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SECURITIES AND EXCHANGE COMMISION
WASHINGTON, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 1999 COMMISSION FILE NO. 1-9196
THE LESLIE FAY COMPANY, INC.
DELAWARE 13-3197085
STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1412 BROADWAY
NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [_]
There were 5,053,138 shares of Common Stock outstanding at October 2, 1999.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of October 2, 1999 (Unaudited)
and January 2, 1999, respectively.............................. 3
Consolidated Statements of Operations (Unaudited) for the
Thirty-Nine weeks Ended October 2, 1999 and
October 3, 1998, respectively.................................. 4
Consolidated Statements of Operations (Unaudited) for the
Thirteen Weeks Ended October 2, 1999 and
October 3, 1998, respectively.................................. 5
Consolidated Statements of Cash Flows (Unaudited) for the
Thirty-Nine Weeks Ended October 2, 1999 and
October 3, 1998, respectively................................... 6
Notes to Consolidated Financial Statements................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.............................................18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................19
Item 2. Changes in Securities.............................................19
Item 3. Defaults Upon Senior Securities...................................19
Item 4. Submission of Matters to a Vote of Security Holders...............19
Item 5. Other Information.................................................20
Item 6. Exhibits and Reports on Form 8-K..................................20
SIGNATURES.................................................................21
INDEX TO EXHIBITS..........................................................E-1
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
OCTOBER 2, JANUARY 2,
ASSETS 1999 1999
------ ---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................................... $ 732 $ 946
Restricted cash and cash equivalents............................ 3,572 3,267
Accounts receivable- net of allowances for possible losses of
$6,536 and $6,825, respectively.............................. 40,233 16,172
Inventories..................................................... 28,681 38,627
Prepaid expenses and other current assets....................... 1,058 970
------- -------
Total Current Assets......................................... 74,276 59,982
Property, plant and equipment, at cost, net of accumulated
depreciation of $1,237 and $409, respectively................ 3,823 2,781
Excess of purchase price over net assets acquired-net of
accumulated amortization of $279 and $50, respectively....... 4,406 4,490
Deferred charges and other assets............................... 2,289 551
Total Assets.................................................... $ 84,794 $ 67,804
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short term debt................................................. $ 13,913 $ 1,162
Accounts payable................................................ 9,648 12,070
Accrued expenses and other current liabilities.................. 8,495 7,486
Accrued expenses and other current confirmation liabilities..... 3,572 3,267
Income taxes payable............................................ 1,260 371
Current portion of capitalized leases........................... 30 48
------- -------
Total Current Liabilities.................................... 36,918 24,404
Long term note payable.......................................... 4,250 --
Excess of revalued net assets acquired over equity under
fresh - start reporting, net of accumulated amortization of
$10,668 and $7,239, respectively............................. 3,040 6,469
Long term debt-capitalized leases............................... -- 17
Deferred liabilities............................................ 777 477
Total Liabilities............................................... 44,985 31,367
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Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 500 shares authorized, no
shares issued and outstanding................................... -- --
Common stock, $.01 par value; 20,000 shares authorized;
6,870 and 6,858 shares issued, respectively.................... 69 69
Capital in excess of par value..................................... 30,805 28,824
Retained earnings.................................................. 20,558 12,167
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Subtotal........................................................ 51,432 41,060
Treasury stock, at cost; 1,817 and 817 shares, respectively........ 11,623 4,623
------- -------
Total Stockholders' Equity...................................... 39,809 36,437
------- -------
Total Liabilities and Stockholders' Equity......................... $ 84,794 $ 67,804
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THIRTY-NINE THIRTY-NINE WEEKS
WEEKS ENDED ENDED
OCTOBER 2, OCTOBER 3,
1999 1998
----------- -----------------
<S> <C> <C>
Net Sales...................................................... $ 158,216 $ 122,723
Cost of Sales.................................................. 116,923 91,087
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Gross profit................................................. 41,293 31,636
--------- ---------
Operating Expenses:
Selling, warehouse, general and
administrative expenses............................... 29,284 20,735
Non-cash stock based compensation............................ 1,130 1,430
Depreciation and amortization expense........................ 959 198
--------- ---------
Total operating expenses................................. 31,373 22,363
Other income................................................. (1,054) (877)
Amortization of excess revalued net assets acquired
over equity............................................ (3,429) (3,429)
--------- ---------
Total operating expenses, net................................ 26,890 18,057
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Operating income............................................. 14,403 13,579
Interest and Financing Costs.................................... 1,661 680
Other Expenses.................................................. 900 --
--------- ---------
Income before taxes.......................................... 11,842 12,899
Provision for Taxes............................................. 3,451 3,983
--------- ---------
Net Income .................................................. $ 8,391 $8,916
Net Income per Share - Basic................................. $ 1.42 $ 1.33
========= =========
- Diluted............................... $ 1.36 $ 1.26
========= =========
Weighted Average Shares Outstanding - Basic..................... 5,900,083 6,718,960
========= =========
- Diluted.................. 6,148,149 7,065,228
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated financial statements.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
OCTOBER 2, OCTOBER 3,
1999 1998
----------- -----------
<S> <C> <C>
Net Sales...................................................... $ 58,622 $ 48,789
Cost of Sales.................................................. 43,856 36,640
--------- ---------
Gross profit................................................. 14,766 12,149
--------- ---------
Operating Expenses:
Selling, warehouse, general and
administrative expenses............................. 9,900 7,084
Non-cash stock based compensation............................ 500 342
Depreciation and amortization expense........................ 364 128
--------- ---------
Total operating expenses................................ 10,764 7,554
Other income................................................. (382) (302)
Amortization of excess revalued net assets acquired
