SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
The Leslie Fay Company, Inc.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
THE LESLIE FAY COMPANY, INC.
1412 BROADWAY
NEW YORK, NEW YORK 10018
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 3, 1998
To the Stockholders of The Leslie Fay Company, Inc.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders
(the "Meeting") of The Leslie Fay Company, Inc. (the "Company") will be held at
the Fashion Institute of Technology, Seventh Avenue at 27th Street, C-Building,
9th Floor, New York, New York, on Wednesday, June 3, 1998 at 10:30 a.m., New
York City time, to consider and act upon the following matters:
(1) The election of nine (9) directors;
(2) The 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, par value $.01, from 9,500,000 to 20,000,000 shares;
(3) The approval of an amendment to the Amended and Restated Certificate of
Incorporation of the Company to permit stockholder action by written
consent;
(4) The approval of (a) 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 (b) an amendment to
such plan to modify the terms of certain options contemplated thereunder;
(5) The 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;
(6) The ratification of the appointment of Arthur Andersen LLP as the
Company's independent accountants for the fiscal year ending January 2,
1999; and
(7) The transaction of such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
Information regarding the matters to be acted upon at the Meeting is
contained in the accompanying Proxy Statement.
The close of business on April 21, 1998 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Meeting or any adjournment or postponement thereof.
By Order of the Board of Directors,
WARREN T. WISHART
Secretary
New York, New York
May __, 1998
- --------------------------------------------------------------------------------
It is important that your shares be represented at the Meeting. Each stockholder
is urged to sign, date and return the enclosed proxy card which is being
solicited on behalf of the Board of Directors. An envelope addressed to the
Company's transfer agent is enclosed for that purpose and needs no postage if
mailed in the United States.
- --------------------------------------------------------------------------------
<PAGE>
THE LESLIE FAY COMPANY, INC.
1412 BROADWAY
NEW YORK, NEW YORK 10018
---------------
PROXY STATEMENT
---------------
This Proxy Statement is furnished to the holders of Common Stock,
par value $.01 per share ("Common Stock"), of The Leslie Fay Company, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation by and
on behalf of its Board of Directors of proxies ("Proxy" or "Proxies") for use at
the 1998 Annual Meeting of Stockholders (the "Meeting") to be held on Wednesday,
June 3, 1998, at 10:30 a.m., New York City time, at the Fashion Institute of
Technology, Seventh Avenue at 27th Street, C-Building, 9th Floor, New York, New
York and at any adjournment or postponement thereof, for the purposes set forth
in the accompanying Notice of Annual Meeting of Stockholders. The cost of
preparing, assembling and mailing the Notice of Annual Meeting of Stockholders,
this Proxy Statement and Proxies is to be borne by the Company. The Company will
also reimburse brokers who are holders of record of Common Stock for their
expenses in forwarding Proxies and Proxy soliciting material to the beneficial
owners of such shares. In addition to the use of the mails, Proxies may be
solicited without additional compensation by directors, officers and employees
of the Company by telephone, telecopy, electronic mail or personal contact. The
approximate mailing date of this Proxy Statement is May __, 1998.
A Proxy may be revoked by a stockholder at any time before its
exercise by filing with Warren T. Wishart, the Secretary of the Company, at the
address set forth above, an instrument of revocation or a duly executed proxy
bearing a later date, or by attendance at the Meeting and electing to vote in
person. Attendance at the Meeting will not, in and of itself, constitute
revocation of a Proxy.
PURPOSES OF THE MEETING
At the Meeting, the Company's stockholders will consider and vote
upon the following matters:
(1) The election of nine (9) directors;
(2) The 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, par value $.01, from 9,500,000 to 20,000,000
shares;
(3) The approval of an amendment to the Amended and Restated Certificate
of Incorporation of the Company to permit stockholder action by
written consent;
(4) The approval of (a) 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 (b) an
amendment to such plan to modify the terms of certain options
contemplated thereunder;
(5) The 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;
<PAGE>
(6) The ratification of the appointment of Arthur Andersen LLP as the
Company's independent accountants for the fiscal year ending January
2, 1999; and
(7) The transaction of such other business as may properly come before
the Meeting or any adjournment or postponement thereof.
Unless otherwise specified, all Proxies, in proper form, received by
the time of the Meeting will be voted for the election of all nominees named
herein to serve as directors and in favor of each of the proposals set forth in
the accompanying Notice of Annual Meeting of Stockholders and described below.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The close of business on April 21, 1998 has been fixed by the Board
of Directors as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Meeting and any
adjournment thereof. As of the Record Date, there were 3,400,000 shares of
Common Stock outstanding. Each share of Common Stock outstanding on the Record
Date will be entitled to one vote on all matters to come before the Meeting.
A majority of the shares entitled to vote, represented in person or
by proxy, is required to constitute a quorum for the transaction of business.
Directors are elected by a plurality of votes of the shares of Common Stock
represented in person or by proxy at the Meeting. The affirmative vote of 66-2/3
percent of shares of Common Stock represented in person or by proxy at the
Meeting will be required for approval of the amendment to Restated and Amended
Certificate of Incorporation to permit stockholder action by written consent.
The affirmative vote of the majority of shares of Common Stock represented in
person or by proxy at the Meeting will be required for approval of each other
matter that is being submitted to a vote of the stockholders Proxies submitted
that contain abstentions or broker nonvotes will be deemed present at the
Meeting for determining the presence of a quorum. Abstentions with respect to
any matter are considered as present for determining a quorum and present and
entitled to vote with respect to any matter (abstentions are counted as votes
against any matter). Broker nonvotes with respect to any matter are considered
as present for determining a quorum but are not entitled to vote on that matter.
The 709,556 shares of Common Stock issued in the name of the Reorganization Plan
Administrator, who holds such shares for the benefit of the creditors of the
Company pending the resolution of certain creditor claims, will be voted in
respect of each proposal submitted to the Meeting in the same proportion as all
other shares have been voted at the Meeting.
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<PAGE>
SECURITY AND VOTING OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding security
and voting ownership of the Common Stock as of April 21, 1998 by (i) each person
or entity who owns of record or beneficially five percent or more of the
Company's Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer (as hereinafter defined) of the Company, (iv) each nominee for
election as a director of the Company and (v) all directors and executive
officers of the Company as a group. To the knowledge of the Company, each of
such stockholders has sole voting and investment power as to the shares shown
unless otherwise noted.
Percentage of
Names and Address Number of Shares Ownership of
of Beneficial Owners(1) Beneficially Owned Common Stock
- ----------------------- ------------------ ------------
Mark B. Dickstein 1,261,922(2) 37.1%
c/o Dickstein Partners Inc.
660 Madison Avenue, 16th Floor
New York, NY 10021
John C. Caliolo 709,556(3) 20.9%
as Plan Administrator
c/o The Leslie Fay Company, Inc.
1412 Broadway
New York, NY 10018
John C. "Bruce" Waterfall 308,306(4) 9.1%
10 East 50th Street
New York, NY 10022
Edwin H. Morgens 308,306(4) 9.1%
10 East 50th Street
New York, NY 10022
Pioneering Management Corporation 262,000(5) 7.7%
60 State Street
Boston, Massachusetts 02109
John J. Pomerantz 43,250(6) 1.3%
John A. Ward 23,120(6) (7)
Catharine Bandel-Wirtshafter 23,353(6) (7)
Dominick Felicetti 23,120(6) (7)
Warren T. Wishart 23,120(6) (7)
Clifford B. Cohn 3,300(6) (7)
Mark Kaufman 1,000(8) (7)
William J. Nightingale 3,300(6) (7)
-3-
<PAGE>
Robert L. Sind 3,300(6) (7)
Chaim Y. Edelstein 5,000 (7)
Bernard Olsoff -- --
Officers and Directors as a group (9 persons) 1,385,432(9) 39.3%
- ------------------
(1) Pursuant to the rules of the Securities and Exchange Commission, addresses
are only given for holders of 5% or more of the outstanding Common Stock
of the Company.
(2) Includes 910,919, 147,613, 163,390 and 40,000 shares of Common Stock
directly owned by Dickstein & Co., L.P., Dickstein Focus Fund L.P.,
Dickstein International Limited and Mark B. Dickstein, respectively. Does
not include 96,911, 22,687 and 17,348 shares of Common Stock that may be
purchased by Dickstein & Co., L.P., Dickstein Focus Fund L.P. and
Dickstein International Limited, respectively, on an "if and when issued"
basis from a third-party. Mark B. Dickstein is the sole shareholder, sole
director and president of Dickstein Partners Inc. ("DPI"). DPI is the
general partner of Dickstein Partners L.P. which is the sole general
partner of Dickstein & Co., L.P. and Dickstein Focus Fund. DPI is the
adviser for Dickstein International Limited and makes all investment and
voting decisions for that entity. Also does not include 1,000 shares owned
directly by Mark Kaufman, a Vice President of DPI. The information
provided above was obtained from Schedules 13D dated November 6, 1997.
(3) Shares held for the benefit of the creditors of the Company pending the
resolution of certain creditor claims which will be voted in respect of
each proposal submitted to the Meeting in the same proportion as all other
shares have been voted at the Meeting.
(4) Includes 9,746, 58,893, 87,904, 61,732, 37,107, 12,988, 18,665, 3,652,
10,330 and 7,289 shares of Common Stock directly owned by Morgens
Waterfall Income Partners ("MWIP"); Restart Partners, L.P. ("Restart");
Restart Partners II, L.P. ("Restart II"); Restart Partners III, L.P.
("Restart III"); Restart Partners IV, L.P. ("Restart IV"); Restart
Partners V, L.P. ("Restart V"); Endowment Restart, L.L.C. ("Endowment");
Betje Partners ("Betje"); Phoenix Partners, L.P. ("Phoenix"); and Phaeton
BVI ("Phaeton"), respectively. Mr. Waterfall is president and Mr. Morgens
is chairman of Morgens, Waterfall, Vintiadis & Co., Inc., which is the
investment advisor to Betje and Phaeton; they are also managing members of
MW Capital. L.L.C., the general partner of MWIP; the president and
chairman, respectively, of Prime Inc., the general partner of each of
Prime Group, L.P., Prime Group II, L.P., Prime Group III, L.P., Prime
Group IV, L.P. and Prime Group V, L.P., the general partners of Restart,
Restart II, Restart III, Restart IV and Restart V, respectively; managing
members of MW Management, L.L.C., the general partner of Phoenix; and
managing member of Endowment Prime, L.L.C., the managing member of
Endowment. The information provided above was obtained from Forms 4 dated
November 12, 1997.
(5) The information provided above was obtained from a Schedule 13G dated
April 23, 1998.
(6) Consists of shares of Common Stock issuable upon exercise of presently
exercisable stock options.
(7) Less than 1% of the outstanding Common Stock.
(8) Does not include any of the shares included in footnote (2).
-4-
<PAGE>
(9) Includes 122,510 shares of Common Stock issuable upon exercise of
presently exercisable stock options.
CERTAIN TRANSACTIONS
Bear Stearns Asset Management, a division of Bear, Stearns & Co. Inc.
("Bear Stearns"), acts as investment manager for the Company's 401(k) Savings
Plan and Retirement Plan and receives fees therefor. Michael L. Tarnopol, a
director of the Company until June 1997, is a Senior Managing Director and a
member of the Executive Committee of Bear Stearns and a director and Executive
Vice President of The Bear Stearns Companies, Inc., an affiliate of Bear
Stearns.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, stockholders will elect nine directors to serve until
the annual meeting of stockholders scheduled to be held in the year 1999 and
until their respective successors are elected and qualified. Each of the
nominees has advised the Company of his willingness to serve as a director of
the Company. In case any nominee should become unavailable for election to the
Board of Directors for any reason, the persons named in the Proxies have
discretionary authority to vote the Proxies for one or more alternative nominees
who will be designated by the Board of Directors.
INFORMATION ABOUT NOMINEEs
The following table sets forth certain information concerning the
nominees for director of the Company (as of April 15, 1998):
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
- ---- --- ------------------------- --------------
John J. Pomerantz 64 Chairman of the Board and 1984
Chief Executive Officer
John A. Ward 44 President 1997
Clifford B. Cohn 46 Director (1)(2) 1997
Mark B. Dickstein 39 Director (1)(2) 1997
Mark Kaufman 41 Director (2)(3) 1997
William J. Nightingale 68 Director (2)(3) 1997
Robert L. Sind 64 Director (1)(2)(3) 1997
Chaim Y. Edelstein 55 -- --
Bernard Olsoff 69 -- --
- ----------------------------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of the Finance Committee of the Board of Directors.
(3) Member of the Audit Committee of the Board of Directors.
-5-
<PAGE>
John J. Pomerantz has been the Chief Executive or Chief Operating
Officer of the Company and its predecessors since 1971, and an executive thereof
for over 30 years. Mr. Pomerantz was President of the Leslie Fay business from
1971 until August 1986, when he became Chairman of the Board of the Company.
