the basis of the Cash Bonus Pool for any fiscal year, and the
Cash Bonus Pool for such fiscal year cannot be determined until after the time
that such payment is otherwise required to be made, then the payment of that
amount which is based upon the determination of the Cash Bonus Pool for such
fiscal year shall be deferred until after such time as the determination of the
Cash Bonus Pool for such fiscal year can reasonably be made, and such payment
shall be made as soon thereafter as practicable.
(d) Payment of the Cash Bonus Pool shall be subject to the
approval of the Corporation's stockholders to the extent necessary such that all
payments under the Cash Bonus Pool will be fully deductible under Section 162(m)
of the Code, and the Corporation shall used its reasonable best efforts to
obtain such approval on a timely basis consistent with the provisions of this
Section 6.
7. Employee Benefits.
(a) During the Term, the Executive shall receive coverage
and/or benefits under any and all medical insurance, life insurance, long-term
disability insurance and pension plans and
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<PAGE>
other employee benefit plans of the Corporation generally made available to
senior executives of the Corporation from time to time.
(b) During the Term, the Corporation shall provide (x) the
Executive and members of his immediate family with (i) supplemental disability
coverage and (ii) medical insurance for all medical costs and services incurred
by the foregoing, including costs of dental, vision and custodial care, and (y)
the Executive with an automobile allowance equal to $1,140 per month.
(c) The Executive shall be entitled to paid vacations (taken
consecutively or in segments), in accordance with the standard vacation policy
of the Corporation for senior executives, but in no event less than four (4)
weeks each calendar year during the Term. Such vacations shall be taken at times
consistent with the effective discharge of the Executive's duties.
(d) During the Term, the Executive shall be accorded office
facilities and secretarial assistance commensurate with his position as
President of the Corporation and adequate for the performance of his duties
hereunder.
(e) The Executive shall be awarded, as of January 1, 1998, ten
year options to acquire 115,780 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share, of which options to acquire 70,060
shares will vest in three equal annual installments beginning June 4, 1998 and
options to acquire 45,720 shares will vest in four equal installments beginning
January 4, 1998, subject to acceleration and expiration as provided in the
aforesaid plan.
8. Termination--Death or Disability.
(a) In the event of the termination of the Executive's
employment because of the death of the Executive during the Term, the
Corporation shall pay to any one or more beneficiaries designated by the
Executive pursuant to notice to the Corporation, or, failing such designation,
to the Executive's estate, (i) the unpaid Base Salary owing to the Employee
through the end of the month of his death, in a lump sum within five (5)
business days after his death, and (ii) a Bonus for the year in which such
termination occurs, equal to the Bonus (if any) that would have been paid for
such year if no such termination had occurred, times a fraction, the numerator
of which is the number of months in such year through the end of the month in
which such termination occurs, and the denominator of which is twelve (12).
(b) In the event that the Executive shall become Disabled, the
Corporation shall have the right to terminate the Executive's employment
hereunder by giving him written notice of such termination. Upon receipt of such
notice, the Executive's employment hereunder shall terminate. In the event of
such termination, the Corporation shall pay to the Executive (i) the unpaid Base
Salary owing to the Executive through the end of the month of such termination,
in a lump sum within five (5) business days of such termination, and (ii) a
Bonus for the year in which such termination occurs, equal to the Bonus (if any)
that would have been paid for such year if no such termination had
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<PAGE>
occurred, times a fraction, the numerator of which is the number of months in
such year through the end of the month in which such termination occurs, and the
denominator of which is twelve (12).
(c) If the Executive has made interim draws against his Bonus,
in accordance with Section 6(b) hereof, for any fiscal year prior to the date of
his death or termination for disability for which a year-end reconciliation has
not been made in accordance with clause (iv) of such Section, any Bonus payment
required pursuant to Section 8(a) or 8(b) shall be adjusted, and the Corporation
shall make a payment to the Executive or his estate or the Executive or his
estate shall make a payment to the Corporation, as required by Section 6(b)(iv).
9. Termination for Cause by Corporation.
(a) The Executive's employment hereunder may be terminated by
the Corporation for Cause upon compliance with the provisions of Section 9(b)
hereof. In the event that Executive's employment hereunder shall validly be
terminated by the Corporation for Cause pursuant to this Section 9, the
Corporation shall promptly pay accrued but unpaid Base Salary to the date of
termination and reimburse or pay any other accrued but unpaid amounts due under
Sections 6 and 13 hereof as of the date of termination, and thereafter shall
have no further obligations under this Agreement. Upon termination of the
Executive's employment hereunder for Cause, the Executive shall nonetheless
remain bound by the obligations provided for in Sections 11 and 12 hereof. For
purposes of this Section 9(a), the amount accrued to the Executive under Section
6 hereof shall mean a Bonus accrued but unpaid for all fiscal years prior to the
fiscal year in which the termination of the Executive occurs. If the Executive
has made interim draws against his Bonus, in accordance with Section 6(b)
hereof, for the fiscal year during which his termination occurs, the Executive
shall promptly repay the amount of all such draws to the Corporation, and, to
the extent not repaid, such amount may be offset by the Corporation against any
amounts owing to the Executive under this Section 9(a).
(b) Termination for Cause shall be effected only by action of
a majority of the Board then in office (excluding the Executive) at a meeting
duly called and held upon at least ten (10) days' prior written notice to the
Executive specifying the particulars of the action or inaction alleged to
constitute "Cause" (and at which meeting the Executive and his counsel were
entitled to be present and given reasonable opportunity to be heard).
10. Termination for Good Reason by the Executive or Without Cause by
the Corporation; Change of Control; Non-Renewal.
(a) Termination by Executive for Good Reason. The Executive's
employment hereunder may be terminated by the Executive for Good Reason by
providing written notice to the Corporation to such effect (such termination to
be effective on the date specified in such notice, which date shall not be more
than sixty (60) days nor less than thirty (30) days after the date of such
notice).
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(b) Severance. If at any time (other than following a Change
of Control) the Executive terminates his employment for Good Reason or the
Corporation terminates the Executive's employment without Cause, then, in lieu
of any other amounts that might otherwise have been payable hereunder, the
Corporation shall promptly pay to the Executive:
(i) all accrued but unpaid Base Salary and any other accrued
but unpaid amounts due under Sections 6 and 13 hereof as of the date of
termination; and
(ii) (I) if the termination occurs at any prior to the second
anniversary of the Effective Date, an amount equal to twice the Base
Salary in effect on the date of termination for each year or partial
year remaining during the Term; or (II) if the termination occurs on or
after the second anniversary of the Effective Date, an amount equal to
(x) twice the Base Salary in effect on the date of termination, plus
(y) the amount of the Bonus, if any, payable to the Executive in
respect of the second year of the Term.
If the employment of the Executive is terminated as provided in this Section
9(b) or Section 9(c) below and the Executive has made interim draws against his
Bonus, in accordance with Section 6(b) hereof, for the fiscal year during which
such termination occurs, the Executive shall promptly repay the amount of all
such draws to the Corporation, and, to the extent not repaid, such amount may be
offset by the Corporation against any amounts owing to the Executive under this
Section 9(b) or Section 9(c) below.
(c) Change of Control. If a Change of Control occurs and
thereafter the Executive terminates his employment for Good Reason or the
Corporation terminates the Executive's employment without Cause, the Corporation
shall promptly pay to the Executive an amount equal to the greater of:
(i) the maximum amount that may be paid to the Executive
which, when taken together with all other amounts that would be deemed
to be "parachute payments" under Section 280G of the Code (disregarding
Section 280G(b)(2)(A)(ii) thereof), would not cause the Corporation to
make an "excess parachute payment" to the Executive, within the meaning
of Section 280G of the Code; and
(ii) the sum of (x) the amount payable to the Executive under
Section 10(b) above, and (y) the Gross-Up Payment.
(d) Gross-Up Payment.
(i) For purposes of Section 10(c), "Gross-Up Payment" means an
additional amount such that the net amount retained by the Executive, after
deduction of the Excise Tax (as defined below) on any payments or benefits under
this Agreement and/or under any option plan or agreement of the Corporation
received by the Executive from the Corporation as a result of a Change of
Control (within the meaning of section 280G(b)(2) of the Code) (collectively,
the "Payments") and
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any federal, state and local income tax and the Excise Tax upon the Gross-Up
Payment, and any interest, penalties or additions to tax payable by the
Executive with respect thereto (other than such interest, penalties or additions
to tax payable solely as a result of action or inaction by the Executive), shall
be equal to the total amount of the Payments. "Excise Tax" means the tax imposed
by Section 4999 of the Code. For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amounts of such Excise Tax,
(x) the total amount of the Payments shall be treated as "parachute payments"
within the meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, except to the extent that, in the opinion of
independent counsel selected by the Corporation and reasonably acceptable to the
Executive ("Independent counsel"), a Payment (in whole or in part) does not
constitute a "parachute payment" within the meaning of section 280G(b)(2) of the
Code, or such "excess parachute payments" (in whole or in part) are not subject
to the Excise Tax; (y) the amount of the Payments that shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount
of the Payments or (B) the amount of "excess parachute payments" within the
meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof);
and (z) the value of any noncash benefits or any deferred payment or benefit
shall be determined by Independent Counsel in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, the Executive shall be deemed to pay federal income
taxes at the highest marginal rates of federal income taxation applicable to the
individuals in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rates of taxation
applicable to individuals as are in effect in the state and locality of the
Executive's residence in the calendar year in which the Gross-Up Payment is to
be made, net of the maximum reduction in federal income taxes that can be
obtained from deduction of such state and local taxes, taking into account any
limitations applicable to individuals subject to federal income tax at the
highest marginal rates.
(ii) The Gross-Up Payments referred to in Section 10(d)(i)
hereof shall be made, subject to applicable withholding requirements, upon the
earlier of (x) the payment to the Executive of any Payment or (y) the imposition
upon the Executive or payment by the Executive of any Excise Tax.
(iii) If it is established pursuant to a final determination
of a court or an Internal Revenue Service proceeding or the opinion of
Independent Counsel that the Excise Tax exceeds the amount taken into account
hereunder (including by reasons of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Corporation shall
make an additional Gross-Up Payment in respect of such excess within thirty (30)
days of the Corporation's receipt of notice of such final determination or
opinion.
(iv) In the event that the Internal Revenue Service makes any
claim, gives notice of any potential claim or institutes a proceeding against
the Executive asserting that any Excise Tax or additional Excise Tax is due in
respect of the Payments, the Executive shall promptly give the Corporation
notice of any such claim, potential claim or proceeding. The Corporation shall
have the right to conduct all discussions, negotiations, defenses, actions and
proceedings solely to the extent
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relating to any Excise Tax payable in respect of the Payments, and the Executive
shall cooperate with and assist the Corporation, at the Corporation's expense,
in any such discussions, negotiations, defenses, actions and proceedings, to the
extent reasonably requested by the Corporation. The Executive will not settle
any claim or proceeding relating solely to the extent to the Excise Tax payable
in respect of the Payments without the consent of the Corporation, which consent
shall not be unreasonably withheld. The Executive shall file, at the
Corporation's expense, all requests for refunds of the Gross-Up Amount, or any
portion thereof, paid to any taxing authority as shall be reasonably requested
by the Corporation and shall pay over to the Corporation (net of any tax payable
thereon) any such refunds, together with any interest thereon, when and as such
refunds and interest are received by the Executive.
(v) All fees and expenses of Independent Counsel shall be
borne by the Corporation.
(e) Non-Renewal. In the event that the employment of the
Executive is not renewed by the Corporation following the end of the Term on
terms that are no less favorable to the Executive than the terms of this
Agreement, the Corporation shall pay to the Executive, promptly after the end of
the Term, an amount equal to (x) the Base Salary in effect at the end of the
Term, plus (y) the amount of the Bonus, if any, payable to the Executive in
respect of the third year of the Term. If the Corporation is willing to renew
the employment of the Executive at the end of the Term on terms no less
favorable to the Executive than the terms of this Agreement but the Executive is
unwilling to accept such employment, no amount shall be payable to the Executive
under this Section 10(d).
11. Confidential Information. In addition to any other confidentiality
obligation the Executive may have to the date hereof, and until the end of the
original Term, the Executive shall keep secret and retain in strictest
confidence, and shall not use for his benefit or the benefit of others, any and
all confidential information relating to the Corporation and its subsidiaries,
including, without limitation, customer lists, financial plans or projections,
pricing policies, marketing plans or strategies, business acquisition or
divestiture plans, new personnel acquisition plans, designs, and, except in
connection with the performance of his duties hereunder, the Executive shall not
disclose any such information to anyone outside the Corporation and any of its
subsidiaries, except as required by law (provided prior written notice thereof
is given by the Executive to the Corporation) or except with the Corporation's
prior consent, unless such information is known generally to the public or the
trade through sources other than the Executive's unauthorized disclosure.
12. Competitive Activity. The Executive hereby agrees that, during his
employment hereunder, and, following a termination of his employment, for the
balance of the Term (if any), the Executive shall not, without the prior consent
of the Board (i) directly or indirectly, engage or be interested in (as owner,
partner, shareholder, employee, director, officer, agent, consultant or
otherwise), with or without compensation, any business wherever located in the
world engaged in the manufacture, distribution, design marketing or sale of
women's apparel, if such business is a material competitor of the Corporation,
or (ii) induce or attempt to persuade any employee of the Corporation
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<PAGE>
or of any subsidiary of the Corporation, or any person who was employed by the
Corporation or any subsidiary of the Corporation within the preceding six
months, to leave the employ of the Corporation or any subsidiary of the
Corporation (but the foregoing shall not be deemed to prevent the Executive in
his capacity as President of the Corporation from hiring or dismissing any
employee of the Corporation or any subsidiary for the benefit of the
Corporation). The provisions of clause (i) of the preceding sentence shall not
apply in the case of a termination by the Executive for Good Reason or by the
Corporation without Cause. Nothing in this Section 12 shall prohibit the
Executive from acquiring or holding not more than five percent (5%) of any class
of publicly traded securities of any business.
13. Expenses. The Corporation shall reimburse the Executive for all
reasonable expenses incurred by the Executive in the performance of the
Executive's duties hereunder; provided, however, that, in connection with such
reimbursement, the Executive shall account to the Corporation for such expenses
in the manner customarily prescribed by the Corporation for its senior
executives.
14. Directors' and Officers' Insurance; Indemnification. The Executive
shall be provided with directors' and officers' insurance in connection with his
employment hereunder and service as a Director as contemplated hereby with such
coverage (including with respect to unpaid wages and taxes not remitted when
done) as shall be reasonably satisfactory to the Executive and with aggregate
limits of liability for all covered officers and directors of not less than
Thirty-Five Million Dollars ($35,000,000), and the Corporation shall maintain
such insurance in effect for the period of the Executive's employment hereunder
and for not less than five (5) years thereafter; provided, however, that, in the
event that the Corporation shall not obtain such insurance, it shall provide or
cause the Executive to be provided with indemnity (or a combination of indemnity
and directors' and officers' insurance) in connection with his employment
hereunder with substantially equivalent coverage and amounts, and the
Corporation shall maintain such indemnity (or combination of indemnity and
directors' and officers' insurance) or cause such indemnity (or such
combination) to be maintained for the period of the Executive's employment
hereunder and for not less than five (5) years thereafter.