over equity............................................. (1,143) ( 1,143)
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Total operating expenses, net................................ 9,239 6,109
--------- ---------
Operating income............................................. 5,527 6,040
Interest and Financing Costs.................................... 657 360
Other Expenses.................................................. 366 --
--------- ---------
Income before taxes.......................................... 4,504 5,680
Provision for Taxes............................................. 1,362 1,911
--------- ---------
Net Income .................................................. $3,142 $3,769
========= =========
Net Income per Share - Basic................................. $ 0.56 $ 0.58
========= =========
- Diluted............................... $ 0.52 $ 0.55
========= =========
Weighted Average Shares Outstanding - Basic..................... 5,617,973 6,552,033
========= =========
- Diluted.................. 6,008,999 6,842,790
========= =========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
OCTOBER 2, OCTOBER 3,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 8,391 $ 8,916
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization................................... 1,057 207
Amortization of excess net assets acquired over equity.......... (3,429) (3,429)
Provision for possible losses on accounts receivable............ (6) (25)
Provision for stock based compensation and stock option grants.. 1,130 1,430
Changes in assets and liabilities:
Restricted short term investment.............................. -- 2,989
Accounts receivable........................................... (24,055) (23,071)
Inventories................................................... 9,946 1,585
Prepaid expenses and other current assets..................... (125) (259)
Deferred charges and other assets............................. (1,738) --
Accounts payable, accrued expenses and other current
liabilities............................................... (27) (2,721)
Income taxes payable.......................................... 889 2,715
Deferred liabilities.......................................... 300 223
Changes due to reorganization activities:
Use of pre-consummation deferred taxes........................ 839 1,297
------- ------
Total adjustments........................................... (15,219) (19,059)
------- ------
Net cash used in operating activities....................... (6,828) (10,143)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................................. (1,870) (1,503)
Net cash paid for acquisition..................................... (97) --
Treasury stock repurchases........................................ (7,000) (4,623)
Merger costs...................................................... (775) --
------- ------
Net cash used in investing activities....................... (9,742) (6,126)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.......................................... 53,084 1,494
Repayment of borrowings ......................................... (40,457) --
Notes payable..................................................... 4,374 --
Repayment of capital leases ...................................... (35) (134)
Payment of obligations under Plan of Reorganization............... (305) (817)
------- ------
Net cash provided by financing activities.................... 16,661 543
------- ------
Net increase (decrease) in cash and cash equivalents.............. 91 (15,726)
Cash and cash equivalents, at beginning of period................. 4,213 19,813
------- ------
Cash and cash equivalents, at end of period....................... $ 4,304 $ 4,087
======= ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The consolidated financial statements included herein have been
prepared by The Leslie Fay Company, Inc. and subsidiaries (The Leslie Fay
Company, Inc. being sometimes individually referred to, and together with its
subsidiaries collectively referred to, as the "Company" as the context may
require), pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from this report, as is
permitted by such rules and regulations; however, the Company believes that the
disclosures are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the Fiscal Year ended January 2, 1999
(the "1998 Form 10-K"). Interim taxes were provided based on the Company's
estimated effective tax rate for the year.
In the opinion of management, the information furnished reflects all
adjustments, all of which are of a normal recurring nature, necessary for a fair
presentation of the results for the reported interim periods. Results of
operations for interim periods are not necessarily indicative of results for the
full year, and the seasonality of the business may make projections of full year
results based on interim periods unreasonable.
2. RECENT DEVELOPMENTS:
On August 25, 1999, following the approval of more than two-thirds of
the shareholders of the Company, the Company completed a merger transaction with
an affiliate of Three Cities Research, Inc. In connection with the merger,
holders of common stock of the Company had the right to elect to receive cash
for their shares. The holders of 2,111,966 shares of the Company's common stock
received $7 in cash per share for their shares. Three Cities provided $7,783,762
in return for 1,111,966 shares of common stock of the Company. The remaining
1,000,000 shares were returned to treasury. The approximately $7 million of cash
required of the Company to consummate the cash election was financed though a $5
million, five year note, and through additional borrowings under the Company's
credit line.
The merger transaction also affected a modification of the Certificate
of Incorporation of the Company that changed certain provisions regarding the
approval of certain business combination transactions.
The Company also amended its credit agreement with CIT to approve the
merger transaction and to add a $5 million, five-year term note payable, the
proceeds of which substantially paid for the Company's $7 million cash
requirement for the stock repurchase. The amendment also modified financial
covenants, established a dividend or stock re-purchase "basket" (See Note 4.),
and extended the credit agreement through June 2, 2004.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
3. INVENTORIES:
Inventories consist of the following:
(Unaudited)
October 2, January 2,
1999 1999
---------- ----------
(In thousands)
Raw materials $15,692 $10,763
Work in process 3,562 2,613
Finished goods 9,427 25,251
------ ------
Total inventories $28,681 $38,627
====== ======
4. DEBT:
On June 2, 1997, in preparation for the consummation of the Amended
Joint Plan of Reorganization ("the Plan"), a wholly-owned subsidiary of the
Company entered into a two-year financing agreement (the "CIT Credit Agreement")
with CIT which was amended on August 25, 1999 to extend the agreement through
June 2, 2004 to provide direct borrowings and to issue letters of credit on the
Company's behalf. Direct borrowings bear interest at prime minus .25% (8% at
October 2, 1999) and the CIT Credit Agreement requires a fee, payable monthly,
on average outstanding letters of credit at a rate of 2% annually. The Company
had a net borrowing availability under the CIT Credit Agreement of $19,404,000
on October 2, 1999 and peak borrowing during the thirty-nine weeks ended October
2, 1999 was $16,157,000. There was $12,955,000 in direct borrowings outstanding
under the CIT Credit Agreement and approximately $9,641,000 was committed under
unexpired letters of credit as of October 2, 1999. Additionally, the Company
borrowed, through a five year term note payable, $5,000,000 at an interest rate
of prime plus 200 basis points (10.25% at October 2, 1999) which was used to
repurchase the Company's common stock. (See Note 2.).