John A. Ward joined the Company in August 1989 as head of the Andrea
Gayle division. From July 1991 to June 1993 he was Chairman of the Leslie Fay
Sportswear Group. In June 1993 he became Chairman of the combined Leslie Fay
Dress and Sportswear divisions. He was elected a Senior Vice President of the
Company in September 1991 and President of the Company in June 1997. From June
1988 until August 1989 he was Senior Vice President and General Merchandise
Manager for Ready-to-Wear, Men's and Boys' at B. Altman & Co. For fifteen years
prior thereto, he had been an executive at Filene's.
Clifford B. Cohn has been a principal with Cohn & Associates law firm
since September 1994. From September 1992 to September 1994, he was a principal
with Sernovitz & Cohn law firm. Mr. Cohn is also a director of Kasper A.S.L.,
Ltd.
Mark B. Dickstein has been the sole shareholder, sole director and
President of Dickstein Partners Inc. since prior to 1990 and is primarily
responsible for the operations of Dickstein & Co., L.P., Dickstein Focus Fund
L.P. and Dickstein International Limited. These businesses invest primarily in
risk arbitrage transactions, securities and debt obligations of financially
distressed companies, and other special situations. Mr. Dickstein is a Director
of Hills Stores Company and served as its Chairman of the Board from July 1995
to February 1996. He is also a director of News Communications Inc.
Mark Kaufman has been a Vice President of Dickstein Partners, Inc.
since July 1992. Prior to joining Dickstein Partners, beginning in 1990, Mr.
Kaufman was a Senior Vice President of Oppenheimer & Co., an investment banking
firm. Prior to that, Mr. Kaufman was a Vice President of GAF Corp., a chemical
and roofing manufacturer.
William J. Nightingale is a senior advisor at Nightingale &
Associates LLC, a general management consulting company, where he has been
employed since 1975. Mr. Nightingale is also a director of Kasper A.S.L., Ltd.
Robert L. Sind founded Recovery Management Corporation ("RMC") in
1984. RMC specializes in developing and implementing hands-on business,
financial and operational turnaround programs and providing crisis management to
troubled commercial, industrial and real estate clients and their creditors. For
20 years prior thereto, Mr. Sind served in corporate operating positions,
managing turnarounds and restructurings, including Londontown Manufacturing
Company, Beker Industries, and Nice-Pak Products, Inc. For ten years he also
served as investment banker for distressed companies. Mr. Sind is also a
director of Kasper A.S.L., Ltd.
Chaim Y. Edelstein has been the Chairman of the Board of Hills Stores
Company since February 1996 and has been a director of such company since July
1995. He has been a consultant to Hills Department Stores since July 1995 and
was a consultant to Federated Department Stores, Inc. from February 1994 to
March 1995. From 1985 to February 1994 he was Chairman of the Board and Chief
Executive Officer of Abraham & Straus, a division of Federated Department
Stores, Inc. Mr. Edelstein is also a director of the Independence Community
Bank.
Bernard Olsoff was President and Chief Executive Officer of Frederick
Atkins, Inc., an international retail merchandising and product development
organization for department stores from 1987 and 1994, respectively, until his
retirement in April 1997. From 1971 to 1983, Mr. Olsoff was President of May
Department Stores Company and May Merchandising Corporation in New York City.
From August 1955 to
-6-
<PAGE>
August 1971 he was Vice President and General Merchandise Manager of Associated
Merchandising Corporation. Mr. Olsoff is also a director of Elder Beerman
Stores, Inc.
INFORMATION ABOUT NON-DIRECTOR EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
the non-director executive officers of the Company (as of April 15, 1998):
Name Positions with the Company Age
- ---- -------------------------- ---
Dominick Felicetti Senior Vice President-Manufacturing 44
and Sourcing
Warren T. Wishart Senior Vice President-Administration 45
and Finance, Secretary and
Chief Financial Officer
Dominick Felicetti rejoined the Company in May 1995 as Senior Vice
President of Worldwide Sourcing and Manufacturing. From 1994 to 1995 he was Vice
President Manufacturing and Production for S.L. Fashions. Mr. Felicetti was
previously employed by The Leslie Fay Companies, Inc. from December 1991 to July
1993 in the position of Director of Technical Services and Production. From 1986
to 1990 he served as President of American Dress Company and from 1979 to 1986
as Production Manager for Betsy's Things.
Warren T. Wishart joined the Company in March 1993. He held the
position of Vice President-Planning from July 1993 through December 1994. In
January 1995, he became Senior Vice President - Finance, in September 1995, he
was appointed Chief Financial Officer and Treasurer of the Company. In June 1997
he became Senior Vice President - Administration and Finance and Secretary of
the Company. Before joining Leslie Fay Mr. Wishart was Vice President -
Strategic Planning at Galerias Preciados from 1991 to the end of 1992. Prior to
that, he had seventeen years of financial management and business planning
experience with several department stores including Filene's and the L.J. Hooker
Retail Group.
MEETINGS AND COMMITTEES OF THE BOARD
During the year ended January 3, 1998, the Board of Directors held
fourteen meetings. During such year, each director attended at least 75 percent
of the aggregate of (i) the number of meetings of the Board of Directors held
during the period he served on the Board, and (ii) the number of meetings of the
Compensation and Audit Committees held during the period he served on such
committees.
The Compensation Committee, currently composed of Messrs. Cohn,
Dickstein and Sind, has authority over officer compensation and administers the
Company's 1997 Management Stock Option Plan and 1997 Non-Employee Director Stock
Option and Stock Incentive Plan. The Compensation Committee held ____ meetings
and took certain action on ____ other occasions by written consent.
The Audit Committee, currently composed of Messrs. Kaufman,
Nightingale and Sind, held two meetings. The Audit Committee serves as the
Board's liaison with the Company's auditors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended, officers, directors and holders of more than 10% of the outstanding
shares of the Company's Common Stock are required to file periodic
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<PAGE>
reports of their ownership of, and transactions involving, the Company's Common
Stock with the Securities and Exchange Commission. Based solely on its review of
copies of such reports received by the Company, the Company believes that its
reporting persons have complied with all Section 16 filing requirements
applicable to them with respect to the Company's fiscal year ended January 3,
1998, except that Catharine Bandel-Wirtshafter, a former officer, John Ward and
Dominick Felicetti each filed a late Form 5 reflecting the cancellation of old
stock options and/or the grant of new stock options and Clifford B. Cohn,
William J. Nightingale and Robert L. Sind each timely filed a Form 5 indicating
that he had not filed a Form 3.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth information
concerning annual and long-term compensation, paid or accrued, for the Company's
Chief Executive Officer and four other most highly compensated executive
officers (the "Named Executive Officers") for services in all capacities to the
Company during the last three fiscal years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
-------------------------- ----------------------
Restricted Securities
Name and Principal Stock Underlying LTIP All Other
Position Year Salary(2) Bonus Awards Options Payouts Compensation(3)(4)(5)
- -------- ---- --------- ----- ------ ------- ------- ------------
<S> <C> <C> <C> <C>
John J. Pomerantz 1997 $611,129 $300,000 -- -- -- $ 8,699
Chairman of the Board 1996 $777,915 $171,700 -- -- -- $ 8,938
and Chief Executive 1995 $779,934 $ -- -- -- -- $ 8,600
Officer
- ------------------------------------------------------------------------------------------------------------------------
John A. Ward 1997 $462,692 $225,000 -- -- -- $ 2,650
Senior Vice President 1996 $521,154 $145,600 -- -- -- $ 2,500
1995 $519,231 $ -- -- -- -- $ 2,730
- ------------------------------------------------------------------------------------------------------------------------
Dominick Felicetti 1997 $337,500 $200,000 -- -- -- $ 1,938
Senior Vice President - 1996 $267,885 $ 91,200 -- -- -- $ --
Manufacturing and 1995 $167,212 $ 25,000 -- -- -- $ --
Sourcing
- ------------------------------------------------------------------------------------------------------------------------
Catharine Bandel- 1997 $273,654 $ 92,300 -- -- -- $ 76,260
Wirtshafter 1996 $300,000 $ 91,200 -- -- -- $ --
Senior Vice President 1995 $274,038 $ 50,000 -- -- -- $ --
- ------------------------------------------------------------------------------------------------------------------------
Warren T. Wishart 1997 $207,692 $180,000 -- -- -- $102,650
Senior Vice President- 1996 $200,000 $ 91,200 -- -- -- $ 2,500
Administration and 1995 $198,461 $ 25,000 -- -- -- $ 3,035
Finance, Chief Financial
Officer and Treasurer
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) In 1997, 1996 and 1995, perquisites and other personal benefits did not
exceed the lesser of $50,000 or 10% of reported annual salary and bonuses
for any of the Named Executive Officers.
(2) 1997 was a 53 week year. 1996 and 1995 were 52 week years. Amounts
represent salaries paid during the above calendar year.
(3) For 1997, consists of the following (a) amounts contributed as Company
matching contributions for each Named Executive Officer as follows: Mr.
Pomerantz $2,286, Mr. Ward $2,650, Mr. Felicetti $1,938, Ms.
Bandel-Wirtshafter $1,260 and Mr. Wishart $2,650; (b) amounts paid by the
Company for split dollar life insurance coverage as follows: Mr. Pomerantz
$6,413; and (c) amounts paid by the Company as retention earned as
follows: Ms. Bandel-Wirtshafter $75,000 and Mr. WIshart $100,000.
(4) For 1996, consists of the following: (a) amounts contributed as Company
matching contributions for each Named Executive Officer under the
Company's 401(k) Savings Plan as follows: Mr. Pomerantz $2,286, Mr, Ward,
$2,500 and Mr. Wishart $2,500; and (b) amounts paid by the Company for
split dollar life insurance coverage as follows: Mr. Pomerantz $6,652.
(5) For 1995, consists of the following (a) amounts contributed as Company
matching contributions for each Named Executive Officer under the
Company's 401(k) Savings Plan as follows: Mr. Pomerantz $2,230, Mr. Ward
$2,230
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<PAGE>
and Mr. Wishart $2,535; (b) amounts contributed by the Company under the
Company's defined benefit cash balance retirement plan as follows: Mr.
Pomerantz, Mr. Ward and Mr. Wishart $500 each; and (c) amounts paid by the
Company for split dollar life insurance coverage as follows: Mr. Pomerantz
$5,870.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock
options granted to the Named Executive Officers during fiscal 1997.
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------Potential Realizable Value at Assumed
Number of % of Total Annual Rates of Stock Price
Securities Options Appreciation for Option Term
Underlying Granted to ------------------------------------
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price(1) Date(2) 0% 5% 10%
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J. Pomerantz 131,878 29.4% $ 6.18 6/3/07 $199,136 $837,425 $1,815,960
John A. Ward 70,060 15.6% $ 6.18 6/3/07 $105,791 $444,881 $ 964,726
Dominick Felicetti 70,060 15.6% $ 6.18 6/3/07 $105,791 $444,881 $ 964,726
Catherine Bandel-
Wirtshafter 70,060 15.6% $ 6.18 6/3/07 $105,791 $444,881 $ 964,726
Warren T. Wishart 70,060 15.6% $ 6.18 6/3/07 $105,791 $444,881 $ 964,726
</TABLE>
- ----------------
(1) The market price per share on the grant date was $7.69.
(2) Exercisable as to 33% of such shares commencing on each of June 4, 1998
and June 4, 1999 and as to the balance on June 4, 2000.
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND FISCAL YEAR END VALUE
TABLE
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during fiscal 1997 and
unexercised options held as of the end of such fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year-End at Fiscal Year-End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- -------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
John J. Pomerantz None N/A 0/131,878 $ 0/973,589
- ------------------------------------------------------------------------------------------------------------
John A. Ward None N/A 0/70,060 $ 0/517,218
- ------------------------------------------------------------------------------------------------------------
Dominick Felicetti None N/A 0/70,060 $ 0/517,218
- ------------------------------------------------------------------------------------------------------------
Catharine Bandel-Wirtshafter None N/A 0/70,060 $ 0/517,218
- ------------------------------------------------------------------------------------------------------------
Warren T. Wishart None N/A 0/70,060 $ 0/517,218
</TABLE>
- ----------------
(1) Aggregate market value of the shares of Common Stock covered by the
options at fiscal year end less the exercise price of such options.