15. No Duty to Mitigate. The Executive shall have no duty to mitigate
the severance amounts or any other amounts payable to the Executive hereunder,
and such amounts shall not be subject to reduction for any compensation received
by the Executive from employment in any capacity or other source following the
termination of Executive's employment with the Corporation and its subsidiaries.
16. Entire Agreements; Amendments; No Waiver. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof. This Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. No failure on
the part of either party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any partial exercise of
any right hereunder preclude any further exercise thereof.
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17. Survival of Provisions. The provisions of Sections 10(d), 11, 12,
23 and 25 shall survive the termination or expiration of this Agreement as
provided therein. Such provisions are unique and extraordinary, which give them
a value peculiar to the Corporation, and cannot be reasonably or adequately
compensated in damages for its loss and any breach by the Executive of such
provisions shall cause the Corporation irreparable injury and damage. Therefore,
the Corporation, in addition to all other remedies available to it, shall be
entitled to injunctive and other available equitable relief in any court of
competent jurisdiction to prevent or otherwise restrain a breach of such
provisions for the purposes of enforcing such provisions.
18. Withholding. The Corporation shall be entitled to withhold from any
and all amounts payable to the Executive hereunder such amounts as may from time
to time be required to be withheld pursuant to applicable tax laws and
regulations.
19. Succession, Assignability and Binding Effect. (a) The Corporation
will require any successor or successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such agreement prior to the
effectiveness of any such succession shall constitute Good Reason for
resignation by the Executive.
(b) This Agreement shall inure to the benefit of and shall be
binding upon the Corporation and its successors and permitted assigns and upon
the Executive and his heirs, executors, legal representatives, successors and
permitted assigns; provided, however, that neither party may assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of
its or his rights hereunder without the prior written consent of the other
party, and any such attempted assignment, transfer, pledge, encumbrance,
hypothecation or other disposition without such consent shall be null and void
and without effect.
20. Headings. The paragraph headings contained herein are included
solely for convenience of reference and shall not control or affect the meaning
or interpretation of any of the provisions of this Agreement.
21. Notices. Any notices or other communications hereunder by either
party shall be in writing and shall be deemed to have been duly given if
delivered personally to the other party or, if sent by registered or certified
mail, upon receipt, to the other party at his or its address set forth at the
beginning of this Agreement or at such other address as such other party may
designate in conformity with the foregoing.
22. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
giving effect to the principles thereof relating to the conflict of laws.
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23. Legal Fees and Expenses. In order to induce the Executive to enter
into this Agreement and to provide the Executive with reasonable assurance that
the purposes of this Agreement shall not be frustrated by the cost of its
enforcement, the Corporation shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of the failure by the Corporation to perform this Agreement or any
provision hereof to be performed by it or in connection with any action which
may be brought, by or in the name or for the benefit of the Corporation or any
subsidiary contesting the validity or enforceability of this Agreement or any
provision hereof to be performed by the Corporation, which action shall have
been dismissed by a final, nonappealable court order.
24. Opportunity to Review. The Executive acknowledged that he has been
given the opportunity to discuss this Agreement, including this Section 24, with
his private legal counsel and has availed himself of that opportunity to the
extent he wishes to do so.
25. Arbitration.
(a) Disputes Subject to Arbitration. In the event that the
Corporation terminates the Executive's employment on the grounds set forth in
clause (iii) of the definition of "Cause", the Corporation and the Executive
mutually consent to the resolution by arbitration of any dispute between the
Corporation and the Executive as to whether such Cause has occurred. Unless the
Corporation and the Executive otherwise agree, no other disputes, issues, claims
or controversies arising out of the Executive's employment (or its termination),
or any other matter whatsoever, shall be submitted to or resolved by
arbitration.
(b) Arbitration Procedures.
(i) The Corporation and the Executive agree that, except as
provided in this Agreement, any arbitration shall be in accordance with
the then current Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA") before an arbitrator who is
licensed to practice law in the state in which the arbitration is
convened (the "Arbitrator"). The arbitration shall take place in or
near the city in which the Executive is or was last employed by the
Corporation.
(ii) Upon designation as a Dispute, the AAA shall give each
party a list of eleven (11) arbitrators drawn from its panel of labor
and employment arbitrators. The Corporation and the Executive may
strike all names on the list which it deems unacceptable. If only one
common name remains on the lists of all parties, said individual shall
be designated as the Arbitrator. If more than one common name remains
on the lists of all parties, the parties shall strike names
alternatively until only one remains. If no common name remains on the
lists of all parties, the AAA shall furnish an additional list and the
parties shall alternate striking names on such second list until an
arbitrator is selected.
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<PAGE>
(iii) The Arbitrator shall apply the law of the State of New
York applicable to contracts made and to be performed wholly in that
state (without giving effect to the principles thereof relating to
conflicts of law). The Federal Rules of Evidence shall apply. The
Arbitrator, and not any federal, state, or local court or agency, shall
have exclusive authority to resolve any dispute relating to the
interpretation, applicability or formation of the term "Cause". The
Arbitrator shall render a decision within thirty (30) days of the date
upon which the Arbitrator is selected pursuant to Section 25(b)(ii),
which decision shall be final and binding upon the parties. In the
event that the Arbitrator decides that Material Insubordination has (x)
occurred, then the Executive's employment shall be deemed to have been
terminated for cause pursuant to Section 9(a) hereof or (y) not
occurred, then the Executive's employment shall be deemed to have been
terminated without Cause pursuant to Section 10(b) hereof.
(iv) The Arbitrator shall have jurisdiction to hear and rule
on pre-hearing disputes and is authorized to hold prehearing
conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall have the authority to entertain a
motion to dismiss and/or a motion for summary judgment by any party and
shall apply the standards governing such motions under the Federal
Rules of Civil Procedure.
(v) Either party, at its expense, may arrange for and pay the
costs of a court reporter to provide a stenographic report of
proceedings.
(vi) Either party, upon request at the close of hearing, shall
be given leave to file a post-hearing brief. The time for filing such a
brief shall be set by the Arbitrator.
(vii) Either party may bring an action in any court of
competent jurisdiction to compel arbitration under this Section 25.
Except as otherwise provided in this Section 25, both the Corporation
and the Executive agree that neither such party shall initiate or
prosecute any lawsuit or administrative action in any way related to
any Dispute covered by this Section 25.
(viii) The arbitrator shall render an opinion in the form
typically rendered in labor arbitrations.
(c) Arbitration Fees and Costs. The Corporation and the
Executive shall equally share the fees and costs of the Arbitrator. Each party
shall deposit funds or post other appropriate security for its share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, ten (10)
days before the first day of hearing. Each party shall pay for its own costs and
attorneys' fees, if any. However, if any party prevails on a statutory claim
that affords the prevailing party attorneys' fees, the Arbitrator may award
reasonable fees to the prevailing party.
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<PAGE>
(d) Opportunity to Review. The Executive acknowledged that he
has been given the opportunity to discuss this Agreement, including this Section
25, with his private legal counsel and has availed himself of that opportunity
to the extent he wishes to do so.
(e) Law Governing. The parties agree that the arbitration
provisions set forth in this Section 25 shall be governed by the Federal
Arbitration Act, 9 U.S.C.ss.ss. 1-16, ("FAA"). The parties further agree that
all Disputes, whether arising under state or federal law, shall be subject to
the FAA, notwithstanding any state or local laws to the contrary.
26. Prior Employment Agreement. The employment agreement, dated as of
June 2, 1997 between the Executive and the Corporation is hereby terminated as
of the Effective Date.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
THE LESLIE FAY COMPANY, INC.
By: /s/ John J. Pomerantz
----------------------------------
Name: John J. Pomerantz
Title: Chairman and Chief Executive
Officer
/s/ John A. Ward
--------------------------------------
John A. Ward
Executive
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EMPLOYMENT AGREEMENT
(Warren T. Wishart)
AGREEMENT, dated as of January 1, 1998, between The Leslie Fay Company,
Inc., a Delaware corporation, with its principal office at 1412 Broadway, New
York, New York (the "Corporation"), and Warren T. Wishart, residing at 5
Crestview Road, Mountain Lakes, New Jersey 07046 (the "Executive").
RECITALS
A. The Executive has served as the Senior Vice
President--Administration and Finance, Chief Financial Officer and Treasurer of
the Corporation since June 2, 1997, and prior thereto as Senior Vice President,
Chief Financial Officer and Treasurer of The Leslie Fay Companies, Inc.,
predecessor-in-interest to the Corporation.
B. The Corporation desires to secure the continued services of the
Executive, and the Executive desires to continue to furnish services to the
Corporation, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties hereto hereby agree as
follows:
1. Definitions. Unless otherwise defined herein, the following terms
shall have the respective meanings specified below and be equally applicable to
the singular and plural of terms defined:
(a) "Adjusted Incentive EBITDA" shall mean, for any fiscal
year during the Term, the lesser of (i) Incentive EBITDA and (ii) the projected
EBITDA for such fiscal year as set forth in the Corporation's business plan for
such fiscal year approved by the Board.
(b) "Base Salary" shall have the meaning set forth in Section
5 hereof.
(c) "Board" shall mean the Board of Directors of the
Corporation.
(d) "Bonus" shall mean, for any year during the Term, the
Executive's allocable portion of the Cash Bonus Pool for such year, determined
in accordance with Section 6 hereof.
(e) "Cash Bonus Pool" shall have the meaning set forth in
Section 6 hereof.
(f) "Cause" shall mean (i) conviction of the Executive in
respect of a felony, (ii) perpetration by the Executive of (x) an illegal act
which causes significant economic injury to the Corporation or (y) a common law
fraud against the Corporation, or (iii) willful violation by the Executive (a
"Material Insubordination") of a specific written direction from the Board
concerning
<PAGE>
one or more matters of a material nature for the Corporation or its business or
operations (following a warning in writing in respect thereto from the Board).
(g) "Change of Control" shall mean the occurrence of any of
the following:
(i) any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act), other than Dickstein Partners, Inc.
and/or any of its affiliates (as defined in Rule 12b-2 under the
Exchange Act), acquiring "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of fifty percent
(50%) or more of the aggregate voting power of the capital stock of the
Corporation; or
(ii) the sale of all or substantially all of the Corporation's
assets in one or more related transactions; or
(iii) any merger, consolidation, reorganization or similar
event of the Corporation or any of its subsidiaries, as a result of
which the holders of the voting stock of the Corporation immediately
prior to such merger, consolidation, reorganization or similar event do
not hold at least fifty-one percent (51%) of the aggregate voting power
of the capital stock of the surviving entity.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Compensation Committee" shall mean the compensation
committee of the Board, all of whose members are "outside directors" within the
meaning of Section 162(m) of the Code.
(j) "Corporation Senior Managers" shall mean the Chief
Executive Officer, the President, the Senior Vice President--Manufacturing and
Sourcing, the Senior Vice President-- Administration and Finance (Chief
Financial Officer) and such other employees of the Corporation as determined by
the Compensation Committee in consultation with the Chief Executive Officer.
(k) "Disabled" shall mean, with respect to the Executive,
being physically or mentally disabled, whether totally or partially, so that he
is substantially unable to perform his services hereunder for a consecutive
period of more than six (6) months or for shorter periods aggregating six months
during any twelve-month period.
(l) "EBITDA" shall mean for any fiscal year of the
Corporation, the consolidated earnings before interest, taxes, depreciation and
amortization of the Corporation and its consolidated subsidiaries, and before
any non-cash accruals for stock-based compensation, as determined pursuant to
generally accepted accounting principles in effect in the United States of
America from time to time, provided that for purposes of determining EBITDA
hereunder, EBITDA shall be calculated before determination of the Cash Bonus
Pool.
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<PAGE>
(m) "Effective Date" shall mean January 1, 1998.
(n) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(o) "Good Reason" shall mean the continuation of any of the
following events for more than ten (10) days after the Corporation's receipt
from the Executive of written notice thereof:
(i) the Executive shall be removed from the position
of Senior Vice President--Administration and Finance, Chief Financial
Officer and Treasurer of the Corporation at any time during the Term
(other than for Cause);
(ii) the Executive shall fail to be vested with the
powers and authority of Senior Vice President--Administration and
Finance, Chief Financial Officer and Treasurer of the Corporation as
described in Section 4(a) hereof, or the powers and authority of such
position or his responsibilities with respect thereto shall be
diminished in any material respect;
(iii) the Executive shall have assigned to him
without his express written consent any duties, functions, authority or
responsibilities that are inconsistent with the Executive's positions
described in Section 4 hereof;
(iv) the Executive's principal place of employment is
changed to a location more than twenty-five (25) miles from the prior
location without the Executive's prior written consent;
(v) any material failure by the Corporation to
fulfill any of its obligations under this Agreement (other than
pursuant to Section 4(b)), including, without limitation, the failure
to make any material payment required to be made by the Corporation
pursuant to Sections 5 and 6 hereof within five (5) business days after
the date such payment is required to be made;
(vi) any purported termination by the Corporation of
the Executive's employment otherwise than as expressly permitted by,
and in compliance with all conditions and procedures of, this
Agreement; or
(vii) the Corporation shall fail to comply with the
provisions of Section 14 or Section 19(a) hereof.
(p) "Incentive EBITDA" shall mean Eleven Million Five Hundred
Thousand Dollars ($11,500,000).
(q) "Target EBITDA" shall mean Five Million Four Hundred
Forty-Three Thousand Dollars ($5,443,000).
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<PAGE>
(r) "Term" shall have the meaning set forth in Section 3
hereof.
2. Employment. The Corporation shall employ the Executive, and the
Executive shall serve the Corporation, upon the terms and conditions hereinafter
set forth.
3. Term.
(a) Term of Employment. Subject to the terms and conditions
hereinafter set forth, the term of the Executive's employment hereunder shall
commence as of the Effective Date and shall continue until the third anniversary
of the Effective Date, unless earlier terminated pursuant to the provisions of
Section 8, 9 or 10 hereof (the "Term").
(b) Renewal. During the third year of the Term, the
Corporation will conduct, in good faith and on a timely basis, negotiations with
the Executive concerning the renewal of the Executive's employment with the
Corporation.
4. Duties and Extent of Services. During the Term, the Executive shall
serve as Senior Vice President--Administration and Finance, Chief Financial
Officer and Treasurer of the Corporation faithfully and to the best of his
ability, and shall devote substantially all of his business time, energy and
skill to such employment, it being understood and agreed that the Executive may
serve on the boards of directors or equivalent governing bodies of other
business corporations or other business organizations; provided, however, that
(i) such other corporations or other organizations are not in direct competition
with the Corporation and/or its subsidiaries and (ii) such service does not
materially interfere with the performance by the Executive of his duties
hereunder. The Executive shall be invested with the duties and authority that
are customarily delegated to a senior vice president--administration and
finance, chief financial officer and treasurer of a corporation, and shall
report to and be subject to the direction of the Board of Directors of the
Corporation. The Executive shall also perform such specific duties and services
of a senior executive nature as the Board of Directors of the Corporation shall
request, including, without limitation, serving as a senior officer and/or
director of any of the Corporation's subsidiaries.
5. Base Salary. During the Term, the Corporation shall pay the
Executive a base salary ("Base Salary") of Two Hundred Twenty-Five Thousand
Dollars ($225,000) during the first two years of the Term and Two HundredFifty
Thousand Dollars ($250,000) during the third year of the Term, or such higher
amount as the Board may from time to time determine, payable in equal weekly
installments.