The CIT Credit Agreement has been modified five times through August
25, 1999, to adjust for changes relating to the Company's consolidated balance
sheet as it exited from bankruptcy, reflecting associated "fresh start"
accounting adjustments, increasing the level of capital expenditures to support
the Company's growth and Year 2000 requirements, allowing the acquisition of
certain assets of The Warren Apparel Group Ltd., permitting the Company's stock
buy-back program, extending the CIT Credit Agreement, increasing the Company's
credit line, reducing borrowing costs, and allowing the early termination of the
CIT Credit Agreement at the option of the Company. Key modifications include:
|X| CIT approval for the merger transaction as referenced in Note 2.
|X| The committed credit line has been increased to $42,000,000 from
$30,000,000. The sub-limit on letters of credit has also been increased
from $20,000,000 to $25,000,000. The limit on inventory based collateral
has been raised from $12,000,000 to $20,000,000 and will increase by
$1,000,000 automatically each fiscal year.
|X| The interest rate on direct borrowings has been reduced from prime plus 100
basis points to prime less 25 basis points.
-8-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
|X| The Company may pay dividends or repurchase stock as long as the amount
paid after August 25, 1999 does not exceed, in the aggregate, the sum of
$2,000,000 plus one half of the net income exceeding $1,000,000 on a
cumulative basis for the period commencing with the fiscal quarter ending
October 2, 1999 and ending with the fiscal quarter preceding the date of
the proposed dividend or stock repurchase. Borrowing availability before
and after the making of any such dividend payment or stock repurchase can
not be less than $5,000,000.
|X| The Company issued a five-year term note payable in the amount of
$5,000,000 at an interest of prime plus 200 basis points.
|X| Covenants related to capital expenditures, minimum ratio of consolidated
current assets to consolidated current liabilities, minimum consolidated
tangible net worth and minimum consolidated working capital have been set
at levels appropriate for normal business conditions and the Company's
existing stock repurchase program.
|X| The Company may, with CIT's approval, acquire new businesses.
|X| The Company may terminate the CIT Credit Agreement early.
As collateral for borrowing under the CIT Credit Agreement, the Company
has granted to CIT a security interest in substantially all of its assets. In
addition, the CIT Credit Agreement contains certain restrictive covenants,
including limitations on the incurrence of additional liens and indebtedness.
The Company is currently in compliance with or has obtained written waivers for
all requirements contained in the CIT Credit Agreement.
Partial payment for the assets acquired from the Warren Apparel Group,
Ltd. was made in the form of a short term note payable, of which the final
payment of $208,000 was paid on October 27,1999,
5. INCOME TAXES:
The provision for federal, state and local income taxes is $3,451,000
and $3,983,000 for the thirty-nine weeks ended October 2, 1999 and October 3,
1998, respectively and $1,362,000 and $1,911,000 for the thirteen weeks ended
October 2, 1999 and October 3, 1998, respectively. Federal and state income
taxes are partially offset by the utilization of pre-consummation net operating
loss carryovers. The utilization of pre-consummation net operating loss
carryovers for federal income tax purposes is limited to approximately
$1,500,000 in 1999.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
6. COMMITMENTS AND CONTINGENCIES:
As noted in the Company's 1998 Form 10-K, the Company and several of
its subsidiaries filed voluntary petitions in the Bankruptcy Court under Chapter
11 of the Bankruptcy Code in April 1993. By an order dated April 21, 1997 (the
"Confirmation Order"), the Bankruptcy Court confirmed the Plan. The Plan was
consummated on June 4, 1997. Certain alleged creditors who asserted age and
other discrimination claims against the Company and whose claims were expunged
(the "Claimants") pursuant to an order of the Bankruptcy Court (see below)
appealed the Confirmation Order to the United States District Court for the
Southern District of New York. The Company moved to dismiss the appeal from the
Confirmation Order and the motion was granted and the appeal was dismissed. An
appeal to the United States Court of Appeals for the Second Circuit from the
order dismissing the appeal taken by the Claimants subsequently was withdrawn,
without prejudice, and may be refiled in the future. In addition, the Claimants
and two other persons commenced a separate adversary proceeding in the
Bankruptcy Court to revoke the Confirmation Order. The Company has moved to
dismiss the adversary proceeding to revoke the Confirmation Order and that
motion has been fully briefed, but has not yet been argued to the Bankruptcy
Court.
The Claimants, who are former employees of the Company and who were
discharged prior to the filing of the Chapter 11 cases, asserted age and other
discrimination claims, including punitive damage claims against the Company in
the approximate aggregate sum of $80 million. Following a trial on the merits,
the Bankruptcy Court expunged and dismissed those claims in their entirety. The
Claimants appealed that decision to the United States District Court for the
Southern District of New York, and on July 17, 1998, that Court affirmed the
decision of the Bankruptcy Court. The Claimants took a further appeal to the
United States Court of Appeals for the Second Circuit, which affirmed the
decision of the United States District Court in a summary order dated June 28,
1999. On September 27, 1999, the Claimants filed a petition for certiorari
review by the United States Supreme Court. The Company has been advised that it
is very unlikely that the Supreme Court will grant the petition for review of
the Second Circuit decision. The Company's response to the Claimants' petition
is due by November 29, 1999.
Five of the Claimants in the above-described appeal commenced an action
alleging employment discrimination against certain former officers and directors
of the Company in the United States District Court for the Southern District of
New York. The Court dismissed all of the causes of action arising under federal
and state statutes, and the only remaining claims are those arising under the
New York City Human Rights Law. Discovery is complete and it is expected that a
summary judgement motion will be filed by the defending officers and directors
in the near future, following the resolution of the current petition pending
before the Supreme Court.