-10-
<PAGE>
RETIREMENT PLAN
Until December 31, 1996, when it was terminated, the Company had in
effect a defined benefit, cash balance retirement plan. Each year the Company
contributed a percentage of earnings to an account for each eligible employee
based on attained age and years of service. The benefit credits were calculated
using a defined formula. In tabular form, the formula was as follows:
Percent of Pay Percent of Pay
Age Plus Up to One-Half the Over One-Half the
Completed Social Security Social Security
Years of Service Wage Base Wage Base
- ---------------- --------- ---------
Less than 50 2.00% 3.00%
50-59 2.75% 3.75%
60-69 3.75% 4.75%
70-79 5.25% 6.25%
80 or more 7.25% 8.25%
At December 28, 1996, the annual benefits payable upon retirement at
normal retirement age for each of John J. Pomerantz, John Ward, Dominick
Felicetti, Catharine Bandel-Wirtshafter and Warren Wishart were $7,344, $7,014,
$0, $0, and $1,436, respectively. These projected amounts do not reflect
continued plan credits.
The retirement plan was amended to freeze benefit accruals effective
December 31, 1994 and the retirement plan was terminated on December 31, 1996.
All participants have been paid their accumulated benefits.
COMPENSATION OF DIRECTORS
Currently, each director who is not a full-time employee of or
consultant to the Company (a "Non-Employee Director") receives an annual
director's fee of $30,000. Upon stockholder approval of the amendment to the
1997 Non-Employee Director Stock Option and Stock Incentive Plan described in
Proposal 5 below, each Non-Employee Director will receive an annual director's
fee of $12,500 in cash and 1,000 shares of Common Stock of the Company. In
addition, the Chairmen of the Audit and Compensation Committees will receive an
additional $2,500 and members of such committees will receive an additional
$1,000. Each initial non-employee director, upon becoming a director, received
stock options to purchase 10,000 shares, vesting one-third each year and each
subsequent non-employee director, upon becoming a director, has received or will
receive stock options to purchase 5,000 shares, vesting one-third each year.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with John J. Pomerantz dated
as of June 2, 1997, which provides for his employment in his present capacity as
a Chief Executive Officer until June 4, 1998 at a salary of $430,000 per annum.
In addition to such salary, the employment agreement provides that the Mr.
Pomerantz is entitled to certain other perquisites and additional bonus
compensation based on the achievement of certain corporate financial and
personal goals, as agreed upon by the Company and Mr. Pomerantz.
The Company has an employment agreement with John A. Ward dated as of
June 2, 1997, pursuant to which he is employed as President of the Company at a
minimum total compensation of $400,000 per annum until June 4, 1998. In addition
to such salary, the employment agreement provides that the Mr. Ward is entitled
-11-
<PAGE>
to certain other perquisites and additional bonus compensation based on the
achievement of certain corporate financial and personal goals, as agreed upon by
the Company and Mr. Ward.
The Company also has one-year agreements with Dominick Felicetti and
Warren T. Wishart dated as of June 4, 1997, pursuant to which they are employed
at a base salary of $325,000 and $200,000 per annum, respectively. In addition
to such salary, the employment agreements provide that the employee is entitled
to certain other perquisites and additional bonus compensation based on the
achievement of certain corporate financial and personal goals, as agreed upon by
the Company and employee.
The Compensation Committee has proposed and the Board of Directors
has approved new employment agreements for the four executives officers referred
to above. These agreements, which will expire on January 3, 2001, will provide
for base compensation of $500,000 for Mr. Pomerantz, $450,000 for Mr. Ward,
$350,000 for the first two years and $375,000 for the third year for Mr.
Felicetti and $225,000 for the first two years and $250,000 for the third year
for Mr. Wishart. The agreements will also provide for a cash bonus pool payable
to these employees if EBITDA exceeds $4,626,550. The bonus pool will equal 9.6%
of EBITDA plus 20% of EBITDA in excess of $4,626,550 up to a maximum of 12.5% of
EBITDA plus an additional 5% of the amount by which EBITDA exceeds $11,500,000.
The agreements will also provide for severance payments on change of control,
non-renewal and certain other circumstances.
The Compensation Committee has also proposed and the Board of
Directors has approved, subject to approval of stockholders of the Company, an
amendment to the 1997 Management Stock Option Plan described in Proposal 4
below, under which the so-called home run options for 255,000 shares of Common
Stock issuable under certain circumstances, as described therein, are replaced
by the grant of stock options to purchase an aggregate of 183,000 shares of
Common Stock at an exercise price of $6.18 per share which will vest in four
equal installments beginning January 4, 1998. The options have not yet been
allocated among the four executive officers referred to above.
SEVERANCE AGREEMENTS
In January 1998, the Company entered into a severance agreement with
Catharine Bandel-Wirtshafter pursuant to which she will receive in a lump sum,
six (6) months compensation at a rate of $250,000 per annum under the employment
agreement dated as of June 4, 1997. In addition, one third of the options
previously granted to her vested on the effective date of the severance
agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On June 10, 1997, the Board of Directors appointed a Compensation
Committee consisting of David H. Morse, Clifford B. Cohn and Larry G. Schafran,
which Committee is charged with making recommendations to the Board with respect
to the compensation of officers. On September 22, 1997, Messrs. Morse and
Schafran resigned as directors of the Company. They were replaced on the
Compensation Committee by Robert L. Sind and Mark B. Dickstein. Prior to June 4,
1997, during the period the Company was subject to the jurisdiction of the
Bankruptcy Court, issues regarding the compensation of officers were submitted
to the creditors committee and/or the Bankruptcy Court for approval prior to
action by the Compensation Committee. The members of the Compensation Committee
during 1996 and until June 4, 1997 were Ralph Destino, Peter W. May and Faye
Wattleton.
-12-
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee's responsibility is to make
recommendations to the Board of Directors with respect to the compensation of
executive officers of the Company. The Compensation Committee is presently
composed of Messrs. Cohn, Dickstein and Sind.
The Company's compensation policies are designed to enable the
Company to attract, motivate and retain senior management by providing
competitive compensation opportunities based both on individual performance and
on the financial performance of the Company. This is particularly true since
each of the Named Executive Officers has an employment agreement with the
Company. Accordingly, benefits are provided through stock option incentives and
bonuses which are generally consistent with the goal of coordinating rewards to
management with a maximization of stockholder return. In reviewing Company
performance, consideration is given to the Company's earnings. Also taken into
account are external economic factors that affect results of operations. An
attempt is also made to maintain compensation within the range of that afforded
like executive officers of companies whose size and business is comparable to
that of the Company. Prior to June 4, 1997, during the period that the Company
was subject to the jurisdiction of Bankruptcy Court, issues regarding the
compensation of executive officers were submitted to the creditors committee
and, in certain instances, the Bankruptcy Court for approval prior to action by
the Compensation Committee. In particular, the employment agreements entered
into with the Named Executive Officers and the stock options granted to such
officers were approved as part of the Company's Plan of Reorganization. In
reviewing the performance by the Company since its emergence from bankruptcy,
the Compensation Committee has recommended to the Board of Directors for
approval modifications of the employment agreements with Named Executive
Officers to extend their term, increase the base compensation provided
thereunder, provide a cash bonus pool related to the Company's EBITDA and
replace the so-called "home run options", which were issuable only in the event
of the sale of the Company at a certain minimum price, with stock options which
do not require the sale of the Company.
CEO Compensation
In the case of the Chief Executive Officer, the Compensation
Committee evaluates the Company's mid and long range strategic planning and
implementation as well as the considerations impacting the compensation of
executive officers generally described above. Based on the Company's 1997
operating performance, financial results and condition and the achievement of
EBITDA targets contained in his employment agreement, a bonus of $300,000 was
granted to Mr. Pomerantz by the Compensation Committee.
The foregoing report is approved by all members of the Compensation
Committee.
Respectfully submitted,
Compensation Committee
Clifford B. Cohn
Mark B. Dickstein
Robert L. Sind
-13-
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing the yearly change, both pre- and
post-emergence from bankruptcy, in the cumulative stockholder return on the
Company's Common Stock with the NASDAQ Composite Index and a peer group. The
peer group consists of the following four companies engaged in distribution of
ladies' apparel: Liz Claiborne, Kellwood Co., Oxford Industries and Jones New
York. The graph assumes $100 invested on January 2, 1993 in the Company's Common
Stock and in each of the indices and that all dividends on stocks in the NASDAQ
Composite Index and the peer group were reinvested. No cash dividends were paid
on the Common Stock of the Company during the five-year period ended January 3,
1998. The stockholder return shown on the graph below is not necessarily
indicative of future performance.
[GRAPHIC OMITTED]
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURNS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1/02/93 1/01/94 12/31/94 12/30/95 12/28/96 6/04/97 1/03/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Leslie Fay Company, Inc. $100 $26 $6 $0 $0 $56 $104
- -----------------------------------------------------------------------------------------------
NASDAQ Composite Index $100 $116 $112 $157 $192 $205 $234
- -----------------------------------------------------------------------------------------------
Peer Group $100 $64 $50 $69 $98 $117 $106
- -----------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved and recommends to stockholders
for approval a proposal to amend the Company's Amended and Restated Certificate
of Incorporation to increase the number of authorized shares of Common Stock,
par value $.01, from 9,500,000 shares to 20,000,000.
The purpose of the proposed increase in the Common Stock of the
Company is to provide additional shares for general corporate purposes,
including possible future acquisitions, stock dividends, stock splits, raising
additional capital and stock issuances under management and director stock
option plans. At this time, the Company has no present plans, understandings or
agreements for the issuance or use of the proposed additional shares of Common
Stock. Nevertheless, the Board of Directors believes that the proposed increase
is desirable so that, as the need may arise, the Company will have greater
flexibility and will be able to issue shares of Common Stock without the expense
and delay of a special stockholders meeting. If the proposed amendment is
approved, the additional shares of Common Stock when issued, will have the same
voting and other rights as the Company's presently authorized Common Stock. As
of the record date, the Company has 3,400,000 shares of Common Stock issued and
outstanding and 2,100,000 shares of Common Stock reserved for future issuance
upon the exercise of options granted or which may be granted under the Company's
stock option plans.
Although an increase in the authorized number of shares of Common
Stock could, under certain circumstances have an anti-takeover effect (for
example, by permitting issuances which would dilute the stock ownership of a
person seeking to effect a change in the composition of the Board of Directors
or contemplating a tender offer or other transaction for the combination of the
Company with another company), the proposed amendment is not being proposed in
response to any effort of which the Company is aware to accumulate the Company's
shares of Common Stock or to obtain control of the Company, nor is it part of a
plan by management to recommend a series of similar amendments to the Board of
Directors and stockholders.
EFFECTIVE DATE
If approved by the stockholders, the proposed amendment will become
effective upon the filing of a Certificate of Amendment with the Secretary of
State of Delaware amending the Company's Amended and Restated Certificate of
Incorporation, which filing will be made as soon as reasonably practicable after
stockholder approval.
REQUIRED VOTE
Approval of this proposal requires the affirmative vote of the
holders of a majority of the shares of Common Stock present, in person or by
proxy, at the Meeting and entitled to vote on this proposal. The Board of
Directors recommends a vote "FOR" approval of this proposal.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO ELIMINATE THE PROHIBITION ON STOCKHOLDER ACTION BY WRITTEN CONSENT
The Board of Directors has approved and recommends to stockholders
for approval a proposal to amend the Company's Amended and Restated Certificate
of Incorporation to eliminate the prohibition on stockholder
-15-
<PAGE>
action by written consent. If the proposed amendment is approved, Article VI of
the Company's Amended and Restated Certificate of Incorporation would be deleted
in its entirety.
The purpose of this amendment is to enable stockholders to utilize
Section 228 of the Delaware General Corporation Law (the "DGCL") which provides
for stockholder action by written consent. The Board of Directors believes that
the proposed amendment is desirable so that stockholders may be able to take
action without the expense and delay of a special stockholders' meeting. State
and federal law protect stockholders from action which is not in their best
interest. Section 228 of the DGCL provides that if stockholder action is taken
by written consent, prompt notice of such action shall be given to those
stockholders who have not consented in writing and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting.
Additionally, federal securities law requires that an information statement be
mailed to stockholders of a publicly traded company at least 20 days prior to
the taking of any stockholder action by written consent.
EFFECTIVE DATE
If approved by the stockholders, the proposed amendment will become
effective upon the filing of a Certificate of Amendment with the Secretary of
State of Delaware amending the Company's Amended and Restated Certificate of
Incorporation by deleting Article VI in its entirety, which filing will be made
as soon as reasonably practicable after stockholder approval.
REQUIRED VOTE
Approval of this proposal requires the affirmative vote of the
holders of 66 2/3 percent of the shares of Common Stock present, in person or by
proxy, at the Meeting and entitled to vote on this proposal. The Board of
Directors recommends a vote "FOR" approval of this proposal.