6. Incentive Compensation.
(a) Amount. If the Corporation's EBITDA for any fiscal year
(except as noted, references in this Section to EBITDA or Incentive EBITDA are
to the corresponding quantity for such fiscal year) during the Term is greater
than or equal to eighty-five percent (85%) (the "Minimum
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<PAGE>
Percentage") of Target EBITDA, the Corporation shall pay a bonus ("Cash Bonus
Pool") to the Corporation Senior Managers in an amount equal to the sum of:
(x) nine and six-tenths percent (9.6%) of EBITDA, plus
(y) two-tenths percent (0.2%) of the Corporation's EBITDA for
each percentage point, if any, of Target EBITDA by which EBITDA exceeds
the Minimum Percentage; provided, however, that in no event shall the
combined amount under clause (x) above and this clause (y) exceed
twelve and one-half percent (12.5%) of EBITDA, plus
(z) five percent (5%) of the amount by which EBITDA exceeds
the sum of (I) Incentive EBITDA plus (II) the sum for all prior fiscal
years (excluding the fiscal year for which the amount of the Cash Bonus
Pool is being determined) of the positive difference, if any, for each
such fiscal year between (i) Adjusted Incentive EBITDA for such fiscal
year and (ii) EBITDA for such fiscal year less (III) any amount under
clause (II) applied in any prior year to reduce the amount of the Cash
Bonus Pool that would otherwise have been payable in such year.
The amount of the Cash Bonus Pool for any fiscal year only a part of which is
within the Term shall be equal to the amount of the Cash Bonus Pool that would
have been payable for such fiscal year had it been entirely within the Term,
times a fraction, the numerator of which is the number of days of such fiscal
year occurring during the Term, and the denominator of which is three hundred
and sixty-five (365).
The Executive and each other Corporation Senior Manager shall
be entitled to receive such portion of the Cash Bonus Pool for any fiscal year
during the Term as determined by the Chief Executive Officer, but only if
approved by the Compensation Committee not later than the end of the first
quarter of such fiscal year. Other than with respect to allocation, all of the
Corporation Senior Managers shall participate in the Cash Bonus Pool on the same
terms and conditions.
(b) Manner of Payment. The Cash Bonus Pool for any fiscal year
during the Term shall be determined after the close of such fiscal year.
However, the Executive shall be permitted to draw during each fiscal year, on a
quarterly basis, against his anticipated allocation of the Cash Bonus Pool for
such year, as follows:
(i) Following each fiscal quarter, the Corporation shall
determine a pro-rated Cash Bonus Pool amount for the period from the
beginning of the fiscal year through the end of such fiscal quarter,
calculated as set forth in clauses (x), (y) and (z) of Section 6(a)
hereof. For purposes of such determination, Target EBITDA, Incentive
EBITDA, Adjusted Incentive EBITDA and the amount described under
subclause (II) of said clause (z), if any, shall be prorated for the
relevant year-to-date period.
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<PAGE>
(ii) The Executive shall be permitted to draw up to two-thirds
of his allocated amount of the pro-rated Cash Bonus Pool, less the
amount of all prior draws for the same fiscal year.
(iii) Following the end of the fiscal year, the Corporation
shall determine whether the amount of the Cash Bonus Pool allocable to
the Executive exceeds or is less than the Executive's draws under the
pro-rated Cash Bonus Pool for such fiscal year.
(iv) If the allocated amount of the Cash Bonus Pool to which
the Executive is entitled exceeds the amount of the Executive's draws
for the fiscal year, the Corporation shall pay the difference to the
participant not later than ninety (90) after the end of the fiscal
year. If the allocated amount of the Cash Bonus Pool to which the
Executive is entitled is less than the amount of the Executive's draws
for the fiscal year, the Executive shall repay the difference to the
Corporation within one hundred twenty (120) days after the Corporation
informs the Executive in writing of the deficiency, with a calculation
thereof in reasonable detail. The amount required to be repaid shall
bear interest at the applicable federal rate from the date of the
respective draw(s) until repayment. If the Executive shall dispute the
amount of the deficiency, the Executive shall inform the Corporation in
writing of such dispute on or before the date payment of the deficiency
is otherwise due, shall provide the Corporation with a statement of the
basis for the dispute in reasonable detail and shall pay to the
Corporation any undisputed amount thereof on or prior to the aforesaid
payment date. Thereafter, the Executive and the Corporation shall in
good faith attempt to resolve the dispute, but if the dispute cannot be
resolved prior to the expiration of thirty (30) days from the aforesaid
payment date, the dispute shall be submitted to arbitration in
accordance with the procedures set forth in Section 25.
(v) The Executive's repayment obligations under the preceding
clause (iv) of this Section 6(b) shall be secured by all unexercised
options, vested or unvested, to acquire capital stock of the
Corporation granted by the Corporation to the Executive.
(c) If any payment is required to be made under Section 8, 9
or 10 hereof on the basis of the Cash Bonus Pool for any fiscal year, and the
Cash Bonus Pool for such fiscal year cannot be determined until after the time
that such payment is otherwise required to be made, then the payment of that
amount which is based upon the determination of the Cash Bonus Pool for such
fiscal year shall be deferred until after such time as the determination of the
Cash Bonus Pool for such fiscal year can reasonably be made, and such payment
shall be made as soon thereafter as practicable.
(d) Payment of the Cash Bonus Pool shall be subject to the
approval of the Corporation's stockholders to the extent necessary such that all
payments under the Cash Bonus Pool will be fully deductible under Section 162(m)
of the Code, and the Corporation shall used its reasonable best efforts to
obtain such approval on a timely basis consistent with the provisions of this
Section 6.
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<PAGE>
7. Employee Benefits.
(a) During the Term, the Executive shall receive coverage
and/or benefits under any and all medical insurance, life insurance, long-term
disability insurance and pension plans and other employee benefit plans of the
Corporation generally made available to senior executives of the Corporation
from time to time.
(b) During the Term, the Corporation shall provide (x) the
Executive and members of his immediate family with (i) supplemental disability
coverage and (ii) medical insurance for all medical costs and services incurred
by the foregoing, including costs of dental, vision and custodial care, (y) the
Executive a general automobile allowance equal to $900 per month and (z) the
Executive with an automobile for use primarily in connection with travel to and
from the Company's Laflin, Pennsylvania facility and reimbursement for fuel and
repair costs and any federal, state or local taxes incurred or payable by the
Executive in connection therewith (including by reason of such reimbursement.
(c) The Executive shall be entitled to paid vacations (taken
consecutively or in segments), in accordance with the standard vacation policy
of the Corporation for senior executives, but in no event less than four (4)
weeks each calendar year during the Term. Such vacations shall be taken at times
consistent with the effective discharge of the Executive's duties.
(d) During the Term, the Executive shall be accorded office
facilities and secretarial assistance commensurate with his position as Senior
Vice President--Administration and Finance, Chief Financial Officer and
Treasurer of the Corporation and adequate for the performance of his duties
hereunder.
(e) The Executive shall be awarded, as of January 1, 1998, ten
year options to acquire 109,379 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share, of which options to acquire 70,060
shares will vest in three equal annual installments beginning June 4, 1998 and
options to acquire 39,319 shares will vest in four equal installments beginning
January 4, 1998, subject to acceleration and expiration as provided in the
aforesaid plan.
8. Termination--Death or Disability.
(a) In the event of the termination of the Executive's
employment because of the death of the Executive during the Term, the
Corporation shall pay to any one or more beneficiaries designated by the
Executive pursuant to notice to the Corporation, or, failing such designation,
to the Executive's estate, (i) the unpaid Base Salary owing to the Employee
through the end of the month of his death, in a lump sum within five (5)
business days after his death, and (ii) a Bonus for the year in which such
termination occurs, equal to the Bonus (if any) that would have been paid for
such year if no such termination had occurred, times a fraction, the numerator
of which is the number
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<PAGE>
of months in such year through the end of the month in which such termination
occurs, and the denominator of which is twelve (12).
(b) In the event that the Executive shall become Disabled, the
Corporation shall have the right to terminate the Executive's employment
hereunder by giving him written notice of such termination. Upon receipt of such
notice, the Executive's employment hereunder shall terminate. In the event of
such termination, the Corporation shall pay to the Executive (i) the unpaid Base
Salary owing to the Executive through the end of the month of such termination,
in a lump sum within five (5) business days of such termination, and (ii) a
Bonus for the year in which such termination occurs, equal to the Bonus (if any)
that would have been paid for such year if no such termination had occurred,
times a fraction, the numerator of which is the number of months in such year
through the end of the month in which such termination occurs, and the
denominator of which is twelve (12).
(c) If the Executive has made interim draws against his Bonus,
in accordance with Section 6(b) hereof, for any fiscal year prior to the date of
his death or termination for disability for which a year-end reconciliation has
not been made in accordance with clause (iv) of such Section, any Bonus payment
required pursuant to Section 8(a) or 8(b) shall be adjusted, and the Corporation
shall make a payment to the Executive or his estate or the Executive or his
estate shall make a payment to the Corporation, as required by Section 6(b)(iv).
9. Termination for Cause by Corporation.
(a) The Executive's employment hereunder may be terminated by
the Corporation for Cause upon compliance with the provisions of Section 9(b)
hereof. In the event that Executive's employment hereunder shall validly be
terminated by the Corporation for Cause pursuant to this Section 9, the
Corporation shall promptly pay accrued but unpaid Base Salary to the date of
termination and reimburse or pay any other accrued but unpaid amounts due under
Sections 6 and 13 hereof as of the date of termination, and thereafter shall
have no further obligations under this Agreement. Upon termination of the
Executive's employment hereunder for Cause, the Executive shall nonetheless
remain bound by the obligations provided for in Sections 11 and 12 hereof. For
purposes of this Section 9(a), the amount accrued to the Executive under Section
6 hereof shall mean a Bonus accrued but unpaid for all fiscal years prior to the
fiscal year in which the termination of the Executive occurs. If the Executive
has made interim draws against his Bonus, in accordance with Section 6(b)
hereof, for the fiscal year during which his termination occurs, the Executive
shall promptly repay the amount of all such draws to the Corporation, and, to
the extent not repaid, such amount may be offset by the Corporation against any
amounts owing to the Executive under this Section 9(a).
(b) Termination for Cause shall be effected only by action of
a majority of the Board then in office (excluding the Executive) at a meeting
duly called and held upon at least ten (10) days' prior written notice to the
Executive specifying the particulars of the action or inaction alleged to
constitute "Cause" (and at which meeting the Executive and his counsel were
entitled to be present and given reasonable opportunity to be heard).
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<PAGE>
10. Termination for Good Reason by the Executive or Without Cause
by the Corporation; Change of Control; Non-Renewal.
(a) Termination by Executive for Good Reason. The Executive's
employment hereunder may be terminated by the Executive for Good Reason by
providing written notice to the Corporation to such effect (such termination to
be effective on the date specified in such notice, which date shall not be more
than sixty (60) days nor less than thirty (30) days after the date of such
notice).
(b) Severance. If at any time (other than following a Change
of Control) the Executive terminates his employment for Good Reason or the
Corporation terminates the Executive's employment without Cause, then, in lieu
of any other amounts that might otherwise have been payable hereunder, the
Corporation shall promptly pay to the Executive:
(i) all accrued but unpaid Base Salary and any other accrued
but unpaid amounts due under Sections 6 and 13 hereof as of the date of
termination; and
(ii) the greater of (I) an amount equal to one and one-half
times the Base Salary in effect on the date of termination for each
year or partial year remaining during the Term; and (II) (i) the sum of
(x) the Base Salary in effect on the date of termination, plus (y) the
amount of the Bonus, if any, payable to the Executive in respect of the
prior year of the Term, multiplied by (ii) the number of years,
including any partial year, remaining during the Term.
If the employment of the Executive is terminated as provided in this Section
9(b) or Section 9(c) below and the Executive has made interim draws against his
Bonus, in accordance with Section 6(b) hereof, for the fiscal year during which
such termination occurs, the Executive shall promptly repay the amount of all
such draws to the Corporation, and, to the extent not repaid, such amount may be
offset by the Corporation against any amounts owing to the Executive under this
Section 9(b) or Section 9(c) below.
(c) Change of Control. If a Change of Control occurs and
thereafter the Executive terminates his employment for Good Reason or the
Corporation terminates the Executive's employment without Cause, the Corporation
shall promptly pay to the Executive an amount equal to the sum of (x) the amount
payable to the Executive under Section 10(b) above, and (y) the Gross- Up
Payment.
(d) Gross-Up Payment.
(i) For purposes of Section 10(c), "Gross-Up Payment" means an
additional amount such that the net amount retained by the Executive, after
deduction of the Excise Tax (as defined below) on any payments or benefits under
this Agreement and/or under any option plan or agreement of the Corporation
received by the Executive from the Corporation as a result of a Change of
Control (within the meaning of section 280G(b)(2) of the Code) (collectively,
the "Payments") and
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any federal, state and local income tax and the Excise Tax upon the Gross-Up
Payment, and any interest, penalties or additions to tax payable by the
Executive with respect thereto (other than such interest, penalties or additions
to tax payable solely as a result of action or inaction by the Executive), shall
be equal to the total amount of the Payments. "Excise Tax" means the tax imposed
by Section 4999 of the Code. For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amounts of such Excise Tax,
(x) the total amount of the Payments shall be treated as "parachute payments"
within the meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) of the Code shall be treated
as subject to the Excise Tax, except to the extent that, in the opinion of
independent counsel selected by the Corporation and reasonably acceptable to the
Executive ("Independent counsel"), a Payment (in whole or in part) does not
constitute a "parachute payment" within the meaning of section 280G(b)(2) of the
Code, or such "excess parachute payments" (in whole or in part) are not subject
to the Excise Tax; (y) the amount of the Payments that shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount
of the Payments or (B) the amount of "excess parachute payments" within the
meaning of section 280G(b)(1) of the Code (after applying clause (1) hereof);
and (z) the value of any noncash benefits or any deferred payment or benefit
shall be determined by Independent Counsel in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, the Executive shall be deemed to pay federal income
taxes at the highest marginal rates of federal income taxation applicable to the
individuals in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rates of taxation
applicable to individuals as are in effect in the state and locality of the
Executive's residence in the calendar year in which the Gross-Up Payment is to
be made, net of the maximum reduction in federal income taxes that can be
obtained from deduction of such state and local taxes, taking into account any
limitations applicable to individuals subject to federal income tax at the
highest marginal rates.
(ii) The Gross-Up Payments referred to in Section 10(d)(i)
hereof shall be made, subject to applicable withholding requirements, upon the
earlier of (x) the payment to the Executive of any Payment or (y) the imposition
upon the Executive or payment by the Executive of any Excise Tax.
(iii) If it is established pursuant to a final determination
of a court or an Internal Revenue Service proceeding or the opinion of
Independent Counsel that the Excise Tax exceeds the amount taken into account
hereunder (including by reasons of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Corporation shall
make an additional Gross-Up Payment in respect of such excess within thirty (30)
days of the Corporation's receipt of notice of such final determination or
opinion.