In addition, the Company is involved in the following legal proceedings
of significance:
In February 1993, the Securities and Exchange Commission obtained an
order directing a private investigation of the Company in connection with, among
other things, the filing by the Company of annual and other reports that may
have contained misstatements, and the purported failure of the Company to
maintain books and records that accurately reflected its financial condition and
operating results. To the Company's knowledge, this investigation has been
dormant for several years.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
In February 1993, the United States Attorney for the Middle District of
Pennsylvania issued a Grand Jury Subpoena seeking the production of documents as
a result of the Company's announcement of accounting irregularities. In 1994,
Donald F. Kenia, former Controller of the Company, was indicted by a federal
grand jury in the Middle District of Pennsylvania and pleaded guilty to the
crime of securities fraud in connection with the accounting irregularities. On
or about October 29, 1996, Paul F. Polishan, former Senior Vice President and
Chief Financial Officer of the Company, was indicted by the federal grand jury
in the Middle District of Pennsylvania for actions relating to the accounting
irregularities. The trial of the case against Paul F. Polishan has been
scheduled for March 2000.
In March 1993, a stockholder derivative action entitled "Isidore
Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v. John J.
Pomerantz et al." was instituted in the Supreme Court of the State of New York,
County of New York, against certain officers and directors of the Company and
its then auditors. This complaint alleges that the defendants knew or should
have known material facts relating to the sales and earnings of the Company
which they failed to disclose. The time to answer, move or otherwise respond to
the complaint has not yet expired. The plaintiff seeks an unspecified amount of
monetary damages, together with interest thereon, and costs and expenses
incurred in the action, including reasonable attorneys' and experts' fees. The
Company cannot presently determine the ultimate outcome of this litigation, but
believes that it should not have any unfavorable impact on its financial
statements. Pursuant to the Plan, a Derivative Action Board, comprised of three
persons or entities nominated by the Creditors' Committee and appointed by the
Bankruptcy Court, is the only entity authorized to prosecute, compromise and
settle or discontinue the derivative action.
7. STOCKHOLDERS' EQUITY:
At June 4, 1997, 6,800,000 shares, adjusted retroactively for a two for
one stock split effected on July 1,1998, were issued and outstanding and were
being held by the plan administrator in trust. In July 1997, 5,372,000 (79%) of
the shares were distributed. During the period from February 15, 1999 through
March 5, 1999, approximately 1,250,000 (88%) of the remaining shares were
distributed. Of the remaining shares, 140,660 were exchanged for cash in the
merger described in Note 2. The remaining shares are being held back by the plan
administrator until the final disputed claims are settled before the Bankruptcy
Court.
8. ACCOUNTING FOR STOCK OPTION COMPENSATION:
Under the provisions of Statement of Financial Accounting Standards
("SFAS") No.123, "Accounting for Stock Based Compensation," the Company has
recorded $1,010,000 and $1,400,000 of non-cash stock based compensation expense
for the thirty-nine weeks ended October 2, 1999 and October 3, 1998,
respectively and $417,000 and $320,000 for the thirteen weeks ended October 2,
1999 and October 3, 1998, respectively. These amounts were offset as adjustments
to Capital in excess of par value in the Consolidated Balance Sheets.
-11-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
9. NET INCOME PER SHARE:
For the thirty-nine weeks ended October 2, 1999 and October 3, 1998,
the basic weighted average common shares outstanding was 5,900,083 and 6,718,960
respectively, and the weighted average shares outstanding assuming dilution was
6,148,149 and 7,065,228 respectively. The difference of 248,066 and 346,268,
respectively, represents the incremental dilution of shares upon exercise of
dilutive stock options.
-12-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(A) RESULTS OF OPERATIONS
THIRTY-NINE WEEKS ENDED OCTOBER 2, 1999 AS COMPARED TO
THIRTY-NINE WEEKS ENDED OCTOBER 3, 1998
The Company recorded net sales of $158,216,000 for the thirty-nine
weeks ended October 2, 1999, compared with $122,723,000 for the thirty-nine
weeks ended October 3, 1998, a net increase of $35,493,000 or 28.9%. The Dress
product line's net sales, excluding $34,635,000 generated by the recently
acquired Warren brands and the launch of the Leslie Fay Evenings brand,
increased $2,751,000 or 3.6%. Net sales for the Sportswear product line
decreased by $1,893,000 or 4.1%
Gross profit was $41,293,000 and 26.1% of net sales compared with
$31,636,000 and 25.8% for the thirty-nine weeks ended October 2, 1999 and
October 3, 1998, respectively. The gross profit from the Dress line, net of
$11,324,000 generated by the recently acquired Warren brands and the launch of
the Leslie Fay Evening brand, rose $689,000 while the percent to net sales
remained constant at 26.1%. The gross profit produced by the Sportswear line for
the thirty-nine weeks ended October 2, 1999 decreased by $2,376,000 and the
percent to net sales decreased to 21.0% from 25.2% for the comparable period
ended October 3, 1998. The decreased gross profit as a percentage of net sales
resulted from additional markdowns to sell inventory.
SG&A expenses were $29,284,000 and 18.5% of net sales and $20,735,000
and 16.9% of net sales for the thirty-nine weeks ended October 2, 1999 and
October 3, 1998, respectively. The expense increase of $8,549,000 was caused
mainly by the additional operating expenses related to the Warren brands, which
have a higher expense ratio than the other operating brands in the Company,
increased advertising expenses and additional rental costs incurred to extend
the Company's lease for showroom and office space in New York.
Non-cash stock based compensation for stock options and outside
director compensation that was granted after the Company's emergence from
bankruptcy for the thirty-nine weeks ended October 2, 1999 and October 3, 1998
was $1,130,000 and $1,430,000, respectively. The current year's expense includes
one time only expenses relating to the early vesting of middle management stock
options as a result of the merger transaction discussed in Note 2 . The prior
year's expense included additional costs that resulted from stock option changes
approved at the annual stockholders meeting.