PROPOSAL 4
APPROVAL OF THE PROVISION OF THE 1997
MANAGEMENT STOCK OPTION PLAN LIMITING THE NUMBER OF SHARES
UNDER WHICH OPTIONS MAY BE GRANTED TO ANY ONE EMPLOYEE AND APPROVAL
OF AN AMENDMENT TO SUCH PLAN MODIFYING THE TERMS OF CERTAIN OPTIONS
The Company's 1997 Management Stock Option Plan (the "Management
Plan"), which was adopted in connection with the Company's emergence from
bankruptcy, provides that options may be granted to key employees (including
directors who are employees) of the Company. The Management Plan contains a
provision which limits on the number of shares for which options may be granted
to any one employee over the life of the Management Plan to 500,000 shares of
Common Stock. Imposing such a limit is a prerequisite for options which may be
granted in the future under the Management Plan to be considered "performance
based compensation" under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), and is intended to preserve the federal income tax
deductibility by the Company of any compensation expense that may arise from
their exercise or disqualifying disposition of the underlying shares. In April
1998 the Board of Directors adopted, subject to stockholder approval, an
amendment to eliminate the "Home Run" option provisions of the Management Plan,
which provided that upon the reorganization, merger, consolidation, sale or
other disposition of all or substantially all of the assets of the Company, the
underwritten equity offering of 50% or more or the outstanding shares of Common
Stock or other similar corporate transaction which (i) occurs on or before June
4, 1998 and the imputed enterprise value to the Company is at least $37.5
million, "Home Run" options will be granted to the Named Executive Officers for
85,000 shares of Common Stock, with another 3,400 shares granted for each
additional $50,000 in enterprise value up to $40 million; (ii) occurs on or
before June 4, 1999 and the imputed enterprise value is at least $45
-16-
<PAGE>
million, "Home Run" options will be granted to the Named Executive Officers for
85,000 shares of Common Stock, with another 3,400 shares granted for each
additional $50,000 in enterprise value up to $60 million; (iii) occurs on or
before June 4, 2000 and the imputed enterprise value is at lest $60 million,
"Home Run" options will be granted to the Named Executive Officers for 85,000
shares of Common stock, with another 3,400 shares granted for each additional
$50,000 in enterprise value up to $80 million; and (iv) occurs after June 4,
2000 and the imputed enterprise value is $75 million, "Home Run" options will be
granted to the Named Executive Officers for 85,000 shares of Common Stock, with
another 3,400 shares granted for each additional $50,000 in enterprise value up
to $100 million. If the amendment is approved by the stockholders, the "Home
Run" options will be replaced by options for an aggregate of 183,000 shares of
Common Stock to the Named Executive Officers at an exercise price of $6.18 per
share (the same exercise price as the "Home Run" Options) which will vest in
four equal installments beginning January 4, 1998.
The following summary of the Management Plan, as amended (the
"Amended Plan"), does not purport to be complete, and is subject to and
qualified in its entirety by reference to the full text of the Amended Plan set
forth as Exhibit A attached hereto and made a part hereof. If the proposal is
not approved by stockholders, the Management Plan as in effect prior to such
amendment will continue in full force and effect except the limitation on the
number of options which may be granted to any employee as described above.
Types of Grants and Eligibility
-------------------------------
The Amended 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 Amended Plan provides for the grant of
"incentive stock options" ("ISOs"), as defined in Section 422 of the Code, and
"non-qualified stock options" ("NQSOs"). ISOs may be granted only to employees.
NQSOs may be granted to employees (including directors who are employees),
independent contractors and agents of the Company or its subsidiaries, as
determined by a Committee (as defined below).
Set forth in the table below is information as to the number of shares as
to which options have been granted under the Amended Plan to date and have not
been canceled, and are currently outstanding and held by the Named Executive
Officers, each other person who has received 5% of the options issuable under
the Management Plan, all current executive officers as a group ("Executive
Group") and all employees who are not executive officers as a group ("Employee
Group").
NUMBER OF SHARES
NAME POSITION UNDERLYING
- ---- -------- OPTION GRANTS
-------------
John J. Pomerantz Chairman of the Board and 131,878
Chief Executive Officer
John A. Ward Senior Vice President 70,060
Dominick Felicetti Senior Vice President - 70,060
Manufacturing and Sourcing
Catharine Bandel-Wirtshafter Senior Vice President 23,353(1)
Warren T. Wishart Senior Vice President - 70,060
Administration and Finance, Chief
Financial Officer and Treasurer
Executive Group 365,411(2)
-17-
<PAGE>
NUMBER OF SHARES
NAME POSITION UNDERLYING
- ---- -------- OPTION GRANTS
-------------
Employee Group 36,500
- ----------
(1) Pursuant to Ms. Bandel-Wirtshafter's severance agreement, one third of the
options previously granted to her vested on the effective date of the
severance agreement. The remaining options were canceled.
(2) Does not include the 183,000 shares of Common Stock to be granted to the
Executive Group upon stockholder approval of the amendment to the
Management Plan. Such shares have not yet been allocated among the
Executive Group.
Shares Subject to the Amended Plan
----------------------------------
The aggregate number of shares of Common Stock for which options may
be granted under the Amended Plan may not exceed 2,000,000. Any option which
expires or becomes unexercisable for any reason without having been exercised in
full shall become available for further grant under the Amended Plan.
Administration of the Amended Plan
----------------------------------
The Amended Plan is administered by the Compensation Committee or
such other committee as the Board of Directors may designate (the "Committee").
The Committee shall be composed of not less than two "non-employee directors"
within the meaning of rules and regulations promulgated by the Securities and
Exchange Commission, each of whom shall be an "outside director" for purposes of
Section 162(m)(4) of the Code. The Committee currently consists of Messrs. Cohn,
Dickstein and Sind.
Subject to the provisions of the Amended Plan, the Committee shall
have the authority, in its discretion, to, among other things: (i) determine the
persons to whom options should be granted; (ii) determine whether and to what
extent to grant ISOs or NQSOs; (iii) determine the number of shares subject to
each option; (iv) determine the terms and conditions of each option granted
including the exercise price per share of options, any vesting condition and any
vesting acceleration, forfeiture or waiver; (v) modify, amend or adjust the
terms and conditions of any option; (vi) determine whether amounts payable with
respect to an option shall be deferred; and (vii) determine under what
circumstances an option may be settled in cash or common stock.
Limitation on Options
---------------------
No option may be granted to an employee if, as the result of such
grant, the maximum number of shares of Common Stock for which options may be
granted to any employee during the life of the Amended Plan is 500,000. Imposing
such a limit is a prerequisite for options which may be granted in the future
under the Amended Plan to be considered "performance based compensation" under
Section 162(m) of the Code, and is intended to preserve the federal income tax
deductibility by the Company of any compensation expense that may arise from
their exercise or disqualifying disposition of the underlying shares.
Term
----
The term of each option shall be fixed by the Committee, but no ISO
shall be exercisable more than ten years after the date the option is granted.
-18-
<PAGE>
Exercise Price
--------------
The exercise price of the shares of Common Stock underlying each
option shall be $6.18 unless otherwise determined by the Committee and set forth
in the Stock Option Agreement, provided that the exercise price per share of
Common Stock under an ISO shall not be less than the fair market value of the
Common Stock underlying such option on the date of grant.
Exercisability
--------------
Options shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Committee. If the
Committee provides that any option is exercisable only in installments, the
Committee may, at any time, waive such installment exercise provisions, in whole
or in part, based on such factors as the Committee may determine. In addition,
the Committee may, at any time, accelerate the exercisability of an option. Any
option that is not exercised within the applicable exercise period shall expire
automatically.
Method of Exercise
------------------
An option is deemed exercised when written notice of such exercise
has been given to the Company by the optionee and full payment for the shares of
Common Stock underlying the option has been received by the Company.
Non-Transferability of Options
------------------------------
No option granted may be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will, by the laws of
descent or distribution, pursuant to the Stock Option Agreement or in the case
of NQSOs, pursuant to a qualified domestic relations order or a gift to such
optionee's children, and may be exercised, during the lifetime of the optionee,
only by such optionee.
Termination by Death
--------------------
If an optionee's employment or service terminates by reason of death,
any option held by such optionee may thereafter be exercised to the extent then
exercisable, or on any such accelerated basis as the Committee may determine,
for a period of one year from the date of such death or until expiration of the
stated term of such option, whichever period is the shorter period.
Termination by Reason of Disability
-----------------------------------
In the event an employee is unable to continue his employment with
the Company as a result of his total and permanent disability, he may exercise
his option, to the extent it was exercisable, or on such accelerated basis as
the Committee may determine, within three years from the date of the termination
of employment or until the expiration of the stated term, whichever period is
the shorter.
Termination by Reason of Retirement
-----------------------------------
If an optionee's employment terminates by reason of retirement, he
may exercise his options, to the extent it was exercisable, or on such
accelerated basis as the Committee may determine, within five years from the
date of the termination of employment or until the expiration of the stated
term, whichever period is the shorter.
-19-
<PAGE>
Other Termination
-----------------
If an optionee's employment is terminated for cause, all options,
whether or not exercisable, shall thereupon terminate. Any employee who ceases
to serve as an employee, for any reason other than retirement, permanent
disability, death or for cause, may exercise his option, to the extent it was
exercisable, or on such accelerated basis as the Committee may determine, within
three months from the date he ceases to be an employee of the Company or until
the expiration of the stated term, whichever period is the shorter.
Change In Control
-----------------
In the event of a Change in Control (as defined in the Amended Plan)
any option outstanding as of the date such Change in Control is determined to
have occurred, and which is not then exercisable and vested, shall become fully
exercisable and vested to the full extent of the original grant. During the
60-day period from and after a Change in Control, unless the Committee shall
determine otherwise at the time of grant, an optionee shall have the right,
whether or not the option is fully exercisable and in lieu of the payment of the
exercise price for the shares of Common Stock being purchased under the option
and by giving notice to the Company, to elect to surrender all or part of the
option to the Company and to receive, within 30 days of such notice, in an
amount equal to the amount by which the Change in Control price per share of
Common Stock on the date of such election shall exceed the exercise price per
share of Common Stock under the option multiplied by the number of shares of
Common Stock granted under the option as to which granted shall have been
exercised.
Tax Offset Bonuses
------------------
At the time an option is granted or at any time thereafter, the
Committee may grant the right to receive a cash payment in an amount specified
by the Committee for the purpose of assisting the optionee to pay the resulting
taxes, all as determined by the Committee and on such other terms and conditions
as the Committee shall determine.
Amendment and Termination
-------------------------
The Amended Plan will terminate on June 3, 2007. Options outstanding
as of such date shall not be affected or impaired by the termination of the
Amended Plan. The Board of Directors may amend, alter or discontinue the Amended
Plan, but no amendment, alteration or discontinuation shall be made which will
impair the rights of an optionee under an option granted without the optionee's
consent.
Federal Income Tax Treatment
----------------------------
The following is a general summary of the federal income tax
consequences under current tax law of ISOs and NQSOs. It does not purport to
cover all of the special rules, including the exercise of an option with
previously acquired shares, or the state or local income or other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of an ISO or NQSO.
Upon the exercise of an ISO, the optionee will not recognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to him, the optionee will recognize long-term
capital gain or loss and the Company will not be entitled to a deduction.
However, if the optionee disposes of such shares within the required statutory
holding period, all or a portion of the gain will be treated as ordinary income
and the Company
-20-
<PAGE>
will generally be entitled to deduct such amount. Long-term capital gain of a
non-corporate taxpayer is generally subject to more favorable tax treatment than
ordinary income or short-term capital gain. Such long-term capital gain is
generally subject to a 20% maximum federal income tax rate if the shares are
held for more than 18 months and a 28% maximum tax rate if the shares are held
for more than 12 months but not greater than 18 months.
Upon the exercise of a NQSO, the optionee will recognize ordinary
income in an amount equal to the excess, if any, of the fair market value of the
shares acquired on the date of exercise over the exercise price thereof and the
Company will generally be entitled to a deduction for such amount at that time.
If the optionee later sells shares acquired pursuant to the exercise of a NQSO,
he will recognize long-term or short-term capital gain or loss, depending on the
period for which the shares were held.
In addition to the federal income tax consequences described above,
an optionee may be subject to the alternative minimum tax, which is payable to
the extent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of an ISO the excess of the fair market value of the shares over the
exercise price thereof is an adjustment which increases alternative minimum
taxable income. In addition, the optionee's basis in such shares is increased by
such excess for purposes of computing the gain or loss on the disposition of the
shares for alternative minimum tax purposes. If an optionee is required to pay
an alternative minimum tax, the amount of such tax which is attributable to
deferral preferences (including the ISO adjustment) is allowed as a credit
against the optionee's regular tax liability in subsequent years. To the extent
the credit is not used, it is carried forward.
VOTE REQUIRED AND RECOMMENDATION
Approval of this proposal requires the affirmative vote of a majority
of the votes cast by the holders of the shares of Common Stock, in person or by
proxy, at the Meeting and entitled to vote on this proposal. The Board of
Directors recommends a vote "FOR" approval of this proposal.