(iv) In the event that the Internal Revenue Service makes any
claim, gives notice of any potential claim or institutes a proceeding against
the Executive asserting that any Excise Tax or additional Excise Tax is due in
respect of the Payments, the Executive shall promptly give the Corporation
notice of any such claim, potential claim or proceeding. The Corporation shall
have the right to conduct all discussions, negotiations, defenses, actions and
proceedings solely to the extent
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<PAGE>
relating to any Excise Tax payable in respect of the Payments, and the Executive
shall cooperate with and assist the Corporation, at the Corporation's expense,
in any such discussions, negotiations, defenses, actions and proceedings, to the
extent reasonably requested by the Corporation. The Executive will not settle
any claim or proceeding solely to the extent relating to the Excise Tax payable
in respect of the Payments without the consent of the Corporation, which consent
shall not be unreasonably withheld. The Executive shall file, at the
Corporation's expense, all requests for refunds of the Gross-Up Amount, or any
portion thereof, paid to any taxing authority as shall be reasonably requested
by the Corporation and shall pay over to the Corporation (net of any tax payable
thereon) any such refunds, together with any interest thereon, when and as such
refunds and interest are received by the Executive.
(v) All fees and expenses of Independent Counsel shall be
borne by the Corporation.
(e) Non-Renewal. In the event that the employment of the
Executive is not renewed by the Corporation following the end of the Term on
terms that are no less favorable to the Executive than the terms of this
Agreement, the Corporation shall pay to the Executive, promptly after the end of
the Term, an amount equal to (x) the Base Salary in effect at the end of the
Term, plus (y) the amount of the Bonus, if any, payable to the Executive in
respect of the third year of the Term. If the Corporation is willing to renew
the employment of the Executive at the end of the Term on terms no less
favorable to the Executive than the terms of this Agreement but the Executive is
unwilling to accept such employment, no amount shall be payable to the Executive
under this Section 10(d).
11. Confidential Information. In addition to any other confidentiality
obligation the Executive may have to the date hereof, and until the end of the
original Term, the Executive shall keep secret and retain in strictest
confidence, and shall not use for his benefit or the benefit of others, any and
all confidential information relating to the Corporation and its subsidiaries,
including, without limitation, customer lists, financial plans or projections,
pricing policies, marketing plans or strategies, business acquisition or
divestiture plans, new personnel acquisition plans, designs, and, except in
connection with the performance of his duties hereunder, the Executive shall not
disclose any such information to anyone outside the Corporation and any of its
subsidiaries, except as required by law (provided prior written notice thereof
is given by the Executive to the Corporation) or except with the Corporation's
prior consent, unless such information is known generally to the public or the
trade through sources other than the Executive's unauthorized disclosure.
12. Competitive Activity. The Executive hereby agrees that, during his
employment hereunder, and, following a termination of his employment, for the
balance of the Term (if any), the Executive shall not, without the prior consent
of the Board (i) directly or indirectly, engage or be interested in (as owner,
partner, shareholder, employee, director, officer, agent, consultant or
otherwise), with or without compensation, any business wherever located in the
world engaged in the manufacture, distribution, design marketing or sale of
women's apparel, if such business is a material competitor of the Corporation,
or (ii) induce or attempt to persuade any employee of the Corporation
-11-
<PAGE>
or of any subsidiary of the Corporation, or any person who was employed by the
Corporation or any subsidiary of the Corporation within the preceding six
months, to leave the employ of the Corporation or any subsidiary of the
Corporation (but the foregoing shall not be deemed to prevent the Executive in
his capacity as Senior Vice President--Administration and Finance, Chief
Financial Officer and Treasurer of the Corporation from hiring or dismissing any
employee of the Corporation or any subsidiary for the benefit of the
Corporation). The provisions of clause (i) of the preceding sentence shall not
apply in the case of a termination by the Executive for Good Reason or by the
Corporation without Cause. Nothing in this Section 12 shall prohibit the
Executive from acquiring or holding not more than five percent (5%) of any class
of publicly traded securities of any business.
13. Expenses. The Corporation shall reimburse the Executive for all
reasonable expenses incurred by the Executive in the performance of the
Executive's duties hereunder; provided, however, that, in connection with such
reimbursement, the Executive shall account to the Corporation for such expenses
in the manner customarily prescribed by the Corporation for its senior
executives.
14. Directors' and Officers' Insurance; Indemnification. The Executive
shall be provided with directors' and officers' insurance in connection with his
employment hereunder and service as a Director as contemplated hereby with such
coverage (including with respect to unpaid wages and taxes not remitted when
done) as shall be reasonably satisfactory to the Executive and with aggregate
limits of liability for all covered officers and directors of not less than
Thirty-Five Million Dollars ($35,000,000), and the Corporation shall maintain
such insurance in effect for the period of the Executive's employment hereunder
and for not less than five (5) years thereafter; provided, however, that, in the
event that the Corporation shall not obtain such insurance, it shall provide or
cause the Executive to be provided with indemnity (or a combination of indemnity
and directors' and officers' insurance) in connection with his employment
hereunder with substantially equivalent coverage and amounts, and the
Corporation shall maintain such indemnity (or combination of indemnity and
directors' and officers' insurance) or cause such indemnity (or such
combination) to be maintained for the period of the Executive's employment
hereunder and for not less than five (5) years thereafter.
15. No Duty to Mitigate. The Executive shall have no duty to mitigate
the severance amounts or any other amounts payable to the Executive hereunder,
and such amounts shall not be subject to reduction for any compensation received
by the Executive from employment in any capacity or other source following the
termination of Executive's employment with the Corporation and its subsidiaries.
16. Entire Agreements; Amendments; No Waiver. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof. This Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. No failure on
the part of either party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any partial exercise of
any right hereunder preclude any further exercise thereof.
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<PAGE>
17. Survival of Provisions. The provisions of Sections 10(d), 11, 12,
23 and 25 shall survive the termination or expiration of this Agreement as
provided therein. Such provisions are unique and extraordinary, which give them
a value peculiar to the Corporation, and cannot be reasonably or adequately
compensated in damages for its loss and any breach by the Executive of such
provisions shall cause the Corporation irreparable injury and damage. Therefore,
the Corporation, in addition to all other remedies available to it, shall be
entitled to injunctive and other available equitable relief in any court of
competent jurisdiction to prevent or otherwise restrain a breach of such
provisions for the purposes of enforcing such provisions.
18. Withholding. The Corporation shall be entitled to withhold from any
and all amounts payable to the Executive hereunder such amounts as may from time
to time be required to be withheld pursuant to applicable tax laws and
regulations.
19. Succession, Assignability and Binding Effect. (a) The Corporation
will require any successor or successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such agreement prior to the
effectiveness of any such succession shall constitute Good Reason for
resignation by the Executive.
(b) This Agreement shall inure to the benefit of and shall be binding
upon the Corporation and its successors and permitted assigns and upon the
Executive and his heirs, executors, legal representatives, successors and
permitted assigns; provided, however, that neither party may assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of
its or his rights hereunder without the prior written consent of the other
party, and any such attempted assignment, transfer, pledge, encumbrance,
hypothecation or other disposition without such consent shall be null and void
and without effect.
20. Headings. The paragraph headings contained herein are included
solely for convenience of reference and shall not control or affect the meaning
or interpretation of any of the provisions of this Agreement.
21. Notices. Any notices or other communications hereunder by either
party shall be in writing and shall be deemed to have been duly given if
delivered personally to the other party or, if sent by registered or certified
mail, upon receipt, to the other party at his or its address set forth at the
beginning of this Agreement or at such other address as such other party may
designate in conformity with the foregoing.
22. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
giving effect to the principles thereof relating to the conflict of laws.
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<PAGE>
23. Legal Fees and Expenses. In order to induce the Executive to enter
into this Agreement and to provide the Executive with reasonable assurance that
the purposes of this Agreement shall not be frustrated by the cost of its
enforcement, the Corporation shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of the failure by the Corporation to perform this Agreement or any
provision hereof to be performed by it or in connection with any action which
may be brought, by or in the name or for the benefit of the Corporation or any
subsidiary contesting the validity or enforceability of this Agreement or any
provision hereof to be performed by the Corporation, which action shall have
been dismissed by a final, nonappealable court order.
24. Opportunity to Review. The Executive acknowledged that he has been
given the opportunity to discuss this Agreement, including this Section 24, with
his private legal counsel and has availed himself of that opportunity to the
extent he wishes to do so.
25. Arbitration.
(a) Disputes Subject to Arbitration. In the event that the
Corporation terminates the Executive's employment on the grounds set forth in
clause (iii) of the definition of "Cause", the Corporation and the Executive
mutually consent to the resolution by arbitration of any dispute between the
Corporation and the Executive as to whether such Cause has occurred. Unless the
Corporation and the Executive otherwise agree, no other disputes, issues, claims
or controversies arising out of the Executive's employment (or its termination),
or any other matter whatsoever, shall be submitted to or resolved by
arbitration.
(b) Arbitration Procedures.
(i) The Corporation and the Executive agree that, except as
provided in this Agreement, any arbitration shall be in accordance with
the then current Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA") before an arbitrator who is
licensed to practice law in the state in which the arbitration is
convened (the "Arbitrator"). The arbitration shall take place in or
near the city in which the Executive is or was last employed by the
Corporation.
(ii) Upon designation as a Dispute, the AAA shall give each
party a list of eleven (11) arbitrators drawn from its panel of labor
and employment arbitrators. The Corporation and the Executive may
strike all names on the list which it deems unacceptable. If only one
common name remains on the lists of all parties, said individual shall
be designated as the Arbitrator. If more than one common name remains
on the lists of all parties, the parties shall strike names
alternatively until only one remains. If no common name remains on the
lists of all parties, the AAA shall furnish an additional list and the
parties shall alternate striking names on such second list until an
arbitrator is selected.
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<PAGE>
(iii) The Arbitrator shall apply the law of the State of New
York applicable to contracts made and to be performed wholly in that
state (without giving effect to the principles thereof relating to
conflicts of law). The Federal Rules of Evidence shall apply. The
Arbitrator, and not any federal, state, or local court or agency, shall
have exclusive authority to resolve any dispute relating to the
interpretation, applicability or formation of the term "Cause". The
Arbitrator shall render a decision within thirty (30) days of the date
upon which the Arbitrator is selected pursuant to Section 25(b)(ii),
which decision shall be final and binding upon the parties. In the
event that the Arbitrator decides that Material Insubordination has (x)
occurred, then the Executive's employment shall be deemed to have been
terminated for cause pursuant to Section 9(a) hereof or (y) not
occurred, then the Executive's employment shall be deemed to have been
terminated without Cause pursuant to Section 10(b) hereof.
(iv) The Arbitrator shall have jurisdiction to hear and rule
on pre-hearing disputes and is authorized to hold prehearing
conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall have the authority to entertain a
motion to dismiss and/or a motion for summary judgment by any party and
shall apply the standards governing such motions under the Federal
Rules of Civil Procedure.
(v) Either party, at its expense, may arrange for and pay the
costs of a court reporter to provide a stenographic report of
proceedings.
(vi) Either party, upon request at the close of hearing, shall
be given leave to file a post-hearing brief. The time for filing such a
brief shall be set by the Arbitrator.
(vii) Either party may bring an action in any court of
competent jurisdiction to compel arbitration under this Section 25.
Except as otherwise provided in this Section 25, both the Corporation
and the Executive agree that neither such party shall initiate or
prosecute any lawsuit or administrative action in any way related to
any Dispute covered by this Section 25.
(viii) The arbitrator shall render an opinion in the form
typically rendered in labor arbitrations.
(c) Arbitration Fees and Costs. The Corporation and the
Executive shall equally share the fees and costs of the Arbitrator. Each party
shall deposit funds or post other appropriate security for its share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, ten (10)
days before the first day of hearing. Each party shall pay for its own costs and
attorneys' fees, if any. However, if any party prevails on a statutory claim
that affords the prevailing party attorneys' fees, the Arbitrator may award
reasonable fees to the prevailing party.
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(d) Opportunity to Review. The Executive acknowledged that he
has been given the opportunity to discuss this Agreement, including this Section
25, with his private legal counsel and has availed himself of that opportunity
to the extent he wishes to do so.
(e) Law Governing. The parties agree that the arbitration
provisions set forth in this Section 25 shall be governed by the Federal
Arbitration Act, 9 U.S.C.ss.ss. 1-16, ("FAA"). The parties further agree that
all Disputes, whether arising under state or federal law, shall be subject to
the FAA, notwithstanding any state or local laws to the contrary.
26. Prior Employment Agreement. The employment agreement, dated as of
June 2, 1997 between the Executive and the Corporation is hereby terminated as
of the Effective Date.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
THE LESLIE FAY COMPANY, INC.
By: /s/ John J. Pomerantz
-----------------------------------
Name: John J. Pomerantz
Title: Chairman and Chief Executive
Officer
/s/ Warren T. Wishart
-----------------------------------------
Warren T. Wishart
Executive
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EMPLOYMENT AGREEMENT
(Dominick Felicetti)
AGREEMENT, dated as of January 4, 1998, between The Leslie Fay Company,
Inc., a Delaware corporation, with its principal office at 1412 Broadway, New
York, New York (the "Corporation"), and Dominick Felicetti, residing at 221 Penn
Estates, East Stroudsburg, Pennsylvania 18301 (the "Executive").
RECITALS
A. The Executive has served as the Senior Vice President--Manufacturing
and Sourcing of the Corporation since June 2, 1997, and prior thereto as Senior
Vice President of The Leslie Fay Companies, Inc., predecessor-in-interest to the
Corporation.
B. The Corporation desires to secure the continued services of the
Executive, and the Executive desires to continue to furnish services to the
Corporation, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter contained, the parties hereto hereby agree as
follows:
1. Definitions. Unless otherwise defined herein, the following terms
shall have the respective meanings specified below and be equally applicable to
the singular and plural of terms defined:
(a) "Adjusted Incentive EBITDA" shall mean, for any fiscal
year during the Term, the lesser of (i) Incentive EBITDA and (ii) the projected
EBITDA for such fiscal year as set forth in the Corporation's business plan for
such fiscal year approved by the Board.
(b) "Base Salary" shall have the meaning set forth in Section
5 hereof.
(c) "Board" shall mean the Board of Directors of the
Corporation.
(d) "Bonus" shall mean, for any year during the Term, the
Executive's allocable portion of the Cash Bonus Pool for such year, determined
in accordance with Section 6 hereof.
(e) "Cash Bonus Pool" shall have the meaning set forth in
Section 6 hereof.
(f) "Cause" shall mean (i) conviction of the Executive in
respect of a felony, (ii) perpetration by the Executive of (x) an illegal act
which causes significant economic injury to the Corporation or (y) a common law
fraud against the Corporation, or (iii) willful violation by the Executive (a
"Material Insubordination") of a specific written direction from the Board
concerning
<PAGE>
one or more matters of a material nature for the Corporation or its business or
operations (following a warning in writing in respect thereto from the Board).
(g) "Change of Control" shall mean the occurrence of any of
the following:
(i) any person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act), other than Dickstein Partners, Inc.
and/or any of its affiliates (as defined in Rule 12b-2 under the
Exchange Act), acquiring "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of fifty percent
(50%) or more of the aggregate voting power of the capital stock of the
Corporation; or
(ii) the sale of all or substantially all of the Corporation's
assets in one or more related transactions; or
(iii) any merger, consolidation, reorganization or similar
event of the Corporation or any of its subsidiaries, as a result of
which the holders of the voting stock of the Corporation immediately
prior to such merger, consolidation, reorganization or similar event do
not hold at least fifty-one percent (51%) of the aggregate voting power
of the capital stock of the surviving entity.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Compensation Committee" shall mean the compensation
committee of the Board, all of whose members are "outside directors" within the
meaning of Section 162(m) of the Code.
(j) "Corporation Senior Managers" shall mean the Chief
Executive Officer, the President, the Senior Vice President--Manufacturing and
Sourcing, the Senior Vice President-- Administration and Finance (Chief
Financial Officer) and such other employees of the Corporation as determined by
the Compensation Committee in consultation with the Chief Executive Officer.