Other income was $1,054,000 and $877,000 for the thirty-nine weeks
ended October 2, 1999 and October 3, 1998, respectively. The increase resulted
from additional licensing contracts under the "Leslie Fay" brand name entered
into during 1998.
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<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Depreciation and amortization expense for the thirty-nine weeks ended
October 2, 1999 and October 3, 1998, respectively, was $959,000 and $198,000.
The increase was due to the acquisition of fixed assets since the Company's June
4, 1997 emergence from bankruptcy as well as the excess of purchase price over
net assets acquired from The Warren Apparel Group Ltd. on October 27, 1998. In
addition, the Company recognized income of $3,429,000 for both periods from
amortization of excess revalued net assets acquired over equity under fresh
start reporting.
Interest and financing costs were $1,661,000 and $680,000 for the
thirty-nine weeks ended October 2, 1999 and October 3, 1998, respectively. The
additional interest was generated as a result of higher borrowings during the
thirty-nine weeks ended October 2, 1999, which were invested in building the
Warren brands' working capital as well as the buy back of the Company's shares
in connection with the merger with an affiliate of Three Cities Research, Inc.
Also, the Company incurred interest expense during the period ended October 2,
1999 as a result of the borrowing of $5,000,000 through a five year term note
payable (See Note 4). The financing fees under the new CIT Credit Agreement were
partially offset by income earned on the cash invested for the thirty-nine weeks
ended October 2, 1999 and October 3, 1998.
Other expenses of $900,000 were recorded during the thirty-nine weeks
ended October 2, 1999 to provide for non-operating legal fees incurred as a
result of the merger transaction discussed in Note 2.
The provision for federal, state and local income taxes was $3,451,000
and $3,983,000 for the thirty-nine weeks ended October 2, 1999 and October 3,
1998, respectively.
THIRTEEN WEEKS ENDED OCTOBER 2, 1999 AS COMPARED TO
THIRTEEN WEEKS ENDED OCTOBER 3, 1998
The Company recorded net sales of $58,622,000 for the thirteen weeks
ended October 2, 1999, compared with $48,789,000 for the thirteen weeks ended
October 3, 1998, a net increase of $9,833,000 and 20.2%. The Dress product
line's net sales, excluding $14,524,000 generated by the recently acquired
Warren brands and the launch of the Leslie Fay Evenings brand, decreased
$1,083,000 and 4.5% as a result of earlier shipment of fall season product in
the second quarter as well as receipt of order confirmations too late to ship in
the period. Net sales for the Sportswear product line decreased by $3,608,000
and 14.7% as a result of decreased volume and additional markdowns required to
sell inventory.
Gross profit was $14,766,000 and 25.2% of net sales compared with
$12,149,000 and 24.9% for the thirteen weeks ended October 2, 1999 and October
3, 1998, respectively. The gross profit from the Dress line, net of $4,932,000
generated by the recently acquired Warren brands and the launch of the Leslie
Fay Evenings brand, fell $237,000 and the percentage of net sales increased to
23.5% from 23.4%. The gross profit produced by the Sportswear line for the
thirteen weeks ended October 2, 1999 decreased by $2,078,000 and the percentage
of net sales decreased to 21.0% from 26.4% for the comparable period ended
October 3, 1998. The decreased gross profit dollars resulted from both a
decreased volume and the additional markdowns required to sell inventory.
-14-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
SG&A expenses were $9,900,000 and 16.9% of net sales and $7,084,000 and
14.5% of net sales for the thirteen weeks ended October 2, 1999 and October 3,
1998, respectively. The expense increase of $2,816,000 was caused mainly by the
additional operating expenses related to the Warren brands, which have a higher
expense ratio than the other operating brands in the Company and additional
rental costs incurred to extend the Company's lease for showroom and office
space in New York.
Non-cash stock based compensation for stock options and outside
director compensation that was granted after the Company's emergence from
bankruptcy for the thirteen weeks ended October 2, 1999 and October 3, 1998 was
$500,000 and $342,000, respectively. The current year's expense includes
expenses relating to the early vesting of middle management stock options as a
result of the merger transaction discussed in Note 2 .
Other income was $382,000 and $302,000 for the thirteen weeks ended
October 2, 1999 and October 3, 1998, respectively.
Depreciation and amortization expense for the thirteen weeks ended
October 2, 1999 and October 3, 1998, respectively, was $364,000 and $128,000.
The increase was due to the acquisition of additional fixed assets since the
Company's June 4, 1997 emergence from bankruptcy as well as the excess of
purchase price over net assets acquired from The Warren Apparel Group Ltd. on
October 27, 1998. In addition, the Company recognized income of $1,143,000 for
both periods from amortization of excess revalued net assets acquired over
equity under fresh start reporting.
Interest and financing costs were $657,000 and $360,000 for the
thirteen weeks ended October 2, 1999 and October 3, 1998, respectively. The
additional interest was generated as a result of higher borrowings during the
thirteen weeks ended October 2, 1999, which were invested in building the Warren
brands' working capital. Also, the Company incurred interest expense during the
period ended October 2, 1999 as a result of the borrowing of $5,000,000 through
a five year term note payable (See Note 4). The financing fees under the new CIT
Credit Agreement were partially offset by income earned on the cash invested for
the thirteen weeks ended October 2, 1999 and October 3, 1998.
Other expenses of $366,000 were recorded during the thirteen weeks
ended October 2, 1999 to provide for non-operating legal fees incurred as a
result of the merger transaction discussed in Note 2. .
The provision for federal, state and local income taxes was $1,362,000
and $1,911,000 for the thirteen weeks ended October 2, 1999 and October 3, 1998,
respectively.