PROPOSAL 5
APPROVAL OF AN AMENDMENT TO THE 1997
NON-EMPLOYEE DIRECTOR STOCK OPTION AND STOCK INCENTIVE PLAN
The Company's 1997 Non-Employee Director Stock Option and Stock
Incentive Plan (the "Non-Employee Director Plan") was adopted in June 1997. The
Non-Employee Director Plan provides that options may be granted to non-employee
directors of the Company. In April 1998 the Board of Directors adopted, subject
to stockholder approval, an amendment to the Non-Employee Director Plan to
provide for the grant of stock to non-employee directors in addition to the
grant of stock options. The grant of stock to the non-employee directors is
designed to offset the reduction in the portion of directors' fee paid in cash
described on page 11 above.
The following summary of the Non-Employee Director Plan, as amended (the
"Amended Director Plan"), does not purport to be complete, and is subject to and
qualified in its entirety by reference to the full text of the Amended Director
Plan, set forth as Exhibit B attached hereto and made a part hereof. If the
amendment is not approved by stockholders, the Non-Employee Director Plan as in
effect prior to such amendment will continue in full force and effect.
Purpose and Eligibility
-----------------------
The Amended Director Plan is designed to attract and retain the best
qualified personnel for director positions and to provide the long-term growth
and financial success of the Company's business.
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<PAGE>
Set forth in the table below is information as to the number of
shares as to which options have been granted under the Non-Employee Director
Plan to date and have not been canceled, and are currently outstanding and held
by non-employee directors, nominees for election as a director and all current
non-employee directors as a group.
NUMBER OF SHARES UNDERLYING
OPTION GRANTS UNDER THE
NAME NON-EMPLOYEE DIRECTOR PLAN(1)
- ---- ------------------------------
Clifford B. Cohn 10,000
Mark B. Dickstein 5,000
Mark Kaufman 5,000
William J. Nightingale 10,000
Robert L. Sind 10,000
Chaim Y. Edelstein -- (2)
Bernard Olsoff -- (2)
Non-Employee Director Group 40,000
- --------------------
(1) Does not include 1,000 shares of Common Stock which will be granted to
each director as part of his director's fee upon stockholder approval of
this Proposal 5.
(2) Does not include options for 5,000 shares of Common Stock which will be
granted to each of Mr. Olsoff and Mr. Edelstein if they are elected as
directors of the Company.
Shares Subject to the Amended Director Plan
-------------------------------------------
The number of shares of Common Stock available for grants of option
or stock (collectively "Awards") under the Amended Director Plan may not exceed
100,000. Any option which expires or becomes unexercisable for any reason
without having been exercised in full shall become available for granting of
additional Awards under the Amended Director Plan.
Administration of the Amended Director Plan
-------------------------------------------
The Amended Director Plan is intended to be a "formula plan" and,
accordingly is generally intended to be self-governing. To this end, the Amended
Director Plan requires no discretionary action by any administrative body with
regard to any transaction under the Amended Director Plan, except as otherwise
provided in the Amended Director Plan. To the extent, if any, that any question
of interpretation arises, such question shall be resolved by the Board of
Directors.
Grant of Shares
---------------
Upon stockholder approval of the Amended Director Plan, each
non-employee director shall automatically be granted an Award for 1,000 shares
as of the conclusion of each annual meeting of stockholders of the Company,
commencing with the annual meeting to be held in 1998. There are no restrictions
on the receipt or sale of the shares, except such as may be imposed by federal
and state securities laws.
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<PAGE>
Term and Exercisability of Options
----------------------------------
Each option shall have a term of ten years and shall become
exercisable as follows: options with respect to one-third of the shares of
Common Stock subject thereto one year after election to the Board of Directors;
options with respect to an additional one-third of the shares of Common Stock
subject thereto two years after election to the Board of Directors; options with
respect to an additional one-third of the shares of Common Stock subject thereto
three years after election to the Board of Directors. The Board of Directors may
accelerate the vesting of any option.
Exercise Price
--------------
The exercise price of the shares of Common Stock underlying each
option shall be the fair market value of the Common Stock underlying such option
on the date of grant.
Non-Transferability of Options
------------------------------
No option granted may be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution and may be exercised, during the lifetime of the
optionee, only by such optionee.
Termination of Directorship
---------------------------
If an optionee ceases to be a director of the Company, any option
which has vested shall continue to be exercisable for a period of three years or
the remainder of the option term, whichever is shorter, except that if an
optionee ceases to be a director for cause, any option awarded under the Amended
Director Plan and held by the optionee shall be canceled as of the date of such
termination.
Other Termination
-----------------
In the event of a Change in Control or in the event that an optionee
ceases to be a director for any reason other than his resignation or his refusal
in writing to stand for re-election, such option shall become fully exercisable,
provided that the optionee had continuous status as a director during the
six-month period preceding termination. If an optionee ceases to be a director
for cause, the option, whether or not exercisable, shall thereupon be canceled.
Amendment and Termination
-------------------------
No Awards may be made under the Amended Director Plan after June 3,
2007 or the earlier termination by the Board of Directors. The Board of
Directors may suspend the Amended Director Plan or any portion thereof. The
Board of Directors may also amend the Amended Director Plan if deemed to be in
the best interests of the Company and its stockholders, provided, however, that
no such amendment may impair any optionee's right regarding any outstanding
grants, elections or other right to receive shares of Common Stock under the
Amended Director Plan without his or her consent. The Board of Directors may not
without the approval by the holders of a majority of the voting securities of
the Company (i) increase the maximum number of shares which may be granted
thereunder in the aggregate or (ii) modify the provisions thereof as to
eligibility for participation in the Amended Director Plan.
-23-
<PAGE>
Federal Income Tax Treatment
----------------------------
The following is a general summary of the federal income tax
consequences under current tax law of non-employee director stock options and
stock incentive grants. It does not purport to cover all of the special rules,
including the exercise of an option with previously acquired shares, or the
state or local income or other tax consequences inherent in the ownership and
exercise of stock options and the ownership and disposition of the underlying
shares. All of such options shall be NQSOs.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of NQSO.
Upon the exercise of a NQSO, the optionee will recognize ordinary
income in an amount equal to the excess, if any, of the fair market value of the
shares acquired on the date of exercise over the exercise price thereof and the
Company will generally be entitled to a deduction for such amount at that time.
If the optionee later sells shares acquired pursuant to the exercise of a NQSO,
he will recognize long-term or short-term capital gain or loss, depending on the
period for which the shares were held.
[In addition to the federal income tax consequences described above,
an optionee may be subject to the alternative minimum tax, which is payable to
the extent it exceeds the optionee's regular tax. If an optionee is required to
pay an alternative minimum tax, the amount of such tax which is attributable to
deferral preferences is allowed as a credit against the optionee's regular tax
liability in subsequent years. To the extent the credit is not used, it is
carried forward.]
An optionee will recognize taxable income for federal income tax
purposes upon the grant of shares at the fair market value of such shares on the
date of the grant.
VOTE REQUIRED AND RECOMMENDATION
Approval of this proposal requires the affirmative vote of a majority
of the votes cast by the holders of the shares of Common Stock, in person or by
proxy, at the Meeting and entitled to vote on this proposal. The Board of
Directors recommends a vote "FOR" approval of this proposal.
VOTE REQUIRED AND RECOMMENDATION
Approval of this proposal requires the affirmative vote of a majority
of the votes cast by the holders of the shares of Common Stock, in person or by
proxy, at the Meeting and entitled to vote on this proposal. The Board of
Directors recommends a vote "FOR" approval of this proposal.
PROPOSAL 6
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed, subject to the ratification by
the stockholders, Arthur Andersen LLP as the independent auditors of the Company
for the fiscal year ending January 2, 1999. This firm of auditors has audited
the accounts of the Company for approximately 6 years. By virtue of their
familiarity with the Company's affairs and their ability, the Board of Directors
considers them best qualified to perform this important function. It is expected
that representatives of Arthur Andersen LLP will be present at the Meeting with
the opportunity to make a statement and to be available to respond to questions
regarding these and any other appropriate matters.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS
PROPOSAL.
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<PAGE>
MISCELLANEOUS
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company not later than ________,
1999 for inclusion in the Company's proxy statement and form of proxy for that
meeting.
OTHER MATTERS
The Board of Directors does not intend to bring before the Meeting
for action any matters other than those specifically referred to above and is
not aware of any other matters which are proposed to be presented by others. If
any other matters or motions should properly come before the Meeting, the
persons named in the Proxy intend to vote thereon in accordance with their
judgment on such matters or motions, including any matters or motions dealing
with the conduct of the Meeting.
By Order of the Board of Directors,
WARREN T. WISHART
Secretary
May __, 1998
-25-
<PAGE>
PROXY CARD
PROXY PROXY
THE LESLIE FAY COMPANY, INC.
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
The undersigned holder of Common Stock of The Leslie Fay Company, Inc.,
revoking all proxies heretofore given, hereby constitutes and appoints John J.
Pomerantz, John A. Ward and Warren T. Wishart, and each of them, Proxies, with
full power of substitution, for the undersigned and in the name, place and stead
of the undersigned, to vote all of the undersigned's shares of said stock,
according to the number of votes and with all the powers the undersigned would
possess if personally present, at the 1998 Annual Meeting of Stockholders of The
Leslie Fay Company Inc., to be held at the Fashion Institute of Technology,
Seventh Avenue at 27th Street, C-Building, 9th Floor, New York, New York, on
Wednesday, June 3, 1998 at 10:30 a.m., New York City time, and at any
adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of the Notice of Meeting and
Proxy Statement relating to the meeting and hereby revokes any proxy or proxies
heretofore given.
Each properly executed Proxy will be voted in accordance with the
specifications made below and in the discretion of the Proxies on any other
matter that may come before the meeting. Where no choice is specified, this
Proxy will be voted FOR all listed nominees to serve as directors and FOR each
of the proposals set forth below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL LISTED NOMINEES, AND FOR
PROPOSALS 2, 3, 4, 5 AND 6.
(1) Election of Directors. |_| FOR all nominees listed |_| WITHHOLD AUTHORITY
(except as marked to to vote for all
the contrary) listed nominees
Nominees: John J. Pomerantz, John A. Ward, Clifford B. Cohn, Mark B. Dickstein,
Mark Kaufman, William J. Nightingale, Robert L. Sind,
Chaim Y. Edelstein and Bernard Olsoff
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, CIRCLE THAT NOMINEE'S NAME IN THE LIST PROVIDED ABOVE.)
PLEASE MARK, DATE AND SIGN THIS PROXY ON THIS AND THE REVERSE SIDE
<PAGE>
(2) Proposal to approve an amendment to the Amended and Restated Certificate
of Incorporation of the Company to increase the number of authorized
shares of Common Stock.
|_| FOR |_| AGAINST |_| ABSTAIN
(3) Proposal to approve an amendment to the Amended and Restated Certificate
of Incorporation of the Company to permit stockholder action by written
consent.
|_| FOR |_| AGAINST |_| ABSTAIN
(4) Proposal to approve (a) 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 (b) an
amendment to such plan to modify the terms of certain options contemplated
thereunder.
|_| FOR |_| AGAINST |_| ABSTAIN
(5) Proposal to approve an amendment to the Company's 1997 Non-Employee
Director Stock Option and Stock Incentive Plan to permit the grant of
stock awards thereunder.
|_| FOR |_| AGAINST |_| ABSTAIN
(6) Proposal to ratify the Board of Director's selection of Arthur Andersen
LLP as the Company's independent auditors for the fiscal year ending
January 2, 1999.
|_| FOR |_| AGAINST |_| ABSTAIN
The shares represented by this proxy will
be voted in the manner directed. In the
absence of any direction, the shares will be
voted FOR each nominee named in Proposal 1
and FOR Proposals 2, 3, 4, 5 and 6 and in
accordance with their discretion on such
other matters as may properly come before
the meeting.
Dated ________________________________, 1998
____________________________________________
____________________________________________
Signature(s)
(Signature(s) should conform to names as
registered. For jointly owned shares, each
owner should sign. When signing as attorney,
executor, administrator, trustee, guardian
or officer of a corporation, please give
full title).
PLEASE MARK AND SIGN ABOVE AND
RETURN PROMPTLY
1997 MANAGEMENT STOCK OPTION
PLAN (as amended through April
14, 1998)
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Corporation a competitive
advantage in attracting, retaining and motivating key employees (including
officers and directors) and consultants to provide the Corporation and its
Affiliates with a stock option plan providing incentives more directly linked to
the profitability of the Corporation's businesses and increases in stockholder
value.