(k) "Disabled" shall mean, with respect to the Executive,
being physically or mentally disabled, whether totally or partially, so that he
is substantially unable to perform his services hereunder for a consecutive
period of more than six (6) months or for shorter periods aggregating six months
during any twelve-month period.
(l) "EBITDA" shall mean for any fiscal year of the
Corporation, the consolidated earnings before interest, taxes, depreciation and
amortization of the Corporation and its consolidated subsidiaries, and before
any non-cash accruals for stock-based compensation, as determined pursuant to
generally accepted accounting principles in effect in the United States of
America from time to time, provided that for purposes of determining EBITDA
hereunder, EBITDA shall be calculated before determination of the Cash Bonus
Pool.
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(m) "Effective Date" shall mean January 4, 1998.
(n) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(o) "Good Reason" shall mean the continuation of any of the
following events for more than ten (10) days after the Corporation's receipt
from the Executive of written notice thereof:
(i) the Executive shall be removed from the position
of Senior Vice President--Manufacturing and Sourcing of the Corporation
at any time during the Term (other than for Cause);
(ii) the Executive shall fail to be vested with the
powers and authority of Chief Executive Officer of the Corporation as
described in Section 4(a) hereof, or the powers and authority of such
position or his responsibilities with respect thereto shall be
diminished in any material respect;
(iii) the Executive shall have assigned to him
without his express written consent any duties, functions, authority or
responsibilities that are inconsistent with the Executive's positions
described in Section 4 hereof;
(iv) the Executive's principal place of employment is
changed to a location more than twenty-five (25) miles from the prior
location without the Executive's prior written consent;
(v) any material failure by the Corporation to
fulfill any of its obligations under this Agreement (other than
pursuant to Section 4(b)), including, without limitation, the failure
to make any material payment required to be made by the Corporation
pursuant to Sections 5 and 6 hereof within five (5) business days after
the date such payment is required to be made;
(vi)any purported termination by the Corporation of
the Executive's employment otherwise than as expressly permitted by,
and in compliance with all conditions and procedures of, this
Agreement; or
(vii) the Corporation shall fail to comply with the
provisions of Section 14 or Section 19(a) hereof.
(p) "Incentive EBITDA" shall mean Eleven Million Five Hundred
Thousand Dollars ($11,500,000).
(q) "Target EBITDA" shall mean Five Million Four Hundred
Forty-Three Thousand Dollars ($5,443,000).
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<PAGE>
(r) "Term" shall have the meaning set forth in Section 3
hereof.
2. Employment. The Corporation shall employ the Executive, and the
Executive shall serve the Corporation, upon the terms and conditions hereinafter
set forth.
3. Term.
(a) Term of Employment. Subject to the terms and conditions
hereinafter set forth, the term of the Executive's employment hereunder shall
commence as of the Effective Date and shall continue until the third anniversary
of the Effective Date, unless earlier terminated pursuant to the provisions of
Section 8, 9 or 10 hereof (the "Term").
(b) Renewal. During the third year of the Term, the
Corporation will conduct, in good faith and on a timely basis, negotiations with
the Executive concerning the renewal of the Executive's employment with the
Corporation.
4. Duties and Extent of Services. During the Term, the Executive shall
serve as Senior Vice President--Manufacturing and Sourcing of the Corporation
faithfully and to the best of his ability, and shall devote substantially all of
his business time, energy and skill to such employment, it being understood and
agreed that the Executive may serve on the boards of directors or equivalent
governing bodies of other business corporations or other business organizations;
provided, however, that (i) such other corporations or other organizations are
not in direct competition with the Corporation and/or its subsidiaries and (ii)
such service does not materially interfere with the performance by the Executive
of his duties hereunder. The Executive shall be invested with the duties and
authority that are customarily delegated to a senior vice
president--manufacturing and sourcing of a corporation, and shall report to and
be subject to the direction of the Board of Directors of the Corporation. The
Executive shall also perform such specific duties and services of a senior
executive nature as the Board of Directors of the Corporation shall request,
including, without limitation, serving as a senior officer and/or director of
any of the Corporation's subsidiaries.
5. Base Salary. During the Term, the Corporation shall pay the
Executive a base salary ("Base Salary") of Three Hundred Fifty Thousand Dollars
($350,000) during the first two years of the Term and Three Hundred Seventy-Five
Thousand Dollars ($375,000) during the third year of the Term, or such higher
amount as the Board may from time to time determine, payable in equal weekly
installments.
6. Incentive Compensation.
(a) Amount. If the Corporation's EBITDA for any fiscal year
(except as noted, references in this Section to EBITDA or Incentive EBITDA are
to the corresponding quantity for such fiscal year) during the Term is greater
than or equal to eighty-five percent (85%) (the "Minimum Percentage") of Target
EBITDA, the Corporation shall pay a bonus ("Cash Bonus Pool") to the Corporation
Senior Managers in an amount equal to the sum of:
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(x) nine and six-tenths percent (9.6%) of EBITDA, plus
(y) two-tenths percent (0.2%) of the Corporation's EBITDA for
each percentage point, if any, of Target EBITDA by which EBITDA exceeds
the Minimum Percentage; provided, however, that in no event shall the
combined amount under clause (x) above and this clause (y) exceed
twelve and one-half percent (12.5%) of EBITDA, plus
(z) five percent (5%) of the amount by which EBITDA exceeds
the sum of (I) Incentive EBITDA plus (II) the sum for all prior fiscal
years (excluding the fiscal year for which the amount of the Cash Bonus
Pool is being determined) of the positive difference, if any, for each
such fiscal year between (i) Adjusted Incentive EBITDA for such fiscal
year and (ii) EBITDA for such fiscal year less (III) any amount under
clause (II) applied in any prior year to reduce the amount of the Cash
Bonus Pool that would otherwise have been payable in such year.
The amount of the Cash Bonus Pool for any fiscal year only a part of which is
within the Term shall be equal to the amount of the Cash Bonus Pool that would
have been payable for such fiscal year had it been entirely within the Term,
times a fraction, the numerator of which is the number of days of such fiscal
year occurring during the Term, and the denominator of which is three hundred
and sixty-five (365).
The Executive and each other Corporation Senior Manager shall
be entitled to receive such portion of the Cash Bonus Pool for any fiscal year
during the Term as determined by the Chief Executive Officer, but only if
approved by the Compensation Committee not later than the end of the first
quarter of such fiscal year. Other than with respect to allocation, all of the
Corporation Senior Managers shall participate in the Cash Bonus Pool on the same
terms and conditions.
(b) Manner of Payment. The Cash Bonus Pool for any fiscal year
during the Term shall be determined after the close of such fiscal year.
However, the Executive shall be permitted to draw during each fiscal year, on a
quarterly basis, against his anticipated allocation of the Cash Bonus Pool for
such year, as follows:
(i) Following each fiscal quarter, the Corporation shall
determine a pro-rated Cash Bonus Pool amount for the period from the
beginning of the fiscal year through the end of such fiscal quarter,
calculated as set forth in clauses (x), (y) and (z) of Section 6(a)
hereof. For purposes of such determination, Target EBITDA, Incentive
EBITDA, Adjusted Incentive EBITDA and the amount described under
subclause (II) of said clause (z), if any, shall be prorated for the
relevant year-to-date period.
(ii) The Executive shall be permitted to draw up to two-thirds
of his allocated amount of the pro-rated Cash Bonus Pool, less the
amount of all prior draws for the same fiscal year.
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(iii) Following the end of the fiscal year, the Corporation
shall determine whether the amount of the Cash Bonus Pool allocable to
the Executive exceeds or is less than the Executive's draws under the
pro-rated Cash Bonus Pool for such fiscal year.
(iv) If the allocated amount of the Cash Bonus Pool to which
the Executive is entitled exceeds the amount of the Executive's draws
for the fiscal year, the Corporation shall pay the difference to the
participant not later than ninety (90) after the end of the fiscal
year. If the allocated amount of the Cash Bonus Pool to which the
Executive is entitled is less than the amount of the Executive's draws
for the fiscal year, the Executive shall repay the difference to the
Corporation within one hundred twenty (120) days after the Corporation
informs the Executive in writing of the deficiency, with a calculation
thereof in reasonable detail. The amount required to be repaid shall
bear interest at the applicable federal rate from the date of the
respective draw(s) until repayment. If the Executive shall dispute the
amount of the deficiency, the Executive shall inform the Corporation in
writing of such dispute on or before the date payment of the deficiency
is otherwise due, shall provide the Corporation with a statement of the
basis for the dispute in reasonable detail and shall pay to the
Corporation any undisputed amount thereof on or prior to the aforesaid
payment date. Thereafter, the Executive and the Corporation shall in
good faith attempt to resolve the dispute, but if the dispute cannot be
resolved prior to the expiration of thirty (30) days from the aforesaid
payment date, the dispute shall be submitted to arbitration in
accordance with the procedures set forth in Section 25.
(v) The Executive's repayment obligations under the preceding
clause (iv) of this Section 6(b) shall be secured by all unexercised
options, vested or unvested, to acquire capital stock of the
Corporation granted by the Corporation to the Executive.
(c) If any payment is required to be made under Section 8, 9
or 10 hereof on the basis of the Cash Bonus Pool for any fiscal year, and the
Cash Bonus Pool for such fiscal year cannot be determined until after the time
that such payment is otherwise required to be made, then the payment of that
amount which is based upon the determination of the Cash Bonus Pool for such
fiscal year shall be deferred until after such time as the determination of the
Cash Bonus Pool for such fiscal year can reasonably be made, and such payment
shall be made as soon thereafter as practicable.
(d) Payment of the Cash Bonus Pool shall be subject to the
approval of the Corporation's stockholders to the extent necessary such that all
payments under the Cash Bonus Pool will be fully deductible under Section 162(m)
of the Code, and the Corporation shall used its reasonable best efforts to
obtain such approval on a timely basis consistent with the provisions of this
Section 6.
7. Employee Benefits.
(a) During the Term, the Executive shall receive coverage
and/or benefits under any and all medical insurance, life insurance, long-term
disability insurance and pension plans and
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other employee benefit plans of the Corporation generally made available to
senior executives of the Corporation from time to time.
(b) During the Term, the Corporation shall provide (x) the
Executive and members of his immediate family with (i) supplemental disability
coverage and (ii) medical insurance for all medical costs and services incurred
by the foregoing, including costs of dental, vision and custodial care, and (y)
the Executive with an automobile allowance equal to $900 per month.
(c) The Executive shall be entitled to paid vacations (taken
consecutively or in segments), in accordance with the standard vacation policy
of the Corporation for senior executives, but in no event less than four (4)
weeks each calendar year during the Term. Such vacations shall be taken at times
consistent with the effective discharge of the Executive's duties.
(d) During the Term, the Executive shall be accorded office
facilities and secretarial assistance commensurate with his position as Senior
Vice President--Manufacturing and Sourcing of the Corporation and adequate for
the performance of his duties hereunder.
(e) The Executive shall be awarded, as of January 1, 1998, ten
year options to acquire 109,379 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share, of which options to acquire 70,060
shares will vest in three equal annual installments beginning June 4, 1998 and
options to acquire 39,319 shares will vest in four equal installments beginning
January 4, 1998, subject to acceleration and expiration as provided in the
aforesaid plan.
8. Termination--Death or Disability.
(a) In the event of the termination of the Executive's
employment because of the death of the Executive during the Term, the
Corporation shall pay to any one or more beneficiaries designated by the
Executive pursuant to notice to the Corporation, or, failing such designation,
to the Executive's estate, (i) the unpaid Base Salary owing to the Employee
through the end of the month of his death, in a lump sum within five (5)
business days after his death, and (ii) a Bonus for the year in which such
termination occurs, equal to the Bonus (if any) that would have been paid for
such year if no such termination had occurred, times a fraction, the numerator
of which is the number of months in such year through the end of the month in
which such termination occurs, and the denominator of which is twelve (12).
(b) In the event that the Executive shall become Disabled, the
Corporation shall have the right to terminate the Executive's employment
hereunder by giving him written notice of such termination. Upon receipt of such
notice, the Executive's employment hereunder shall terminate. In the event of
such termination, the Corporation shall pay to the Executive (i) the unpaid Base
Salary owing to the Executive through the end of the month of such termination,
in a lump sum within five (5) business days of such termination, and (ii) a
Bonus for the year in which such termination occurs, equal to the Bonus (if any)
that would have been paid for such year if no such termination had
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occurred, times a fraction, the numerator of which is the number of months in
such year through the end of the month in which such termination occurs, and the
denominator of which is twelve (12).
(c) If the Executive has made interim draws against his Bonus,
in accordance with Section 6(b) hereof, for any fiscal year prior to the date of
his death or termination for disability for which a year-end reconciliation has
not been made in accordance with clause (iv) of such Section, any Bonus payment
required pursuant to Section 8(a) or 8(b) shall be adjusted, and the Corporation
shall make a payment to the Executive or his estate or the Executive or his
estate shall make a payment to the Corporation, as required by Section 6(b)(iv).
9. Termination for Cause by Corporation.
(a) The Executive's employment hereunder may be terminated by
the Corporation for Cause upon compliance with the provisions of Section 9(b)
hereof. In the event that Executive's employment hereunder shall validly be
terminated by the Corporation for Cause pursuant to this Section 9, the
Corporation shall promptly pay accrued but unpaid Base Salary to the date of
termination and reimburse or pay any other accrued but unpaid amounts due under
Sections 6 and 13 hereof as of the date of termination, and thereafter shall
have no further obligations under this Agreement. Upon termination of the
Executive's employment hereunder for Cause, the Executive shall nonetheless
remain bound by the obligations provided for in Sections 11 and 12 hereof. For
purposes of this Section 9(a), the amount accrued to the Executive under Section
6 hereof shall mean a Bonus accrued but unpaid for all fiscal years prior to the
fiscal year in which the termination of the Executive occurs. If the Executive
has made interim draws against his Bonus, in accordance with Section 6(b)
hereof, for the fiscal year during which his termination occurs, the Executive
shall promptly repay the amount of all such draws to the Corporation, and, to
the extent not repaid, such amount may be offset by the Corporation against any
amounts owing to the Executive under this Section 9(a).
(b) Termination for Cause shall be effected only by action of
a majority of the Board then in office (excluding the Executive) at a meeting
duly called and held upon at least ten (10) days' prior written notice to the
Executive specifying the particulars of the action or inaction alleged to
constitute "Cause" (and at which meeting the Executive and his counsel were
entitled to be present and given reasonable opportunity to be heard).
10. Termination for Good Reason by the Executive or Without Cause
by the Corporation; Change of Control; Non-Renewal.
(a) Termination by Executive for Good Reason. The Executive's
employment hereunder may be terminated by the Executive for Good Reason by
providing written notice to the Corporation to such effect (such termination to
be effective on the date specified in such notice, which date shall not be more
than sixty (60) days nor less than thirty (30) days after the date of such
notice).
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(b) Severance. If at any time (other than following a Change
of Control) the Executive terminates his employment for Good Reason or the
Corporation terminates the Executive's employment without Cause, then, in lieu
of any other amounts that might otherwise have been payable hereunder, the
Corporation shall promptly pay to the Executive:
(i) all accrued but unpaid Base Salary and any other accrued
but unpaid amounts due under Sections 6 and 13 hereof as of the date of
termination; and
(ii) the greater of (I) an amount equal to one and one-half
times the Base Salary in effect on the date of termination for each
year or partial year remaining during the Term; and (II) (i) the sum of
(x) the Base Salary in effect on the date of termination, plus (y) the
amount of the Bonus, if any, payable to the Executive in respect of the
prior year of the Term, multiplied by (ii) the number of years,
including any partial year, remaining during the Term.