(B) LIQUIDITY AND CAPITAL RESOURCES
The CIT Credit Agreement provides a working capital facility
commitment of $42,000,000, including a $25,000,000 sublimit on letters of
credit. As of October 2, 1999 the Company was utilizing approximately $9,641,000
under the CIT Credit Agreement for letters of credit, and there was $12,955,000
in outstanding cash borrowings. The Company had a net borrowing availability
under the CIT Credit Agreement of $19,404,000 on October 2, 1999 and peak
borrowing during the thirty-nine weeks ended October 2, 1999 was $16,157,000.
-15-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
At October 2, 1999, the Company's cash and cash equivalents amounted to
$4,304,000 of which $3,572,000 is restricted for payment of the remaining
administrative claims as defined in the Plan of Reorganization. Working capital
increased $1,780,000 to $37,358,000 for the thirty-nine weeks ended October 2,
1999. The changes in the components of working capital were: an increase in
cash, cash equivalents and short term investments of $91,000; an increase in net
accounts receivable of $24,061,000; a decrease in inventories of $9,946,000; an
increase in prepaid expenses and other current assets of $88,000 and an increase
of $12,514,000 in total current liabilities. Accounts receivable increased due
to the additional volume generated by the recently acquired Warren brands and
the historically high shipment of Fall season product at the end of the period.
The high volume of Fall shipments contributed to the decrease in inventory. The
renewal of the Company's annual insurance policies during the second quarter
resulted in the increase in prepaid expenses. Total current liabilities
increased as a result of additional short term borrowings of $12,626,000,
increased current portion of notes payable of $125,000, decreased operating
accounts payable and other accrued liabilities of $1,251,000 resulting mostly
from the lower inventory levels held, offset by additional income tax
liabilities of $889,000 and accrued merger costs of $125,000.
Although the Company's results of operations indicated net income of
$8,391,000 for the thirty-nine weeks ended October 2, 1999, these results are
not indicative of results for an entire year.
Capital expenditures were $1,870,000 for the thirty-nine weeks ended
October 2, 1999. Capital expenditures are expected to be less than $3,000,000
for fiscal year 1999. The anticipated capital expenditures for the remainder of
the year are primarily related to improvements in management information and
distribution systems as well as fixturing the Company's in-store shops that are
planned to be opened in 1999. The Company believes that its financing
arrangements and anticipated level of internally generated funds will be
sufficient to finance its capital spending during the remainder of 1999.
The Company, as part of the merger discussed in Note 2 , repurchased
1,000,000 shares of its common stock for $7.00 per share. The Company financed
this purchase by a $5,000,000 five-year term note payable and an additional
$2,000,000 draw on its line of credit.
The Company may pay cash dividends or repurchase its stock under the
CIT Credit Agreement as long as those disbursements do not cause the Company to
be in violation of the restrictive covenants, there remains no less than
$5,000,000 of unused borrowing capacity and the cumulative stock repurchase or
distribution of dividends does not exceed the dividend and stock repurchase
basket described in Note 4. At the end of the fiscal quarter ended October 2,
1999 the Company may borrow up to $3,071,000 for stock repurchase or dividend
distribution. The Company has no plans to pay cash dividends in the foreseeable
future.
The Company is dependent on a number of automated systems to
communicate with its customers and suppliers, to efficiently design,
manufacture, import and distribute its products, as well as to plan and manage
the overall business. The Company recognizes the critical importance of
maintaining the proper functioning of its systems.
-16-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
In the fourth quarter of 1997, the Company began a review of its
systems and technology to address all business requirements, including Year 2000
compliance. This review is complete and a plan has been developed and
implemented to meet these needs. Overall, the plan identifies numerous changes
required in the Company's systems (both hardware and software) as well as
sensitive operating equipment to make them Year 2000 compliant. To maintain
timely oversight of the implementation of this plan, the Company's Chief
Financial Officer reports regularly to the Audit Committee of the Company's
Board of Directors.
Certain of these changes were implemented in 1998; the others have been
implemented in 1999 at an estimated total cost of approximately $1,900,000, plus
the utilization of internal staff and other resources both during these
implementations and in the future. On May 4, 1998, the Company implemented the
first phase of its plan by placing in operation a new purchase order management
and invoicing system. Through May 1, 1999, the Company implemented the second
and third phases of its plan by placing in operation Year 2000 compliant
versions of its accounts payable, accounts receivable, general ledger and EDI
translation systems. As of October 2, 1999, the Company has completed the
installation of Year 2000 compliant versions of its software and operating
equipment. In addition, the Company is in the process of testing these systems
to confirm the accuracy of their Year 2000 certifications.
The Company is also dependent on the efforts of its customers,
suppliers and software vendors. The Company's upgrade of its electronic data
interchange software will need to be tested with the Company's customers to
confirm proper functioning. The Company has contacted its major customers and
suppliers and is cooperating with them to assure Year 2000 readiness. As part of
this effort, the Company has requested that its customers and suppliers complete
questionnaires detailing their assessment of their Year 2000 compliance. The
Company's customers and suppliers are also required to implement projects to
make their systems and communications Year 2000 compliant. Failure to complete
their efforts in a timely way could disrupt the Company's operations including
the ability to receive and ship its products as well as to invoice its
customers. Finally, the Company's plan is based upon the representations as to
Year 2000 compliance of the vendors that market the software packages selected
by the Company. There is no guarantee that these new systems will be compliant
under all the circumstances and volume stresses that may actually be required by
the Company's operations through Year 2000.
In common with other marketers and distributors of apparel products,
the Company believes that the most reasonable worst case scenario may be the
effect caused by the failures of third parties and other entities with which the
Company has no direct involvement, including failures by governmental entities.