For purposes of the Plan, the following terms are defined as set forth
below:
(a) "Affiliate" means a corporation or other entity controlled by, or under
common control with, the Corporation and designated by the Committee
from time to time as such.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Cause" shall have the meaning ascribed thereto in an employment
agreement, if any, between the optionee and the Corporation or any of
its Affiliates. In the absence of such an employment agreement, "Cause"
shall mean (unless otherwise defined in the Stock Option Agreement) (i)
conviction of an optionee for committing a felony under federal law or
the law of the state in which such action occurred, (ii) perpetration by
the optionee of an illegal act which causes significant economic injury
to the Corporation or any of its Affiliates or of a common law fraud
against the Corporation or any of its Affiliates, or (iii) continuing
willful and deliberate failure on the part of an optionee to perform his
or her employment duties in any material respect. The Committee shall
have the sole discretion to determine whether "Cause" exists, and its
determination shall be final.
(d) "Change in Control" and "Change in Control Price" have the meanings set
forth in Sections 7(b) and (c), respectively.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(f) "Commission" means the Securities and Exchange Commission or any
successor agency.
(g) "Committee" means the Committee referred to in Section 2.
(h) "Common Stock" means the common stock, par value $.01 per share, of the
Corporation and any other shares into which such common stock shall
thereafter be changed by reason
<PAGE>
of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(i) "Corporation" means The Leslie Fay Company, Inc., a Delaware
corporation.
(j) "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
(k) "Early Retirement" means retirement from active employment with the
Corporation or any of its Affiliates pursuant to the early retirement
provisions of the applicable pension plan of such employer.
(l) "Effective Date" means June 4, 1997.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
(n) "Fair Market Value" means, except as provided in Section 5(a) , as of
any given date, the mean between the highest and lowest reported sales
prices of a share of Common Stock on the New York Stock Exchange, Inc.
Composite Tape or, if not listed on such exchange, on any other national
securities exchange on which the Common Stock is then listed or admitted
to unlisted trading privileges or on NASDAQ. If there is no regular
public trading market for such Common Stock, the Fair Market Value of
the Common Stock shall be determined by the Committee in good faith.
(o) "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of section
422 of the Code.
(p) "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation system.
(q) "Non-Employee director" means a member of the Board who qualifies as a
Non-Employee director as defined in rule 16b-3(b)(3), as promulgated by
the Commission under the Exchange Act, or any successor definition
adopted by the Commission.
(r) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(s) "Normal Retirement" means retirement from active employment with the
Corporation or any of its Affiliates at or after age 65.
(t) "Plan" means The Leslie Fay Company, Inc. 1997 Management Stock Option
Plan, as set forth herein and as hereinafter amended from time to time.
-2-
<PAGE>
(u) "Retirement" means Normal Retirement or Early Retirement.
(v) "Rule 16b-3" means Rule 16b-3, as promulgated and interpreted by the
Commission under Section 16(b) of the Exchange Act, as amended from time
to time.
(w) "Stock Option" means an option granted under Section 5.
(x) "Stock Option Agreement" means the agreement with an optionee pursuant
to which a Stock Option is granted, as provided in Section 5.
(y) "Termination of Employment" means the termination of the optionee's
employment with the Corporation and any of its Affiliates. An optionee
employed by the Corporation or any of its Affiliates shall also be
deemed to incur a Termination of Employment if any of its Affiliates
ceases to be such an Affiliate and the optionee does not immediately
thereafter become an employee of the Corporation or another Affiliate.
Temporary absences from employment because of illness, vacation or leave
of absence and transfers among the Corporation and its Affiliates shall
not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee or such
other committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Non-Employee
Directors, each of whom shall be an "outside director" for purposes of section
162(m)(4) of the Code, and shall be appointed by and serve at the pleasure of
the Board.
The Committee shall have plenary authority to grant Stock Options
pursuant to the terms of the Plan to employees (including officers and
directors) and consultants of the Corporation and its Affiliates.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan (including Schedule A hereto):
(a) To select the employees and consultants to whom Stock Options may from
time to time be granted;
(b) To determine whether and to what extent Incentive Stock Options and
Non-Qualified Stock Options or any combination thereof are to be granted
hereunder;
-3-
<PAGE>
(c) To determine the number of shares of Common Stock to be covered by each
Stock Option granted hereunder;
(d) To determine the terms and conditions of any Stock Option granted
hereunder (including, but not limited to, the exercise price (subject to
Section 5(a)), any vesting condition, restriction or limitation (which
may be related to the performance of the optionee, the Corporation or
any Affiliate) and any vesting acceleration, forfeiture or waiver
regarding any Stock Option and the shares of Common Stock relating
thereto, based on such factors as the Committee shall determine;
(e) To modify, amend or adjust the terms and conditions of any Stock Option,
at any time or from time to time;
(f) To determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to a Stock Option shall be
deferred; and
(g) To determine under what circumstances a Stock Option may be settled in
cash or Common Stock under Section 5(j).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Stock Option issued under the Plan (and any agreement relating
thereto) and otherwise to supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the Committee may (i) delegate to an officer of the Corporation such
of its powers and authority under the Plan as it deems appropriate (provided
that no such delegation may be made that would cause Stock Options or other
transactions under the Plan to fail to be exempt from Section 16(b) of the
Exchange Act) and (ii) authorize any one or more of the members of the Committee
or any officer of the Corporation to execute and deliver documents on behalf of
the Committee.
Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Stock
Option shall be made in the sole discretion of the Committee or such delegate at
the time of the grant of the Stock Option or, unless in contravention of any
express terms of the Plan or Stock Option Agreement, at any time thereafter. All
decisions made by the Committee or any appropriately delegated officer pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Corporation and Plan participants.
Notwithstanding any provision of the Plan to the contrary, the mere fact
that a Committee member shall fail to qualify as a "Non-Employee Director" or
"outside director" within the meaning of Rule 16b-3 and section 162(m) of the
Code, respectively, shall not invalidate any
-4-
<PAGE>
Stock Option granted by the Committee, which Stock Option is otherwise validly
granted under the Plan.
No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Option
granted hereunder.
Any authority granted to the Committee may also be exercised by the full
Board, except to the extent that the grant or exercise of such authority would
cause any Stock Option or transaction to become subject to (or lose an exemption
under) the short-swing profit recovery provisions of Section 16 of the Exchange
Act. To the extent that any permitted action taken by the Board conflicts with
action taken by the Committee, the Board action shall control.
Notwithstanding the foregoing or any other provision of this Plan, there
is hereby approved and authorized, and the Committee shall grant, Stock Options
to purchase up to 340,000 shares of Common Stock (the "Emergence Grants") to the
persons and on the terms and conditions set forth in Schedule A and the form of
Stock Option Agreement appended thereto, which terms the Committee shall not
have the discretion to modify without the consent of the optionee affected
thereby. All future grants of Common Stock made pursuant to this Plan are
subject to Committee approval. In the event of any inconsistency between the
terms of this Plan and Schedule A (including the appended form of Stock Option
Agreement), the terms of this Plan shall prevail.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be 2,000,000. No participant may be granted Stock
Options covering in excess of 500,000 shares of Common Stock over the life of
the Plan. Shares subject to a Stock Option under the Plan may be authorized and
unissued shares or may be treasury shares.
If any Stock Option expires, terminates or is canceled without being
exercised, shares subject to such Stock Option shall again become available for
distribution in connection with Stock Options granted under the Plan.
In the event of any change in capitalization, such as a stock split or
combination or, in the case of any merger, consolidation, separation, including
a spin-off, exchange of shares or other distribution of stock or property of the
Corporation, any reorganization (whether or not such reorganization comes within
the definition of such term in section 368 of the Code) or any partial or
complete liquidation of the Corporation, the Committee or Board may make such
substitution or adjustment in the aggregate number and kind of shares reserved
for issuance under the Plan, in the number, kind and exercise price of shares
subject to outstanding Stock Options and/or such other equitable substitution or
adjustment (including, but not limited to, cashing out the Stock Options as it
may determine to be appropriate in its sole discretion; provided, however, that
the number of shares subject to any Stock Option shall always be a whole number.
-5-
<PAGE>
In addition, the Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Stock Options
heretofore granted in recognition of unusual or nonrecurring events affecting
the Corporation, any Affiliate, or the financial statements of the Corporation
or any Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
SECTION 4. ELIGIBILITY
Employees of and consultants to the Corporation and any of its
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Corporation and its Affiliates are eligible
to be granted Stock Options under the Plan. No grant shall be made under this
Plan to a director who is not an employee of the Corporation or any of its
Affiliates.
SECTION 5. STOCK OPTIONS
Stock Options may be of two types: Incentive Stock Options and
Nonqualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Nonqualified Stock Options or both types of Stock Options;
provided, however, that grants hereunder are subject to the aggregate limit on
grants to individual participants set forth in Section 3 and the grant schedule
set forth in Schedule A attached hereto. Incentive Stock Options may be granted
only to employees of the Corporation and its subsidiaries (within the meaning of
section 424(f) of the Code). To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Nonqualified Stock
Option.
Stock Options shall be evidenced by Stock Option Agreements, the terms
and provisions of which may differ. A Stock Option Agreement shall indicate on
its face whether it is intended to be an agreement for an Incentive Stock Option
or a Nonqualified Stock Option. The grant of a Stock Option shall occur on the
date the Committee by resolution selects an individual to be a participant in
any grant of a Stock Option, determines the number of shares of Common Stock to
be subject to such Stock Option to be granted to such individual and specifies
the terms and provision of the Stock Option. The Corporation shall notify a
participant of any grant of a Stock Option, and a Stock Option Agreement shall
be duly executed and delivered by the Corporation to the participant. Such Stock
Option Agreement shall become effective upon execution by the Corporation and
the participant.
-6-
<PAGE>
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under section 422 of the Code, or,
without the consent of the affected optionee, to disqualify any Incentive Stock
Option under such section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Exercise Price. The exercise price per share of Common Stock purchasable
under a Stock Option shall be, unless otherwise determined by the
Committee and set forth in the Stock Option Agreement, $6.18; provided
that the exercise price per share of Common Stock purchasable under an
Incentive Stock Option shall not be less than the Fair Market Value of
the Common stock subject to the Incentive Stock Option on the date of
grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than
10 years after the date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options shall
be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions, in
whole or in part, based on such factors as the Committee may determine.
In addition, the Committee may at any time accelerate the exercisability
of any Stock Option. Any Stock Option that is not exercised within its
applicable exercise period shall expire automatically.
(d) Method of Exercise. Subject to the provisions of this Section 5, Stock
Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Corporation
specifying the number of shares of Common Stock subject to the Stock
Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Corporation may
accept. If approved by the Committee, payment, in full or in part, may also be
made in the form of Common Stock already owned by the optionee of the same class
as the Common Stock subject to the Stock Option (based on the Fair Market Value
of the Common Stock on the date the Stock Option is exercised); provided,
however, that such shares of already owned Common Stock do not constitute
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act of 1933, as amended, and have been held by the optionee for such
period of time and in such manner as is required by Generally Accepted
Accounting Principles to prevent the exercise of the Stock Option from being
deemed additional cash compensation of the optionee chargeable against the
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<PAGE>
earnings of the Corporation; and provided, further, that in the case of an
Incentive Stock Option the right to make a payment in the form of already owned
shares of Common Stock of the same class as the Common Stock subject to the
Stock Option must be authorized by the Committee at the time the Stock Option is
granted.
In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Corporation, together with a copy of irrevocable instructions to a broker
to deliver promptly to the Corporation the amount of sale or loan proceeds
necessary to pay the purchase price, and, if requested, the amount of any
federal, state, local or foreign withholding taxes. To facilitate the foregoing,
the Corporation may enter into agreements for coordinated procedures with one or
more brokerage firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Committee to
withhold a number of such shares having a Fair Market Value equal to the
aggregate exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefore
has been made. Except as otherwise provided in Section 5(1) below, an optionee
shall have all of the rights of a stockholder of the Corporation holding the
class or series of Common Stock that is subject to such Stock Option (including,
if applicable, the right to vote the shares and the right to receive dividends),
when the optionee has given written notice of exercise, has paid in full for
such shares and, if requested, has given the representation described in Section
10(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of
descent and distribution; (ii) in the case of a Nonqualified Stock
Option, pursuant to (A) a qualified domestic relations order (as defined
in the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder) and (B) a gift to such
optionee's children, whether directly or indirectly or by means of a
trust or partnership or otherwise; or (iii) if expressly permitted under
the applicable Stock Option Agreement, pursuant to the terms set forth
therein. All Stock Options shall be exercisable, subject to the terms of
this Plan, during the optionee's lifetime, only by the optionee, the
guardian or legal representative of the optionee named in the Stock
Option Agreement, or any person to whom an option is transferred in
accordance with the preceding sentence.