If the employment of the Executive is terminated as provided in this Section
9(b) or Section 9(c) below and the Executive has made interim draws against his
Bonus, in accordance with Section 6(b) hereof, for the fiscal year during which
such termination occurs, the Executive shall promptly repay the amount of all
such draws to the Corporation, and, to the extent not repaid, such amount may be
offset by the Corporation against any amounts owing to the Executive under this
Section 9(b) or Section 9(c) below.
(c) Change of Control. If a Change of Control occurs and
thereafter the Executive terminates his employment for Good Reason or the
Corporation terminates the Executive's employment without Cause, the Corporation
shall promptly pay to the Executive an amount equal to the sum of (x) the amount
payable to the Executive under Section 10(b) above, and (y) the Gross- Up
Payment.
(d) Gross-Up Payment.
(i) For purposes of Section 10(c), "Gross-Up Payment" means an
additional amount such that the net amount retained by the Executive, after
deduction of the Excise Tax (as defined below) on any payments or benefits under
this Agreement and/or under any option plan or agreement of the Corporation
received by the Executive from the Corporation as a result of a Change of
Control (within the meaning of section 280G(b)(2) of the Code) (collectively,
the "Payments") and any federal, state and local income tax and the Excise Tax
upon the Gross-Up Payment, and any interest, penalties or additions to tax
payable by the Executive with respect thereto (other than such interest,
penalties or additions to tax payable solely as a result of action or inaction
by the Executive), shall be equal to the total amount of the Payments. "Excise
Tax" means the tax imposed by Section 4999 of the Code. For purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amounts of such Excise Tax, (x) the total amount of the Payments shall be
treated as "parachute payments" within the meaning of section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, except to
the extent that, in the opinion of independent counsel selected by the
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Corporation and reasonably acceptable to the Executive ("Independent counsel"),
a Payment (in whole or in part) does not constitute a "parachute payment" within
the meaning of section 280G(b)(2) of the Code, or such "excess parachute
payments" (in whole or in part) are not subject to the Excise Tax; (y) the
amount of the Payments that shall be treated as subject to the Excise Tax shall
be equal to the lesser of (A) the total amount of the Payments or (B) the amount
of "excess parachute payments" within the meaning of section 280G(b)(1) of the
Code (after applying clause (1) hereof); and (z) the value of any noncash
benefits or any deferred payment or benefit shall be determined by Independent
Counsel in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rates of federal income taxation applicable to the individuals in the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation applicable to individuals as are
in effect in the state and locality of the Executive's residence in the calendar
year in which the Gross-Up Payment is to be made, net of the maximum reduction
in federal income taxes that can be obtained from deduction of such state and
local taxes, taking into account any limitations applicable to individuals
subject to federal income tax at the highest marginal rates.
(ii) The Gross-Up Payments referred to in Section 10(d)(i)
hereof shall be made, subject to applicable withholding requirements, upon the
earlier of (x) the payment to the Executive of any Payment or (y) the imposition
upon the Executive or payment by the Executive of any Excise Tax.
(iii) If it is established pursuant to a final determination
of a court or an Internal Revenue Service proceeding or the opinion of
Independent Counsel that the Excise Tax exceeds the amount taken into account
hereunder (including by reasons of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Corporation shall
make an additional Gross-Up Payment in respect of such excess within thirty (30)
days of the Corporation's receipt of notice of such final determination or
opinion.
(iv) In the event that the Internal Revenue Service makes any
claim, gives notice of any potential claim or institutes a proceeding against
the Executive asserting that any Excise Tax or additional Excise Tax is due in
respect of the Payments, the Executive shall promptly give the Corporation
notice of any such claim, potential claim or proceeding. The Corporation shall
have the right to conduct all discussions, negotiations, defenses, actions and
proceedings solely to the extent relating to any Excise Tax payable in respect
of the Payments, and the Executive shall cooperate with and assist the
Corporation, at the Corporation's expense, in any such discussions,
negotiations, defenses, actions and proceedings, to the extent reasonably
requested by the Corporation. The Executive will not settle any claim or
proceeding solely to the extent relating to the Excise Tax payable in respect of
the Payments without the consent of the Corporation, which consent shall not be
unreasonably withheld. The Executive shall file, at the Corporation's expense,
all requests for refunds of the Gross-Up Amount, or any portion thereof, paid to
any taxing authority as shall be reasonably requested by the Corporation and
shall pay over to the Corporation (net of any tax payable
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thereon) any such refunds, together with any interest thereon, when and as such
refunds and interest are received by the Executive.
(v) All fees and expenses of Independent Counsel shall be
borne by the Corporation.
(e) Non-Renewal. In the event that the employment of the
Executive is not renewed by the Corporation following the end of the Term on
terms that are no less favorable to the Executive than the terms of this
Agreement, the Corporation shall pay to the Executive, promptly after the end of
the Term, an amount equal to (x) the Base Salary in effect at the end of the
Term, plus (y) the amount of the Bonus, if any, payable to the Executive in
respect of the third year of the Term. If the Corporation is willing to renew
the employment of the Executive at the end of the Term on terms no less
favorable to the Executive than the terms of this Agreement but the Executive is
unwilling to accept such employment, no amount shall be payable to the Executive
under this Section 10(d).
11. Confidential Information. In addition to any other confidentiality
obligation the Executive may have to the date hereof, and until the end of the
original Term, the Executive shall keep secret and retain in strictest
confidence, and shall not use for his benefit or the benefit of others, any and
all confidential information relating to the Corporation and its subsidiaries,
including, without limitation, customer lists, financial plans or projections,
pricing policies, marketing plans or strategies, business acquisition or
divestiture plans, new personnel acquisition plans, designs, and, except in
connection with the performance of his duties hereunder, the Executive shall not
disclose any such information to anyone outside the Corporation and any of its
subsidiaries, except as required by law (provided prior written notice thereof
is given by the Executive to the Corporation) or except with the Corporation's
prior consent, unless such information is known generally to the public or the
trade through sources other than the Executive's unauthorized disclosure.
12. Competitive Activity. The Executive hereby agrees that, during his
employment hereunder, and, following a termination of his employment, for the
balance of the Term (if any), the Executive shall not, without the prior consent
of the Board (i) directly or indirectly, engage or be interested in (as owner,
partner, shareholder, employee, director, officer, agent, consultant or
otherwise), with or without compensation, any business wherever located in the
world engaged in the manufacture, distribution, design marketing or sale of
women's apparel, if such business is a material competitor of the Corporation,
or (ii) induce or attempt to persuade any employee of the Corporation or of any
subsidiary of the Corporation, or any person who was employed by the Corporation
or any subsidiary of the Corporation within the preceding six months, to leave
the employ of the Corporation or any subsidiary of the Corporation (but the
foregoing shall not be deemed to prevent the Executive in his capacity as Senior
Vice President--Manufacturing and Sourcing of the Corporation from hiring or
dismissing any employee of the Corporation or any subsidiary for the benefit of
the Corporation). The provisions of clause (i) of the preceding sentence shall
not apply in the case of a termination by the Executive for Good Reason or by
the Corporation without Cause. Nothing in this Section 12
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shall prohibit the Executive from acquiring or holding not more than five
percent (5%) of any class of publicly traded securities of any business.
13. Expenses. The Corporation shall reimburse the Executive for all
reasonable expenses incurred by the Executive in the performance of the
Executive's duties hereunder; provided, however, that, in connection with such
reimbursement, the Executive shall account to the Corporation for such expenses
in the manner customarily prescribed by the Corporation for its senior
executives.
14. Directors' and Officers' Insurance; Indemnification. The Executive
shall be provided with directors' and officers' insurance in connection with his
employment hereunder and service as a Director as contemplated hereby with such
coverage (including with respect to unpaid wages and taxes not remitted when
done) as shall be reasonably satisfactory to the Executive and with aggregate
limits of liability for all covered officers and directors of not less than
Thirty-Five Million Dollars ($35,000,000), and the Corporation shall maintain
such insurance in effect for the period of the Executive's employment hereunder
and for not less than five (5) years thereafter; provided, however, that, in the
event that the Corporation shall not obtain such insurance, it shall provide or
cause the Executive to be provided with indemnity (or a combination of indemnity
and directors' and officers' insurance) in connection with his employment
hereunder with substantially equivalent coverage and amounts, and the
Corporation shall maintain such indemnity (or combination of indemnity and
directors' and officers' insurance) or cause such indemnity (or such
combination) to be maintained for the period of the Executive's employment
hereunder and for not less than five (5) years thereafter.
15. No Duty to Mitigate. The Executive shall have no duty to mitigate
the severance amounts or any other amounts payable to the Executive hereunder,
and such amounts shall not be subject to reduction for any compensation received
by the Executive from employment in any capacity or other source following the
termination of Executive's employment with the Corporation and its subsidiaries.
16. Entire Agreements; Amendments; No Waiver. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof. This Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. No failure on
the part of either party to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any partial exercise of
any right hereunder preclude any further exercise thereof.
17. Survival of Provisions. The provisions of Sections 10(d), 11, 12,
23 and 25 shall survive the termination or expiration of this Agreement as
provided therein. Such provisions are unique and extraordinary, which give them
a value peculiar to the Corporation, and cannot be reasonably or adequately
compensated in damages for its loss and any breach by the Executive of such
provisions shall cause the Corporation irreparable injury and damage. Therefore,
the Corporation, in addition to all other remedies available to it, shall be
entitled to injunctive and other
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available equitable relief in any court of competent jurisdiction to prevent or
otherwise restrain a breach of such provisions for the purposes of enforcing
such provisions.
18. Withholding. The Corporation shall be entitled to withhold from any
and all amounts payable to the Executive hereunder such amounts as may from time
to time be required to be withheld pursuant to applicable tax laws and
regulations.
19. Succession, Assignability and Binding Effect. (a) The Corporation
will require any successor or successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Corporation expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such agreement prior to the
effectiveness of any such succession shall constitute Good Reason for
resignation by the Executive.
(b) This Agreement shall inure to the benefit of and shall be
binding upon the Corporation and its successors and permitted assigns and upon
the Executive and his heirs, executors, legal representatives, successors and
permitted assigns; provided, however, that neither party may assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of
its or his rights hereunder without the prior written consent of the other
party, and any such attempted assignment, transfer, pledge, encumbrance,
hypothecation or other disposition without such consent shall be null and void
and without effect.
20. Headings. The paragraph headings contained herein are included
solely for convenience of reference and shall not control or affect the meaning
or interpretation of any of the provisions of this Agreement.
21. Notices. Any notices or other communications hereunder by either
party shall be in writing and shall be deemed to have been duly given if
delivered personally to the other party or, if sent by registered or certified
mail, upon receipt, to the other party at his or its address set forth at the
beginning of this Agreement or at such other address as such other party may
designate in conformity with the foregoing.
22. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
giving effect to the principles thereof relating to the conflict of laws.
23. Legal Fees and Expenses. In order to induce the Executive to enter
into this Agreement and to provide the Executive with reasonable assurance that
the purposes of this Agreement shall not be frustrated by the cost of its
enforcement, the Corporation shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of the failure by the Corporation to perform this Agreement or any
provision hereof to be performed by it or in connection with any action which
may be brought, by or in the name or for the
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benefit of the Corporation or any subsidiary contesting the validity or
enforceability of this Agreement or any provision hereof to be performed by the
Corporation, which action shall have been dismissed by a final, nonappealable
court order.
24. Opportunity to Review. The Executive acknowledged that he has been
given the opportunity to discuss this Agreement, including this Section 24, with
his private legal counsel and has availed himself of that opportunity to the
extent he wishes to do so.
25. Arbitration.
(a) Disputes Subject to Arbitration. In the event that the
Corporation terminates the Executive's employment on the grounds set forth in
clause (iii) of the definition of "Cause", the Corporation and the Executive
mutually consent to the resolution by arbitration of any dispute between the
Corporation and the Executive as to whether such Cause has occurred. Unless the
Corporation and the Executive otherwise agree, no other disputes, issues, claims
or controversies arising out of the Executive's employment (or its termination),
or any other matter whatsoever, shall be submitted to or resolved by
arbitration.
(b) Arbitration Procedures.
(i) The Corporation and the Executive agree that, except as
provided in this Agreement, any arbitration shall be in accordance with
the then current Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA") before an arbitrator who is
licensed to practice law in the state in which the arbitration is
convened (the "Arbitrator"). The arbitration shall take place in or
near the city in which the Executive is or was last employed by the
Corporation.
(ii) Upon designation as a Dispute, the AAA shall give each
party a list of eleven (11) arbitrators drawn from its panel of labor
and employment arbitrators. The Corporation and the Executive may
strike all names on the list which it deems unacceptable. If only one
common name remains on the lists of all parties, said individual shall
be designated as the Arbitrator. If more than one common name remains
on the lists of all parties, the parties shall strike names
alternatively until only one remains. If no common name remains on the
lists of all parties, the AAA shall furnish an additional list and the
parties shall alternate striking names on such second list until an
arbitrator is selected.
(iii) The Arbitrator shall apply the law of the State of New
York applicable to contracts made and to be performed wholly in that
state (without giving effect to the principles thereof relating to
conflicts of law). The Federal Rules of Evidence shall apply. The
Arbitrator, and not any federal, state, or local court or agency, shall
have exclusive authority to resolve any dispute relating to the
interpretation, applicability or formation of the term "Cause". The
Arbitrator shall render a decision within thirty (30) days of the date
upon which the Arbitrator is selected pursuant to Section 25(b)(ii),
which decision shall be final and
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binding upon the parties. In the event that the Arbitrator decides that
Material Insubordination has (x) occurred, then the Executive's
employment shall be deemed to have been terminated for cause pursuant
to Section 9(a) hereof or (y) not occurred, then the Executive's
employment shall be deemed to have been terminated without Cause
pursuant to Section 10(b) hereof.
(iv) The Arbitrator shall have jurisdiction to hear and rule
on pre-hearing disputes and is authorized to hold prehearing
conferences by telephone or in person as the Arbitrator deems
necessary. The Arbitrator shall have the authority to entertain a
motion to dismiss and/or a motion for summary judgment by any party and
shall apply the standards governing such motions under the Federal
Rules of Civil Procedure.
(v) Either party, at its expense, may arrange for and pay the
costs of a court reporter to provide a stenographic report of
proceedings.
(vi) Either party, upon request at the close of hearing, shall
be given leave to file a post-hearing brief. The time for filing such a
brief shall be set by the Arbitrator.
(vii) Either party may bring an action in any court of
competent jurisdiction to compel arbitration under this Section 25.
Except as otherwise provided in this Section 25, both the Corporation
and the Executive agree that neither such party shall initiate or
prosecute any lawsuit or administrative action in any way related to
any Dispute covered by this Section 25.
(viii) The arbitrator shall render an opinion in the form
typically rendered in labor arbitrations.
(c) Arbitration Fees and Costs. The Corporation and the
Executive shall equally share the fees and costs of the Arbitrator. Each party
shall deposit funds or post other appropriate security for its share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, ten (10)
days before the first day of hearing. Each party shall pay for its own costs and
attorneys' fees, if any. However, if any party prevails on a statutory claim
that affords the prevailing party attorneys' fees, the Arbitrator may award
reasonable fees to the prevailing party.