As it involves its own suppliers and customers, the Company has contingency
plans that include manual processing and the modification of receiving dates and
has requested the modification of shipment dates to its customers. More specific
contingency plans will be developed as more information becomes available.
-17-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
Certain statements contained in this Form 10-Q, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the effects of future events on the Company's financial performance; the risk
that the Company may not be able to finance its planned growth; risks related to
the industry in which the Company competes, including potential adverse impact
of external factors such as inflation, consumer confidence, unemployment rates
and consumer tastes and preferences; and the risk of potential increase in
market interest rates from current rates. Given these uncertainties, current and
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
None.
-18-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning legal proceedings at the end of the third
quarter of 1999, reference is made to Note 6 of the Notes to Consolidated
Financial Statements contained herein.
No other legal proceedings were terminated during the third quarter of
1999 or thereafter, other than ordinary routine litigation incidental to the
business of the Company.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) Date of Annual Meeting of Stockholders - August 24, 1999
(b) Approval of the adoption of the Agreement and Plan of Merger among the
Company, Three Cities Offshore II C.V., Three Cities Fund II, LLP and TCR
Acquisition Sub Co.
STOCKHOLDER VOTES
For: 4,715,466
Against: 12,722
Abstentions: 405
Broker Non-Votes: 973,536
(c) The election of eight directors
STOCKHOLDER VOTES
FOR WITHHELD
Clifford B. Cohn 5,684,181 17,948
Mark Kaufman 5,684,181 17,948
Bernard Olsoff 5,684,523 17,606
John J. Pomerantz 5,684,523 17,606
Robert L. Sind 5,684,523 17,606
H. Whitney Wagner 5,684,523 17,606
John A. Ward 5,684,523 17,606
Thomas G. Weld 5,684,523 17,606
-19-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
(d) Ratification of the action of the Board of Directors in appointing Arthur
Andersen LLP as independent accountants of the Company.
STOCKHOLDER VOTES
For: 5,693,798
Against: 6
Abstentions: 8,325
Broker Non-Votes: __
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibits are set forth on the "Index to Exhibits" on
page E-1 hereof.
b) Reports on Form 8-K
None
-20-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 16, 1999 THE LESLIE FAY COMPANY, INC.
(Company)
By: /s/ Warren T. Wishart
___________________________________
Warren T. Wishart
Senior Vice President - Administration
and Finance, Chief Financial Officer
and Treasurer
-21-
<PAGE>
THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
4.1 Fourth Amendment dated as of March 29, 1999 to the Revolving Credit
Agreement between Leslie Fay Marketing, Inc. ("LFM") and The CIT
Group/Commercial Services, Inc. ("CIT")
4.2 Fifth Amendment dated as of August 25, 1999 to the Revolving Credit
Agreement between LFM and CIT
10.1 Amendment No. 1 dated as of January 1999 to Employment Agreement dated
as of January 4, 1998 between the registrant and John J. Pomerantz
10.2 Amendment No. 1 dated as of January 1999 to Employment Agreement dated
as of January 4, 1998 between the registrant and John Ward
10.3 Amendment No. 1 dated as of January 1999 to Employment Agreement dated
as of January 4, 1998 between the registrant and Dominick Felicetti
10.4 Amendment No. 1 dated as of January 1999 to Employment Agreement dated
as of January 4, 1998 between the registrant and Warren T. Wishart
27 Financial Data Schedule.
EXHIBIT 4.1
EXECUTION
COPY
FOURTH AMENDMENT dated as of March 31, 1999 (the "Amendment") to REVOLVING
CREDIT AGREEMENT dated as of June 2, 1997 (the "Credit Agreement") between
LESLIE FAY MARKETING, INC. (the "Borrower") and THE CIT GROUP/COMMERCIAL
SERVICES, INC. ("CIT"). Terms which are capitalized in this Amendment and not
otherwise defined shall have the meanings ascribed to them in the Credit
Agreement.
WHEREAS, the Borrower has requested CIT's consent to the modification of certain
of the financial covenants contained in the Credit Agreement; and
WHEREAS, CIT has agreed to such modification of the Credit Agreement, on the
terms and subject to the fulfillment of the conditions contained in this
Amendment;
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION ONE - AMENDMENT. Upon the fulfillment of the conditions contained in
Section Two hereof, effective as of December 1, 1998, the Credit Agreement is
hereby amended to provide as follows:
(A) SECTION 10.17. MINIMUM RATIO OF CONSOLIDATED CURRENT ASSETS TO
CONSOLIDATED CURRENT LIABILITIES. Section 10.17 is deleted in its entirety and
the following is substituted in lieu thereof:
"10.17 Minimum Ratio of Consolidated Current Assets to Consolidated
Current Liabilities. The Borrower will not permit the ratio of the
Parent's Consolidated Current Assets to the Parent's Consolidated
Current Liabilities to be less than (a) 2.60 to 1.00 as of the end of
the second fiscal quarter of 1997, (b) 2.60 to 1.00 as of the end of
the third fiscal quarter of 1997, (c) 2.60 to 1.00 as of the end of the
fourth fiscal quarter of 1997, (d) 3.00 to 1.00 as of the end of the
first fiscal quarter of 1998, (e) 3.10 to 1.00 as of the end of the
second and third fiscal quarters of 1998, (f) 2.60 to 1.00 as of the
end of the fourth fiscal quarter of 1998 and (g) 2.80 to 1.00 as of the
end of each fiscal quarter thereafter, provided, however, that solely
for purposes of determining the Borrower's compliance with this
covenant, the calculation of the Parent's Consolidated Current
Liabilities, as of any date of determination, shall exclude the
aggregate principal amount of any Loans and Letter of Credit Exposure
outstanding as of such date, and provided further, that in the event
that (i) the ratio of the Parent's Consolidated Current Assets to its
Consolidated Current Liabilities for any referenced period is less than
the minimum ratio prescribed for such period, (ii) the Parent's failure
to maintain such ratio shall have been caused solely by the Parent's
payment of dividends on its capital stock or its repurchase of
<PAGE>
outstanding shares of such stock, (iii) the proceeds of a dividend on
the Borrower's capital stock, paid by it to the Parent, shall have
funded the payment or repurchase described in clause (ii) hereof and
(iv) the payment made by the Borrower described in clause (iii) hereof
shall have been made strictly in accordance with the terms of Section
10.06 of this Agreement, then, in such event, such failure to maintain
such ratio shall not be an Event of Default under this Agreement."