(f) Termination by Death. Unless otherwise determined by the Committee, if
an optionee's employment or service terminates by reason of death, any
Stock Option held by such optionee may thereafter be exercised, to the
extent then exercisable, or on such accelerated basis as the Committee
may determine, for a period of one year (or such other period as the
Committee may specify in the Stock Option Agreement) from the date of
such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
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<PAGE>
(g) Termination by Reason of Disability. Unless otherwise determined by the
Committee, if an optionee's employment terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time
of termination , or on such accelerated basis as the Committee may
determine for a period of three years (or such shorted period as the
Committee may specify in the Stock Option Agreement) from the date of
such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided,
however, that if the optionee dies within such period, any unexercised
Stock Option held by such optionee shall, notwithstanding the expiration
of such period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date
of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for
purposes of section 422 of the Code, such Stock Option will thereafter
be treated as a Nonqualified Stock Option.
(h) Termination by Reason of Retirement. Unless otherwise determined by the
Committee, if an optionee's employment terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be
exercised by the optionee, to the extent it was exercisable at the time
of such Retirement, or on such accelerated basis as the Committee may
determine, for a period of five years (or such shorter period as the
Committee may specify in the Stock Option Agreement) from the date of
such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided,
however, that if the optionee dies within such period any unexercised
Stock Option held by such optionee shall, notwithstanding the expiation
of such period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date
of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for
purposes of section 422 of the Code, such Stock Option will thereafter
be treated as a Nonqualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee: (i) if
an optionee incurs a Termination of Employment for Cause, all Stock
Options held by such optionee, whether or not then exercisable, shall
thereupon terminate; and (ii) if an optionee incurs a Termination of
Employment for any reason other than death, Disability or Retirement or
for Cause, any Stock Option held by such optionee, to the extent then
exercisable, or on such accelerated basis as the Committee may
determine, may be exercised for the lesser of three months from the date
of such Termination of Employment or the balance of such Stock Option's
term; provided, however, that if the optionee dies within such
three-month period, any unexercised Stock Option held by such optionee
shall, notwithstanding the expiration of such three-month period,
continue to be exercisable to the extent to which it was exercisable at
the time of death for a period of 12 months from the date of such death
-9-
<PAGE>
or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. Notwithstanding the foregoing, if an
optionee incurs a Termination of Employment at or after a Change in
Control (as defined in Section 7(b)), other than by reason of Cause,
death, Disability or Retirement, any Stock Option, to the extent then
exercisable, held by such optionee shall be exercisable for the lesser
of (1) six months and one day from the date of such Termination of
Employment, and (2) the balance of such Stock Option's term. In the
event of Termination of Employment, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for
purposes of section 422 of the Code, such Stock Option will thereafter
be treated as a Nonqualified Stock Option.
(j) Cashing Out of Stock Option. On receipt of written notice of exercise,
the Committee, with the consent of the optionee, may elect to cash out
all or part of the portion of the shares of Common Stock for which a
Stock Option is being exercised by paying the optionee an amount, in
cash or Common Stock, equal to the excess of the Fair Market Value of
the Common Stock over the exercise price times the number of shares of
Common Stock for which the Stock Option is being exercised on the
effective date of such cash-out.
(k) Change in Control Cash-Out. Notwithstanding any other provisions of the
Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), unless the Committee shall determine otherwise at
the time of grant, an optionee shall have the right, whether or not the
Stock Option is fully exercisable and in lieu of the payment of the
exercise price for the shares of Common Stock being purchased under the
Stock Option and by giving notice to the Corporation, to elect (within
the Exercise Period) to surrender all or part of the Stock Option to the
Corporation and to receive cash, within 30 days of such notice, in an
amount equal to the amount by which the Change in Control Price per
share of Common Stock on the date of such election shall exceed the
exercise price per share of Common Stock under the Stock Option (the
"Spread") multiplied by the number of shares of Common Stock granted
under the Stock Option as to which the right granted under this Section
5(k) shall have been exercised. Notwithstanding the foregoing, if any
right granted pursuant to this Section 5(k) would make a Change in
Control transaction ineligible for pooling-of-interests accounting under
APB No. 16 that, but for the nature of such grant, would otherwise be
eligible for such accounting treatment, the Committee shall have the
ability to substitute for the cash payable pursuant to such right Common
Stock with a Fair Market Value equal to the cash that would otherwise be
payable hereunder.
(l) Deferral of Option Shares. The Committee may from time to time establish
procedures pursuant to which an optionee may elect to defer, until a
time or times later than the exercise of a Stock Option, receipt of all
or a portion of the shares of Common Stock subject to such Stock Option
and/or to receive cash at such later time or times in lieu of such
deferred shares, all on such terms and conditions as the Committee shall
determine.
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<PAGE>
If any such deferrals are permitted, then notwithstanding Section 5(d)
above, an optionee who elects such deferral shall not have any rights as
s stockholder with respect to such deferred shares unless and until
shares of Common Stock are actually delivered to the optionee with
respect thereto, except to the extent otherwise determined by the
Committee.
SECTION 6. TAX OFFSET BONUSES
At the time a Stock Option is granted hereunder or at any time
thereafter, the Committee may grant to the participant receiving such Stock
Option the right to receive a cash payment in an amount specified by the
Committee, to be paid at such time or times (if ever) as the Stock Option
results in compensation income to the participant, for the purpose of assisting
the participant to pay the resulting taxes, all as determined by the Committee
and on such other terms and conditions as the Committee shall determine.
SECTION 7. CHANGE IN CONTROL PROVISIONS
(a) Impact of Event. Notwithstanding any other provisio of the Plan to the
contrary, in the event of a Change in Control, any Stock Options
outstanding as of the date such Change in Control is determined to have
occurred, and which are not then exercisable and vested, shall become
fully exercisable and vested to the full extent of the original grant.
(b) Definition of Change in Control. For purposes of the Plan, a "Change in
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.
(c) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i) the highest reported sales price, regular
way, of a share of Common Stock in any transaction reported on the New
York Stock Exchange Composite Tape or other
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<PAGE>
national securities exchange on which such shares are listed or on
NASDAQ during the 60-day period prior to and including the date of a
Change in Control or (ii) if the Change in Control is the result of a
tender or exchange offer or a Corporate Transaction, the highest price
per share of Common Stock paid in such tender or exchange offer or
Corporate Transaction; provided, however, that in the case of Incentive
Stock Options, the Change in Control Price shall be in all cases the
Fair Market Value of the Common Stock on the date such Incentive Stock
Option is exercised. To the extent that the consideration paid in any
such transaction described above consists all or in part of securities
or other noncash consideration, the value of such securities or other
noncash consideration shall be determined in the sole discretion of the
Board.
(d) In the event that the Corporation is merger or consolidated with another
corporation and, whether or not the Corporation shall be the surviving
corporation, there shall be any change in the shares of Common Stock by
reason of such merger or consolidation, or in the event that all or
substantially all of the assets of the Corporation are acquired by
another person, or in the event of a reorganization or liquidation of
the Corporation (each such event being hereinafter referred to as a
"Reorganization Event"), then the Committee may, by written notice to
each optionee, provide that his Stock Options will be terminated unless
exercised withing 30 days (or such longer period as the Committee shall
determine in its sole discretion) after the date of such notice (with or
without acceleration of the exercisability of such Stock Options).
SECTION 8. TERM, AMENDMENT AND TERMINATION
The Plan will terminate 10 years after the Effective Date. Under the
Plan, Stock Options outstanding as of such date shall not be affected or
impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option theretofore granted without the optionee's
consent, except such an amendment made to cause the Plan to qualify for any
exemption provided by Rule 16b-3. In addition, no such amendment shall be made
without the approval of the Corporation's stockholders to the extent such
approval is required by law or agreement or necessary to comply with any tax or
regulatory requirement.
The Committee may amend the terms of any Stock Option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any holder without the holder's consent, except such an amendment made
to cause the Plan or Stock Option to qualify for any exemption provided by Rule
16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Stock Options that qualify for
beneficial treatment under such rules without stockholder approval.
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<PAGE>
SECTION 9. UNFUNDED STATUS OF PLAN
It is currently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 10. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving shares
pursuant to a Stock Option to represent to and agree with the
Corporation in writing that such person is acquiring the shares without
a view to the public resale or distribution thereof in violation of
applicable securities laws. the certificates for such shares may include
any legend which the Committee deems appropriate to reflect any
restriction on transfer.
Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of each of the following conditions:
(i) Any registration or other qualification of such shares of the
Corporation under any state of federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Committee
shall, in its absolute discretion upon the advice of counsel, deem necessary or
advisable; and
(ii) Obtaining any other consent, approval, or permit from any state
or federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary or
advisable.
(b) Nothing contained in the Plan shall prevent the Corporation or any
Affiliate from adopting other or additional compensation arrangements
for its employees.
(c) Adoption of the Plan shall not confer upon any employee or consultant
any right to continued employment or service, nor shall it interfere in
any way with the right of the Corporation or any Affiliate to terminate
the employment or service of any employee or consultant at any time.
(d) No later than the date as of which an amount first becomes includible in
the gross income of the participant for federal income tax purposes with
respect to any Stock Option theretofore granted under the Plan, the
participant shall pay to the Corporation, or make arrangements
satisfactory to the Corporation regarding the payment of, any federal,
state, local or foreign taxes of any kind required by law to be withheld
with respect to such amount. Unless otherwise determined by the
Committee, withholding obligations may be
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<PAGE>
settled with Common Stock, including Common Stock that is part of the
Stock Option that gives rise to the withholding requirement. The
obligations of the Corporation under the Plan shall be conditional on
such payment or arrangements, and the Corporation and its Affiliates
shall, to the extent permitted by law, have the rights to deduct any
such taxes from any payment otherwise due to the participant. The
Committee may establish such procedures as it deems appropriate,
including making irrevocable elections, for the settlement of
withholding obligations of Common Stock.
(e) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable
in the event of the participant's death are to be paid or by whom any
rights of the participant, after the participant's death, may be
exercised.
(f) In the case of a grant of a Stock Option to any employee of a subsidiary
of the Corporation, the Corporation may, if the Committee so directs,
issue or transfer the shares of Common Stock, if any, covered by the
Stock Option to the subsidiary, for such lawful consideration as the
Committee may specify, upon the condition or understanding that the
subsidiary thereafter will transfer the shares of Common Stock to the
employee in accordance with the terms of the Stock Option specified by
the Committee pursuant to the provisions of the Plan.
(g) The Plan and all Stock Options granted and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Delaware, without reference to principles of conflict of laws.
(h) No participant or other person shall have any claim to be granted any
Stock Option, and there is no obligation for uniformity of treatment of
participants, or holders or beneficiaries of Stock Options. The terms
and conditions of Stock Options and the Committee's determinations and
interpretations with respect thereto need not be the same with respect
to each participant (whether or not such participants are similarly
situated).
(i) Nothing contained in the Plan shall prevent the Corporation or any
Affiliate from adopting or continuing in effect other compensation
arrangements, which may, but need not, provide for the grant of options
(subject to stockholder approval if such approval is required), and such
arrangements may be either generally applicable or applicable only in
specific cases.
(j) If any provision of the Plan or any Stock Option Agreement is or becomes
or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Stock Option under any
law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it
cannot be construed or deemed amended without, in the determination of
the Committee, materially
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<PAGE>
altering the intent of the Plan or the Stock Option Agreement, such
provision shall be stricken and the remainder of the Plan and any such
Stock Option Agreement shall remain in full force and effect.
(k) No fractional share shall be issued or delivered pursuant to the Plan or
any Stock Option Agreement, and the Committee shall determine whether
cash, securities or other property shall be paid or transferred in lieu
of any fractional share or whether such fractional share or any rights
thereto shall be canceled, terminated or otherwise eliminated.
(l) Headings are given to the Sections and subsections of the Plan solely as
a convenience to facilitate reference. Such headings shall not be deemed
in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(m) Any and all payments of shares of Common Stock or cash hereunder shall
be granted, transferred or paid in consideration of services performed
for the Corporation or for its Affiliates by the grantee. All such
grants, issuances and payments shall constitute a special incentive
payment to the optionee and shall not, unless otherwise determined by
the Committee, be taken into account in computing the amount of salary
or compensation of the optionee for the purposes of determining any
pension, retirement, death or other benefits under (i) any pension,
retirement, life insurance or other benefit plan of the Corporation or
any Affiliate or (ii) any agreement between the Corporation or any
Affiliate, on the one hand, and the optionee on the other hand.
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<PAGE>
Schedule A
----------
A. Grant Schedule. Participants will receive Stock Options as follows:
(i) Effective Date. On the Effective Date, Stock Options (the
"Initial Options") will be granted for 170,000 shares of the
Common Stock.
(ii) 1996 Fiscal Year. If the Corporation achieves an EBITDA* of at
least 4.2 million (before profit sharing, excluding Castleberry,
and including Hue licensing revenues) in the 1996 fiscal year,
Stock Options (the "1996 Options") will be granted for an
additional 170,000 shares of the Common Stock.
(iii) 1988 Fiscal Year. On January 4, 1998, Stock Options (the "1998
Options") will be granted for an additional 183,000 shares of
the Common Stock.