(d) Opportunity to Review. The Executive acknowledged that he
has been given the opportunity to discuss this Agreement, including this Section
25, with his private legal counsel and has availed himself of that opportunity
to the extent he wishes to do so.
(e) Law Governing. The parties agree that the arbitration
provisions set forth in this Section 25 shall be governed by the Federal
Arbitration Act, 9 U.S.C.ss.ss. 1-16, ("FAA"). The parties further agree that
all Disputes, whether arising under state or federal law, shall be subject to
the FAA, notwithstanding any state or local laws to the contrary.
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26. Prior Employment Agreement. The employment agreement, dated as of
June 2, 1997 between the Executive and the Corporation is hereby terminated as
of the Effective Date.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
THE LESLIE FAY COMPANY, INC.
By: /s/ John J. Pomerantz
---------------------------------
Name: John J. Pomerantz
Title: Chairman and Chief Executive
Officer
/s/ Dominick Felicetti
--------------------------------------
Dominick Felicetti
Executive
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MODIFICATION OF LEASE AGREEMENT
MODIFICATION OF LEASE AGREEMENT (this "Agreement") made this 11th day
of August, 1998 between FASHION GALLERY OWNERS, LLC, a New York limited
liability company, having an office at 1412 Broadway, New York, New York 10018
(hereinafter referred to as "Landlord") and LESLIE FAY MARKETING, INC.
(successor-in-interest to THE LESLIE FAY COMPANIES, INC.) having an office at
1412 Broadway, New York, New York 10018 (hereinafter referred to as "Tenant").
WHEREAS, Tenant is currently the tenant of the entire Second and Fourth
floors and Storage Room #15 (which space is hereinafter collectively referred to
as the "Original Demised Premises") in the building known as 1412 Broadway in
the County and State of New York (the "Building"), pursuant to that certain
Agreement of Lease dated April 29, 1997 between 1412 Broadway Associates
(Landlord's predecessor-in-interest) ("Associates"), as landlord and The Leslie
Fay Companies, Inc. (predecessor-in-interest to Tenant), as tenant (the
"Lease"), which Lease is to terminate on its terms on April 30, 2002 (the
"Original Expiration Date");
WHEREAS, the parties desire to modify the Lease to, among other things,
add the entire third floor, substantially as shown on the plan annexed hereto as
Exhibit A-1 (which space is hereinafter referred to as the "Additional
Premises") in the Building and to extend the Term, upon the terms and conditions
hereinafter set forth (each capitalized term not specifically defined herein
shall have the same meaning given to it in the Lease).
NOW, THEREFORE, in consideration of the mutual premises and conditions
the parties agree as follows:
1. Modification of Lease. On the later to occur of (i) the date first
set forth above as the date upon which this Agreement was executed and (ii) the
"Approval Date" (as defined in Paragraph 15 of this Agreement), (such later date
being hereinafter referred to as, the "Effective Date") the Lease shall be
deemed modified as follows:
A. The Term of the Lease shall be extended to expire at
midnight on the expiration of Lease Year Ten, as defined below (the "Extended
Expiration Date"), or on such earlier date upon which the Term of this Lease
shall expire or be cancelled or terminated pursuant to any of the conditions or
covenants of the Lease or pursuant to law and the Extended Expiration Date shall
be substituted for the Expiration Date, as applicable, in the Lease.
B. With respect to the Additional Premises, "Lease Year One"
shall be deemed to commence on the first day of the calendar month following the
Effective Date and shall end on the last day of the successive twelve month
period. If the Effective Date shall be on the first day of the month, Lease Year
One shall commence on such date and shall end on the day immediately preceding
the first anniversary of the Effective Date. The term "Lease Year" shall refer
to each year of the Term including Lease Year One. Each succeeding Lease Year
after Lease Year One shall run for the
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successive twelve month period from the expiration of the preceding Lease Year
and shall be consecutively numbered (i.e. the tenth Lease Year shall be known as
Lease Year Ten). From and after the Original Expiration Date, the provisions of
this Paragraph B shall also apply to the Original Demised Premises.
C. The area of the "Demised Premises", as defined in the Lease
shall consist of all of the Original Demised Premises and the Additional
Premises (substantially as shown on the plan annexed hereto as Exhibit A-2), and
except as specifically provided herein, all references in the Lease to the
"Demised Premises" shall mean the Original Demised Premises and the Additional
Premises.
D. 1. Notwithstanding anything to the contrary contained
herein, Base Annual Rent on account of the Original Demised Premises shall
continue to be due and payable as set forth in the Lease, except that during the
period from the Original Expiration Date through the Extended Expiration Date,
Base Annual Rent payable on account of the Original Demised Premises shall be as
follows: (a) during the period 5/l/02 through the expiration of Lease Year Four,
$1,260,646.00 per annum; (b) for each Lease Year during the period from the
commencement of Lease Year Five through the expiration of Lease Year Seven,
$1,341,978.00 per annum; and (c) for each Lease Year during the period from the
commencement of Lease Year Eight through the Extended Expiration Date,
$1,504,642.00 per annum. Notwithstanding the foregoing, there shall be no Base
Annual Rent, solely on account of the Original Demised Premises, payable for the
two (2) week period immediately prior to the Original Expiration Date; provided,
however, that in the event Tenant is dispossessed or this Lease is terminated by
reason of Tenant's default, the Base Annual Rent for such period shall be
immediately due and payable.
2. This Base Annual Rent solely on account of the
Additional Premises and in addition to the Base Annual Rent for the Original
Demised Premises shall be as follows: (a) for Lease Year One through Lease Year
Two, $589,657.00 per annum; (b) for Lease Year Three through Lease Year Four,
$630,323.00 per annum; (c) for Lease Year Five through Lease Year Seven,
$670,989.00 per annum; and (d) for Lease Year Eight through Lease Year Ten,
$752,321.00 per annum. Notwithstanding the foregoing, there shall be no Base
Annual Rent, solely on account of the Additional Premises (except for the
increase to Base Annual Rent attributable to electricity pursuant to Section
66.01 of this Lease), payable for the period commencing on the Effective Date
and terminating on September 30, 1998; provided, however, that in the event
Tenant is dispossessed or this Lease is terminated by reason of Tenant's
default, the Base Annual Rent for such period shall be immediately due and
payable. Simultaneously with the execution of this Agreement, Tenant has paid to
Landlord, if by check subject to collection, one full month of Base Annual Rent
for the Additional Premises, which amount shall be credited on a per diem basis
toward the payment of the installments of Base Annual Rent first due and payable
hereunder.
E. For purposes of calculating Additional Rent and other applicable
payments for the Additional Premises, the following terms shall have the
following meanings (for purposes of calculating Additional Rent and other
applicable payments for the Original Demised Premises, such terms shall have the
meanings ascribed to them in the Lease):
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(i) "Base Tax Year" shall mean the Taxes for the twelve
month fiscal year commencing on July 1, 1998.
(ii) "Tenant's Proportionate Share" shall mean five and
ninety hundredths of one percent (5.90%).
F. The following provisions shall be added to and made a part of the
Lease:
"ARTICLE 66 - Cost of Electricity for Additional
Premises
66.01 Landlord agrees to supply the Additional Premises, as of the
Effective Date, with such electric current as Tenant shall reasonably require
(consistent with the existing electrical capacity contained in the Additional
Premises) for Tenant's wiring facilities and equipment within the Additional
Premises and in consideration thereof, Tenant agrees that the Base Annual Rent
reserved in this Lease shall be increased by the sum of Fifty Thousand Eight
Hundred Thirty-Two and 50/100ths Dollars ($50,832.50) per annum subject to
survey as provided in Section 66.02 hereof (the "Base Charge"). The Base Charge
increase to Base Annual Rent shall in no event be subject to reduction pursuant
to the provisions of this Article, but shall be subject to increase as
hereinafter provided. Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy furnished to the
Additional Premises not due to the gross negligence or willful misconduct of
Landlord or if the same is changed or is no longer available or suitable for
Tenant's requirements or is interrupted as a result of any cause not
attributable to Landlord.
66.02 (a) Landlord, from time to time during the Term of this Lease,
shall have the right to select a reputable independent electrical engineer or
consultant (the "Consultant") to prepare surveys of the electrical consumption
within the Additional Premises in order to determine whether the Base Charge for
electricity (as the same may have been increased by previous surveys and
determinations) is less than the Electrical Consumption Charge (as defined in
Section 66.03 below) which should be charged to Tenant. If the Base Charge shall
be less than the Electrical Consumption Charge, which the Consultant determines
to be applicable to Tenant then, effective as of the date of the Consultant's
determination, the Base Charge (as the same may have been previously increased
pursuant to the provisions hereof) shall be further increased by an amount equal
to the excess of (i) the then Electrical Consumption Charge determined to be
applicable by the Consultant over (ii) the Base Charge (plus any previous
increases to the Base Charge pursuant to the provisions hereof). Notwithstanding
the foregoing, the first survey shall not be made during Lease Year One unless
Tenant's proposed alterations in the Additional Premises involve an increase in
the existing electrical capacity of the Additional Premises of more than 110%
above the electrical capacity of the Additional Premises existing as of the
Effective Date (of which fact Landlord shall be the sole judge), and any
increase to the Base Charge resulting from such survey shall be retroactive to
the Commencement Date.
(b) Surveys made by the Consultant shall be based upon the use
of such electric current on Business Days, and such other days and hours when
Tenant uses electricity for lighting
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and for the operation of the machinery, appliances and equipment used by Tenant
in the Additional Premises.
(c) The cost of the first survey shall be borne by Landlord.
Tenant shall pay the fees of the Consultant making all other surveys if such
survey results in an increase in the Electrical Consumption Charge, which
increase is not caused by an increase in the Electric Rate. The findings of the
Consultant shall be binding and conclusive on Landlord and Tenant; provided,
however, that Tenant may dispute the findings of the Consultant in accordance
with Section 66.08, below.
66.03 The "Electrical Consumption Charge" for electricity consumed by
Tenant within the Additional Premises, as determined by the Consultant, shall be
computed by multiplying the Electric Rate (as defined below) by Tenant's
consumption of electricity as determined by the Consultant. In no event,
however, shall the Electrical Consumption Charge be less than Landlord's actual
cost of acquiring and distributing electricity to Tenant. The term "Electric
Rate" shall mean, at the time in question, the actual cost to Landlord of
acquiring electricity for the Premises, including all surcharges, taxes, fuel
adjustments, taxes regularly passed on to customers by the public utility, and
other sums payable in respect thereof for the supply of electrical energy to
Landlord for the entire Building.
66.04 Tenant's use of electric energy in the Additional Premises shall
not at any time exceed the capacity of any of the electrical conductors and
equipment in, or otherwise serving, the Additional Premises. In order to insure
that such capacity is not exceeded and to avert possible adverse effect upon the
Building's electric service, Tenant shall not, without Landlord's prior written
consent in each instance (which shall not be unreasonably delayed or withheld),
connect any fixtures, appliances or equipment to the Building's electric
distribution system other than ordinary office and showroom equipment exclusive
of major computers, or make any material alteration or addition to the electric
system of the Additional Premises existing on the Effective Date. Landlord
agrees not to unreasonably withhold or delay its consent to the installation of
additional risers to the Premises, provided that all additional risers or other
equipment required therefor shall be provided by Landlord and the cost thereof
shall be paid by Tenant to Landlord within ten (10) days of demand and provided
further, that Landlord shall have the right to cause a survey of the Premises to
be made by the Consultant, at Tenant's sole cost and expense, to determine the
amount of the increase in the Base Annual Rent to reflect the value to Tenant of
the potential additional electric energy to be made available to Tenant by the
estimated additional capacity of such additional risers of the connected load of
such fixtures, appliances or equipment (measured, in respect of risers, at their
lowest point in the Building). The amount of such increase shall be determined
by the Consultant. Such determination shall be binding and conclusive upon the
parties unless disputed by Tenant within thirty (30) days of receipt of such
Consultant's report. Landlord, its agents and Consultants may survey the
electrical fixtures, appliances and equipment in the Additional Premises and
Tenant's use of electric energy therein from time to time after the initial
survey described above to ascertain whether Tenant is complying with its
obligations under this Section.
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<PAGE>
66.05 Tenant shall not place a load upon any floor of the Premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law, which floor load is 120 lbs/sq. ft. live load.
66.06 Tenant, at its sole cost and expense, shall furnish and install
all replacement lighting, tubes, lamps and bulbs required in the Additional
Premises. Tenant, at its sole cost and expense, shall install all replacement
ballasts in the Additional Premises using Landlord's designated contractor,
provided that the cost is thereof is at commercially competitive rates.
66.07 Landlord reserves the right to discontinue furnishing electric
energy to Tenant in the Additional Premises at any time upon not less than
thirty (30) days' notice to Tenant so long as: (i) the discontinuance is not
discriminatory to Tenant; and (ii) electric service is available from the public
utility or otherwise. If Landlord exercises such right this Lease shall continue
in full force and effect and shall be unaffected thereby, except that from and
after the effective date of such termination (a) Landlord shall not be obligated
to furnish electric energy to Tenant and (b) the Base Annual Rent shall be
reduced by the Base Charge then in effect. If Landlord so discontinues
furnishing electric energy to Tenant, such electric energy may be furnished to
Tenant by means of the then existing Building system feeders, risers and wiring
to the extent that the same are available, suitable and safe for such purpose.
All meters and additional panel boards, feeders, wiring and other conductors and
equipment which may be required to obtain electric energy directly from such
public utility company shall be furnished and installed by Landlord at
Landlord's expense, unless such discontinuance is as a result of a Legal
Requirement or Force Majeure, in which event the cost thereof shall be amortized
on a straight-line basis over the useful life thereof utilized for federal
income tax purposes and Tenant shall be responsible for the payment of the
annual amortization amount(s) occurring during the balance of the Term. The
change at any time of the character of electric service in the Additional
Premises not due to the gross negligence or willful misconduct of Landlord shall
not make Landlord liable or responsible to Tenant for any loss, damages or
expenses which Tenant may sustain as a result thereof.
66.08 In instances wherein Tenant has the right to dispute the
determinations made by the Consultant, Tenant shall only dispute such reports by
submitting, within thirty (30) days after receipt of the Consultant's report, a
written report by an electrical consultant retained by Tenant at Tenant's
expense. In the event that the Consultant and Tenant's electrical consultant
cannot mutually agree within thirty (30) days after the submission of Tenant's
electrical consultant's report, the matter shall be referred to arbitration in
accordance with the rules and regulations of the American Arbitration
Association. Until the determination of the consultants or the arbitrators,
Tenant shall pay the Electric Charge determined in accordance with the
Consultant's report and following such determination, an appropriate adjustment
and/or refund shall be made.
ARTICLE 67 - Security
67.01 A. Tenant has deposited with Landlord the sum of $294,828.50 as
security for the faithful performance and observance by Tenant of the terms,
provisions, covenants and conditions
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of this Lease (the "Security Deposit"). The amount of the Security Deposit shall
be increased by Tenant coincident with every increase in Base Annual Rent. It is
agreed that in the event Tenant defaults beyond the expiration of any applicable
notice and grace periods (provided that Tenant shall have commenced such cure
within the applicable grace period and shall thereafter be diligently
prosecuting such cure to completion within the applicable grace period) in
respect of any of the terms, provisions, covenants and conditions of this Lease
including, but not limited to, the payment of Rent, Landlord may use, apply or
retain the whole or any part of the Security Deposit to the extent required for
the payment of any Rent or any other sum as to which Tenant is in default or for
any sum which Landlord may expend or may be required to expend by reason of
Tenant's default in respect of any of the terms, provisions, covenants, and
conditions of this Lease, including but not limited to, any damages or
deficiency accrued before or after summary proceedings or other re-entry by
Landlord. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants, and conditions of this Lease, the Security
Deposit shall be returned to Tenant after the date fixed as the end of this
Lease and after delivery of possession of the Demised Premises to Landlord in
the condition required by, and in accordance with, the terms of this Lease. In
the event of a sale of the Building or leasing of the Building, Landlord shall
transfer the Security Deposit to the vendee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return of such
Security Deposit; and Tenant agrees to look solely to the new landlord for the
return of said Security Deposit; and it is agreed that the provisions hereof
shall apply to every transfer or assignment made of the Security Deposit to a
new landlord. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the Security Deposit and that neither Landlord nor
its successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. In the event Landlord applies or
retains any portion or all of the Security Deposit, Tenant shall forthwith
restore the amount so applied or retained so that at all time the amount
deposited shall be as set forth above. Provided Tenant shall not then be in
default in the payment of rent or otherwise be in default under this Lease
beyond any applicable notice and grace period (provided that Tenant shall have
commenced such cure within the applicable grace period and shall thereafter be
diligently prosecuting such cure to completion within the applicable grace
period), and provided that Landlord shall not have applied all or any portion of
the security as provided for under this paragraph, then on the first (1st)
anniversary of the Effective Date, the security shall be reduced by an amount
equal to $98,276.16 (the "Reduction Amount") and Landlord shall return to Tenant
the Reduction Amount, together with interest earned thereon, if any. From and
after the first (1st) anniversary of the Effective Date and continuing
throughout the balance of the Term, Landlord shall retain an amount equal to
four (4) full months of Base Annual Rent then in effect under this Lease with
respect to the Additional Premises as the security deposit in accordance with
the terms of this Lease.
B. Tenant shall have the option to provide such Security
Deposit in the form of an irrevocable letter of credit from a commercial bank
(the "Issuer") of substantial financial standing and otherwise reasonably
acceptable to Landlord from which Landlord may draw in the event of any default
by Tenant under the terms of this Lease which continues after notice and the
expiration of any applicable grace period. Such letter of credit must be in
writing, be in form and content reasonably acceptable to Landlord, signed by the
Issuer, made payable to the order of Landlord, be assignable
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by the beneficiary thereunder. Any fees payable in connection with Landlord's
assignment of the letter of credit to any successor landlord or superior
mortgagee shall be paid by Tenant. The form of letter of credit annexed hereto
as Exhibit B is acceptable to Landlord. Such letter of credit shall, by its
terms, be fully effective during a one (1) year period following the date of
issuance. Tenant shall arrange for such letter of credit to be renewed, or
replaced by an equivalent letter of credit, to provide continuing identical
security to Landlord during each subsequent one (1) year period and during any
remaining period under the Lease term (the last such extension to provide for
the continuance of such letter of credit for at least three months beyond the
Expiration Date). Subject to the penultimate sentence of this paragraph, each
such renewal or replacement of the letter of credit shall be for the full face
amount equivalent to six (6) full months' Base Annual Rent for the Additional
Premises then in effect under this Lease regardless of previous draws against
any prior letter of credit. The letter of credit shall either provide that it
shall be automatically renewed by its terms throughout the duration of this
Lease or contain a provision that requires the Issuer to notify the beneficiary
at least thirty (30) days prior to the expiration date of the letter of credit
that the letter of credit has not been renewed or replaced. No later than twenty
(20) days prior to the expiration date of each letter of credit, or renewal or
replacement thereof, Tenant shall provide written notice (and supporting
documentary evidence signed by the Issuer) to Landlord that the then effective
letter of credit has been so renewed or so replaced for the succeeding time
period. The failure of Tenant to maintain the letter of credit as herein
specified (including the failure to deliver evidence of the renewal or
replacement of the letter of credit as herein provided or the failure to
increase the undrawn balance of the letter of credit as herein provided) or the
Issuer's refusal or failure to permit Landlord to draw against the letter of
credit shall, unless Landlord receives a cash Security Deposit or replacement
letter of credit from another Issuer as herein provided, be a default under the
terms of this Lease with the same effect as a default for failure to pay rent.
In addition to all other remedies available to Landlord in the event of default
by Tenant under the terms of this Lease beyond the expiration of any applicable
notice and grace periods (provided that Tenant shall have commenced such cure
within the applicable grace period and shall thereafter be diligently
prosecuting such cure to completion within the applicable grace period),
Landlord shall have the specific remedy of immediately drawing against the
letter of credit in any amount up to and including the full face amount of such
letter of credit for payment of any Rent or other sum Landlord may be required
to expend by reason of Tenant's default, except that Landlord shall have the
right to draw the full face amount of the letter of credit in the event Tenant
fails to renew or replace the letter of credit as herein provided, in which
event Landlord shall hold such amount as a cash Security Deposit in accordance
with the provisions of the first paragraph of this Section 67.01. In the event
that Landlord draws against the letter of credit as provided for under this
paragraph, other than as a result of Landlord's draw of the full face amount of
the letter of credit as a result of Tenant's failure to renew or replace the
letter of credit as herein provided, then Tenant shall, upon demand by Landlord,
increase the then undrawn balance of the letter of credit to the amount provided
for herein. In the event that Tenant fails to so increase the then undrawn
balance of the letter of credit as herein provided, then Landlord shall be
entitled to draw the remaining balance of the letter of credit. It is
specifically agreed and understood that, in the event that Landlord has not
received from Tenant either a cash Security Deposit or a letter of credit, in
the form and substance required pursuant to the provisions of this paragraph,
within ten (10) days following Tenant's execution of this Modification of Lease
Agreement ("Amendment"), then this
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Amendment shall be, at the sole option of Landlord, null and void and of no
further force and effect. Notwithstanding the foregoing, provided Tenant shall
not then be in default in the payment of rent or otherwise be in default under
this Lease beyond any applicable notice and grace period (provided that Tenant
shall have commenced such cure within the applicable grace period and shall
thereafter be diligently prosecuting such cure to completion within the
applicable grace period), and provided that Landlord shall not have drawn down
any amount under the letter of credit as provided for under this paragraph, then
Tenant shall have the right, on the first (1st) anniversary of the Effective
Date, to reduce the face amount of the letter of credit by the Reduction Amount.
From and after the first (1st) anniversary of the Effective Date and continuing
throughout the balance of the Term, the letter of credit shall be for the full
face amount equivalent to four (4) full months of Base Annual Rent then in
effect under this Lease for the Additional Premises.
67.02 If the Security Deposit held by Landlord shall be in cash, the
same shall be held in an interest-bearing account and any interest earned shall
be for the account of Tenant and shall be held by Landlord as an addition to the
Security Deposit for the entire Term of the Lease. Landlord shall be entitled to
an administrative fee of 1% per annum, or such greater percentage permitted by
law, on the amount of the Security Deposit held by Landlord. The administrative
fee shall be paid to Landlord at the end of the Term of this Lease or at such
other time or times as Landlord shall elect.
67.03 In the event that during the Term of this Lease the Security
Deposit held by Landlord (not including interest) is less than four monthly
installments of the Base Annual Rent payable with respect to the Additional
Premises under Article 3, Tenant shall, on written demand by Landlord, deposit
with Landlord on account of the security herein provided for, the difference
between the Security Deposit then held by Landlord and a sum equal to four (4)
months' installments of Base Annual Rent.
67.04 If Tenant fails to pay any Base Annual Rent or any Additional
Rent payable under this Lease within ten (10) days after such payment is due
twice in any twelve-month period, Tenant shall furnish Landlord, within ten days
after demand by Landlord, with additional monies equal to one month's
installment of Base Annual Rent at the rate payable during the last Lease Year
which shall be added to and included in the Security Deposit."
G. In lieu of a porters wage increase payable on account of the
Additional Premises, Tenant shall pay to Landlord, as Additional Rent, during
each Lease Year following Lease Year One of the Term for the Additional
Premises, an amount equal to three percent (3%) of the Base Annual Rent (as
increased from time to time by the escalation described in this subparagraph G)
payable for the prior Lease Year on account of the Additional Premises. Such
payments shall be made, in equal monthly installments, in advance, on the first
day of each and every calendar month throughout the Term of the Lease. Section
38.02 of the Lease shall not be applicable to the Additional Premises.
H. Section 39.02 of the Lease is hereby deleted in its entirety.
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I. Section 41.01(c)(ii) of the Lease is hereby amended by deleting the
second sentence thereof in its entirety.
J. Section 41.01(d) of the Lease is hereby deleted in its entirety.
K. Article 45 of the Lease is hereby deleted in its entirety and the
following is inserted in lieu thereof:
"ARTICLE 45 - Use of Demised Premises
45.01 Tenant shall use and occupy the Demised Premises for showrooms
for the display and sale of women's moderate priced, better or designer apparel
and related women's accessories and related women's apparel items, and for
design and sample making related thereto and executive and general offices for
clothing and accessory lines of Tenant and its affiliated companies and
businesses."
L. 47.01 of the Lease is hereby amended by deleting the word "two" in
the fourth line thereof and substituting in lieu thereof the word "three".
2. Further Modification of Lease. On the Original Expiration Date, the
Lease shall be deemed further modified as follows:
A. Sections 42.01 and 42.04 of the Lease shall be deleted and
thereafter electricity shall be supplied to the Original Demised Premises
pursuant to Article 66 of the Lease except that the "Base Charge" applicable
solely to the Original Demised Premises (and in addition to the Base Charge
applicable to the Additional Premises) shall be $101,665.00 and all references
in Article 66 to the Additional Premises shall be deemed to include the Original
Demised Premises as the context may require.
B. "Base Tax Year" solely on account of the Original Demised
Premises (and in addition to the Base Tax Year applicable to the Additional
Premises) shall be modified to mean the Taxes for the twelve month fiscal year
commencing on July 1, 1998.
C. Sections 37.07, 38.02, 38.03 and 38.04 regarding porters
wage increase payments shall be deleted and, in lieu thereof, Tenant shall pay
to Landlord, as Additional Rent on account of the Original Demised Premises (and
in addition to such similar payments applicable to the Additional Premises),
during each annual period set forth in paragraphs 1(D)(1)(a) through (c) above
an amount equal to three percent (3%) of the Base Annual Rent payable for the
prior annual period on account of the Original Demised Premises. Such payment
shall be made, in equal monthly installments, in advance, on the first day of
each and every calendar month throughout the balance of the Term of the Lease.
3. Delivery of Additional Premises and Landlord's Contribution.
Landlord is delivering and Tenant shall accept the Additional Premises "AS IS",
together with all fixtures, equipment and
-9-
<PAGE>
improvements existing in the Additional Premises as of the date of this
Agreement and Landlord makes no representation as to the repair, condition or
working order of the Additional Premises.
4. Tenant's Continuing Obligations. Notwithstanding anything to the
contrary contained herein, all of Tenant's existing and future obligations to
pay items of Base Annual Rent and Additional Rent under the Lease, as amended
hereby, with regard to the Original Demised Premises shall continue and nothing
in this Agreement shall affect Tenant's obligations under the Lease including,
but not limited to, the obligation to make all payments due under the Lease, as
hereby amended, prior to demand and without any set-off or deduction whatsoever.
5. Broker. Each party represents to the other that notwithstanding
anything to the contrary contained in the Lease, no broker participated in or
brought about this Agreement other than Newmark & Company Real Estate, Inc., and
Bruce S. Brickman & Associates, Inc. (collectively, the "Broker") and no broker,
other than the Broker, with which either party has dealt is or will be entitled
to a commission as a result of the execution or delivery of this Agreement. Each
party agrees to indemnify and save the other harmless against any claim or cost
or expense due any other broker with which such party has dealt in connection
with this Agreement. Landlord shall be responsible for any commission due the
Broker.
6. Lease in Full Force. Except as modified hereby, the terms and
provisions of the Lease, as heretofore amended, shall continue in full force and
effect and, as amended and modified hereby, all of the terms and conditions of
the Lease are hereby ratified and confirmed in all respects.
7. Governing Law. This Agreement shall be governed by the laws of the
State of New York without giving effect to the principles of conflict of laws.
8. Entire Agreement. This Agreement, together with the Lease,
constitutes the sole agreement and contains the entire understanding and
agreement of the parties. There are no understandings or agreements of the
parties relating to the subject matter of this Agreement other than as expressly
set forth herein.
9. No Oral Modifications. This Agreement and the provisions hereof
cannot be waived, changed, or terminated except by an agreement in writing
signed by the party against whom enforcement of the waiver, change, or
termination is sought.
10. No Waiver. The failure of Landlord to insist upon the strict
performance by Tenant of any of the obligations of Tenant under this Agreement
shall not be deemed to be a waiver of such obligations, and Landlord,
notwithstanding any such failure, may thereafter insist upon the strict
performance by Tenant of any such obligations.
11. Captions. The captions, headings, and titles in this Agreement are
solely for convenience of reference and shall not affect its interpretation.
-10-
<PAGE>
12. Remedies Not Exclusive. The rights and remedies provided for in
this Agreement or that Landlord may have otherwise pursuant to the Lease, at law
or in equity, shall be distinct, separate, and cumulative and shall not be
deemed to be inconsistent with each other, and none of them, whether or not
exercised by Landlord, shall be deemed to be in exclusion of any other, and any
two or more of such rights and remedies may be exercised at the same time, all
to the extent permitted by law.
13. Invalid Provisions. If any provision of this Agreement or the
application thereof to any person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
provision to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and shall be valid and
enforceable to the fullest extent permitted by law.
14. Successors and Assigns. This Agreement shall bind the parties
hereto and their respective heirs, administrators, executors, successors and
permitted assigns.
15. Condition Subsequent. This Agreement shall be void ab initio and of
no further force and effect unless, within 20 Business Days from the date of
full execution of this Agreement, Landlord obtains and delivers to Tenant the
written consent of Nomura Asset Capital Corporation, which entity Landlord
represents is the only existing mortgagee, or any successor thereof as mortgage
holder ("Mortgagee") of the Building as of the date hereof, as evidenced by the
execution and delivery by such Mortgagee of that certain Amended and Restated
Subordination, Non-Disturbance and Attornment Agreement, substantially in the
form annexed hereto as Schedule 1 (the date upon which such agreement is fully
executed and delivered to Tenant, herein referred to as the "Approval Date").
Neither Landlord nor Tenant shall have any right to cancel this Agreement during
such 20 Business Day period. Tenant shall have the right to enter the Additional
Premises during such 20 Business Day period for the purpose of inspecting and
measuring the same, provided that Tenant shall indemnify and hold Landlord
harmless from and against all loss, cost, claims and damage arising as a result
of any such entry.
-11-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have cause this Agreement to be
duly executed as of the day and year first above written.
LANDLORD:
FASHION GALLERY OWNERS, LLC
By: Fashion Gallery, LLC, its Manager
By: /s/ Bruce S. Brickman
--------------------------
Bruce S. Brickman, President
TENANT
LESLIE FAY MARKETING, INC.
By: /s/ Warren Wishart
------------------------------------
Name: Warren Wishart
Title: Chief Financial Officer
-12-
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