B. Vesting Schedule.
(i) Vesting of Initial Options. One-third of the Initial Options
will vest on each of the first three anniversaries of the
Effective Date; provided however, that all of the Initial
Options will vest immediately upon a Change in Control.
(ii) Vesting of 1996 Options. One-third of the 1996 Options will vest
on each of the first three anniversaries of the date of grant;
provided however, that all of the 1996 Options will vest
immediately upon a Change in Control.
(iii) Vesting of 1998 Options. One-fourth of the 1998 Options will
vest immediately upon grant and one-fourth of the 1998 Options
will vest on each of the first three anniversaries of the date
of grant; provided however, that all of the 1998 Options will
vest immediately upon a Change in Control.
- ------------------
* EBITDA means consolidated earnings before interest, taxes, depreciation
and amortization, as determined pursuant to generally accepted
accounting principles in effect in the United States from time to time.
-16-
THE LESLIE FAY COMPANY, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION
AND STOCK INCENTIVE PLAN
SECTION 1: PURPOSE
The Leslie Fay Company, Inc. 1997 Non-Employee Director Stock Option
and Stock Incentive Plan (the "Plan") has been adopted to promote the long-term
growth and financial success of The Leslie Fay Company, Inc. (the "Company") by
attracting and retaining non-employee directors of outstanding ability and
assisting the Company in promoting a greater identity of interest between the
Company's non-employee directors and its stockholders.
SECTION 2: DEFINITIONS
As used in the Plan, the following terms have the respective meanings
as set forth below.
(a) "Affiliate" means (i) any Person directly or indirectly
controlling, or controlled by, or under direct or indirect common control with,
the Company, (ii) any spouse, immediate family member or other relative who has
the same principal residence of any Person described in (i) above, (iii) any
trust in which any Persons described in clause (i) or (ii) above has a
beneficial interest and (iv) any corporation or other organization of which any
Persons described in clause (i), (ii) or (iii) above collectively own more than
50% of the equity of such entity. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise. The terms "controlled"
and "controlling" have meanings correlative to the foregoing.
(b) "Award" means any Stock Option or Stock Incentive Grant made
under the Plan.
(c) "Board" means the Company's Board of Directors.
(d) "Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated and whether voting ) of such Person's capital stock and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
(e) "Cause" means (unless otherwise defined in a written agreement
with a Participant) (i) conviction of the Participant for committing a felony
under federal law or the law of the state in which such action occurred, (ii)
perpetration by the Participant of an illegal act which causes significant
economic injury to the Company or any of its Affiliates or of a
<PAGE>
common law fraud against the Company or any of its Affiliates, or (iii)
continuing willful and deliberate failure on the part of the Participant to
perform his or her duties as a director of the Company in any material respect.
The Committee shall have the sole discretion to determine whether "Cause"
exists, and its determination shall be final.
(f) "Change of Control" means the happening of either of the
following events:
(i) An acquisition by any Person (other than Dickstein
Partners Inc. or any of its Affiliates) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of 50% or more of either (A) the
then outstanding shares of Common Stock (the
"Outstanding Company Common Stock") or (B) the combined
voting power of the then outstanding voting securities
of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (1) any
acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion
privilege unless the security being so converted was
itself acquired directly from the Company, (2) any
acquisition by the Company or (3) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any Affiliate; or
(ii) The approval by the stockholders of the Company of the
complete liquidation or dissolution of the Company.
(g) "Common Stock" means the common stock, $.01 par value, of the
Company.
(h) "Company" means The Leslie Fay Company, Inc., a Delaware
corporation.
(i) "Fair Market Value" means, as of any given date, the mean between
the highest and lowest reported sale prices of a share of Common Stock on the
New York Stock Exchange, Inc. Composite Tape or, if not listed on such exchange,
on any other national securities exchange on which the Common Stock is then
listed or admitted to unlisted trading privileges or on the National Association
of Securities Dealers, Inc. Automated Quotation System. If there is no regular
public trading market for such Common Stock, the Fair Market Value of the Common
Stock shall be determined by the Board in good faith.
(j) "Grant Date" means the conclusion of each annual meeting of
stockholders of the Company.
(k) "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time.
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<PAGE>
(l) "Non-Employee Director" means a member of the Board who, as of
the close of business on the date as of which a determination is made, is not an
employee of the Company or any Subsidiary.
(m) "Participant" means a Person holding an Award..
(n) "Person" means any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
(o) "Stock Incentive Grant" means an Award in the form of a grant of
a specified number of shares of Common Stock in accordance with Section 7 of the
Plan.
(p) "Stock Option" means an Award in the form of the right to
purchase a specified number of shares of Common Stock at a specified price
during a specified period granted under Section 6 of the Plan.
(q) "Subsidiary" means any corporation, partnership or other entity
in which the Company owns, directly or indirectly, an equity interest of 50% or
more.
SECTION 3: EFFECTIVE DATE
The Plan became effective as of June 4, 1997. The Plan, as amended,
shall become effective on the date it is approved by the stockholders of the
Company entitled to vote at the annual meeting of stockholders of the Company to
be held in 1998, or any adjournment thereof. No Awards may be made under the
Plan after 10 years after June 3, 2007 or the earlier termination of the Plan by
the Board.
SECTION 4: PLAN OPERATION
The Plan is intended to be a "formula plan" and, accordingly, is
generally intended to be self-governing. To this end, the Plan requires no
discretionary action by any administrative body with regard to any transaction
under the Plan, except as otherwise provided in the Plan. To the extent, if any,
that any question of interpretation arises, such question shall be resolved by
the Board.
SECTION 5: STOCK AVAILABLE FOR AWARDS
(a) Common Shares Available. The maximum number of Shares available
for Awards under the Plan may not exceed 100,000 shares of Common Stock.
(b) Adjustments and Reorganizations. Adjustments shall be made to
meet the intent of the Plan. Such appropriate adjustments shall be made to (i)
the number of shares of Common Stock available under the Plan and which
thereafter may be made the subject of
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<PAGE>
Awards under the Plan, and (ii) the number and type and exercise price of shares
of Common Stock, securities or other property subject to outstanding Stock
Options, provided such adjustments are consistent with the effect on other
stockholders arising from any corporate transaction. Such actions may include,
but are not limited to, any stock dividend, stock split, combination or exchange
of shares of Common Stock, merger, consolidation, spin-off, recapitalization or
other distributions (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting shares of Common Stock. Adjustments
shall be made in the calculation of Fair Market Value as necessary to preserve
the Participants' rights under the Plan.
(c) Common Stock Usage. The number of shares of Common Stock
underlying any Award granted under the Plan which is forfeited, canceled,
reacquired by the Company, satisfied without issuance of Common Stock or
otherwise terminated (other than by exercise) shall again become available for
granting of additional Awards under the Plan.
SECTION 6: STOCK OPTION AWARDS
Each Non-Employee Director who was such on June 4, 1997 shall
automatically be granted a non-qualified Stock Option to purchase 10,000 shares.
Upon election or appointment to the Board, thereafter, each new Non-Employee
Director shall automatically be granted a non-qualified Stock Option to purchase
5,000 shares.
The option exercise price per share of Common Stock shall be equal to
the Fair Market Value on the date of grant. Each Stock Option shall have a term
of 10 years and shall become exercisable as follows: options with respect to
one-third of the shares of Common Stock subject thereto one year after election
to the Board; options with respect to an additional one-third of the shares of
Common Stock subject thereto two years after election to the Board; options with
respect to an additional one-third of the shares of Common Stock subject thereto
three years after election to the Board (upon which date the Stock Option shall
become fully exercisable). Notwithstanding the foregoing, the Board may
accelerate the vesting of any Stock Option. Participants will receive credit for
prior service on the Board in satisfying this vesting requirement. Such Stock
Options shall continue to be granted to new Non-Employee Directors until the
Plan is terminated or amended to eliminate or change such grants.
Notwithstanding the foregoing, in the event of a Change of Control or in the
event that a Participant ceases to be a Non-Employee Director for any reason
other than his resignation or his refusal in writing to stand for re-election,
each outstanding Stock Option of the Participant shall become fully exercisable,
provided the Participant has served continuously as a director of the Company
during the preceding six-month period.
SECTION 7: STOCK INCENTIVE GRANTS
(a) Each Non-Employee Director shall automatically be granted an
Award for 1,000 Shares under the Plan, as of each Grant Date, commencing with
the annual meeting to be held
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in 1998. An individual who shall become an Non-Employee Director subsequent to
the date of the annual meeting of stockholders of the Company for any year shall
first become eligible to participate in the Plan commencing on the date of the
next annual meeting of stockholders of the Company.
(b) Shares, when issued, will be represented by a stock certificate
or certificates registered in the name of the Non-Employee Director to whom such
Shares shall have been granted. Shares shall constitute issued and outstanding
shares of Common Stock for all corporate purposes. The Non-Employee Director
will have all rights, powers and privileges of a holder of Common Stock with
respect to such Shares.
SECTION 8: GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) Non-Transferability of Stock Options. Stock Options granted under
Section 6 hereof may not be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or under the laws of descent and
distribution. The designation of a beneficiary shall not constitute a transfer.
A Stock Option may be exercised, during the lifetime of the Participant, only by
such Participant or his legal representative.
(b) No Right to Nomination. Nothing contained in the Plan shall
confer upon any Non-Employee Director the right to be nominated for reelection
to the Board.
(c) Termination of Directorship. If a Participant ceases to be a
director of the Company while holding a Stock Option granted under this Plan,
any Stock Option which has vested shall continue to be exercisable for a period
of three years or the remainder of the option term whichever is shorter.
Notwithstanding the foregoing, if a Participant ceases to be a director of the
Company for Cause, any Stock Option awarded under the Plan and held by the
Participant shall be canceled as of the date of such termination.
(d) Documentation of Grants. Awards made under the Plan shall be
evidenced by written agreements or such other appropriate documentation as the
Board shall prescribe.
(e) Nonalienation of Benefits. No right or benefit under the Plan
shall be subject to anticipation, alienation, sale, assignment, hypothecation,
pledge, exchange, transfer, encumbrance or charge, and any attempt to
anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void. No right or benefit hereunder shall
in any manner be liable for or subject to the debts, contracts, liabilities or
torts of the person entitled to such benefit. If any Non-Employee Director or
beneficiary hereunder should become bankrupt or attempt to anticipate, alienate,
sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge any
right or benefit hereunder, then such right or benefit shall, in the discretion
of the Board, cease and terminate, and in such event, the Board in its
discretion may hold or apply the same or any part thereof for the benefit of the
Non-
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Employee Director, his or her beneficiary, spouse, children or other
dependents, or any of them, in such manner and in such proportion as the Board
may deem proper.
(f) Withholding Taxes. At the time any Shares are issued, each
Non-Employee Director shall pay to the Company the amount of any Federal, state
or local taxes of any kind required by law to be withheld with respect thereto.
If a Non-Employee Director shall fail to make the payments required hereunder,
the Company shall, to the extent permitted by law, have the right to deduct from
any payment of any kind otherwise due to such Non-Employee Director any Federal,
state or local taxes of any kind required by law to be withheld with respect to
such Shares.
(g) Plan Amendment. The Board may suspend the Plan or any portion of
the Plan. The Board may also amend the Plan if deemed to be in the best
interests of the Company and its stockholders; provided, however, that no such
amendment may impair any Participant's right regarding any outstanding grants,
elections or other right to receive shares of Common Stock under the Plan
without his or her consent; and further provided, that the Board may not,
without approval by the holders of a majority of the voting securities of the
Company, (i) increase the maximum number of Shares which may be granted
hereunder in the aggregate (except for adjustments by the Board as hereinabove
provided in Section 5(b)) or (ii) modify the provisions of the Plan as to
eligibility for participation in the Plan.
(h) Government and Other Regulations. Notwithstanding any other
provisions of the Plan, the obligations of the Company with respect to Shares
shall be subject to all applicable laws, rules and regulations, and such
approvals by any governmental agencies as may be required or deemed appropriate
by the Company. The Company reserves the right to delay or restrict, in whole or
in part, the issuance or delivery of Common Stock pursuant to any grants of
Shares or exercise of Stock Options under the Plan until such time as:
(i) any legal requirements or regulations shall have been
met relating to the issuance of such Shares or to their registration,
qualification or exemption from registration or qualification under the
Securities Act of 1933, as amended from time to time, or any applicable state
securities laws; and
(ii) satisfactory assurances shall have been received that
such Shares when delivered will be duly listed on any applicable securities
exchange.
(i) Nonexclusivity of Plan. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the awarding of stock or Stock Options otherwise
than under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
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(j) Governing Law. The validity, construction and effect of the Plan
and any such actions taken under or relating to the Plan shall be determined in
accordance with the laws of the State of New York and applicable federal law.
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