(B) SECTION 10.20. CAPITAL EXPENDITURES. Section 10.20 is deleted in
its entirety, and the following is substituted in lieu thereof:
"10.20 Capital Expenditures. The Borrower shall not make Capital
Expenditures in an amount greater than (a) $1.5 million in the
aggregate for the period from the Closing Date through January 3, 1998,
(b) $3,642,000 in the aggregate for the 1998 fiscal year and (c) $2.5
million in the aggregate for the 1999 fiscal year, and for each fiscal
year thereafter, provided, however, that if the aggregate amount of
Capital Expenditures actually made during any such fiscal year (or
lesser period, if applicable) shall be less than the limit with respect
thereto set forth above (such limit, without giving effort to any
increase therein pursuant to this proviso, the "base amount"), then the
amount of such short fall (the "rollover amount") may be added to the
amount of Capital Expenditures permitted to be made for the immediately
succeeding fiscal year, provided further that any Capital Expenditures
made during any fiscal year for which any rollover amount shall have
been so added shall be applied first, to the base amount for such year
and second, to the rollover amount added to such fiscal year."
SECTION TWO- CONDITIONS PRECEDENT. This Amendment shall become effective on the
date when all of the following conditions, the fulfillment of each of which is a
condition precedent to the effectiveness of this Amendment, shall have occurred:
(A) CIT shall have received a fully executed counterpart or original of
this Amendment;
(B) CIT shall have received a Certificate of the Secretary of the
Borrower relating to the adoption of the resolutions of the Board of Directors
of the Borrower, approving this Amendment;
(C) Upon the effectiveness of this Amendment, all representations and
warranties set forth in the Credit Agreement (except for such inducing
representations and warranties that were only required to be true and correct as
of a prior date) shall be true and correct in all material respects on and as of
the effective date hereof, and no Event of Default shall have occurred and be
continuing;
(D) No event or development shall have occurred since the date of
delivery to CIT of the most recent financial statements of the Parent and its
Subsidiaries which event or development has had or is reasonably likely to have
a Material Adverse Effect;
-2-
<PAGE>
(E) All corporate and legal proceedings and all documents and
instruments executed or delivered in connection with this Amendment shall be
satisfactory in form and substance to CIT and its counsel; and
(F) CIT shall have received such further agreements, consents,
instruments and documents as may be necessary or proper in the reasonable
opinion of CIT and its counsel to carry out the provisions and purposes of this
Amendment.
SECTION THREE-REPRESENTATIONS AND WARRANTIES. The Borrower represents
and warrants (which representations and warranties shall survive the execution
and delivery hereof) to CIT that:
(A) The Borrower has the corporate power, authority and legal right to
execute, deliver and perform this Amendment, and the instruments, agreements,
documents and transactions contemplated hereby, and has taken all actions
necessary to authorize the execution, delivery and performance of this
Amendment, and the instruments, agreements, documents and transactions
contemplated hereby;
(B) No consent of any Person (including, without limitation,
stockholders or creditors of the Borrower or creditors of the Parent, as the
case may be) other than CIT, and no consent, permit, approval or authorization
of, exemption by, notice or report to, or registration, filing or declaration
with (collectively a "Consent") any governmental authority, is required in
connection with the execution, delivery, performance, validity or enforceability
of this Amendment, and the instruments, agreements, documents and transactions
contemplated hereby;
(C) This Amendment has been duly executed and delivered on behalf of
the Borrower by its duly authorized officer, and constitutes the legal, valid
and binding obligation of the Borrower, enforceable in accordance with its
terms;
(D) The Borrower is not in default under any indenture, mortgage, deed
of trust, or other material agreement or material instrument to which it is a
party or by which it may be bound. Neither the execution and delivery of this
Amendment, nor the consummation of the transactions herein contemplated, nor
compliance with the provisions hereof will (i) violate any law or regulation
applicable to it, or (ii) cause a violation by the Borrower, of any order or
decree of any court or government instrumentality applicable to it, or (iii)
conflict with, or result in the breach of, or constitute a default under, any
indenture, mortgage, deed of trust, or other material agreement or material
instrument to which the Borrower is a party or by which it may be bound, or (iv)
result in the creation or imposition of any lien, charge, or encumbrance upon
any of the property of the Borrower, except in favor of CIT, to secure the
Obligations, or (v) violate any provision of the Certificate of Incorporation,
By-Laws or any capital stock provisions of the Borrower;
(E) No Event of Default has occurred and is continuing; and
-3-
<PAGE>
(F) Since the date of CIT's receipt of the financial statements of the
Parent and Subsidiaries on a consolidated and consolidating basis for the period
ending on November 28, 1998,
no change or event has occurred which has had or is reasonably likely to have a
Material Adverse Effect.
SECTION FOUR-GENERAL PROVISIONS.
(A) Except as herein expressly amended, the Credit Agreement and all
other agreements, documents, instruments and certificates executed in connection
therewith, are ratified and confirmed in all respects and shall remain in full
force and effect in accordance with their respective terms.
(B) All references in the Related Documents and Loan Documents to the
Credit Agreement shall mean the Credit Agreement as amended as of the effective
date hereof, and as amended hereby and as hereafter amended, supplemented or
modified from time to time. From and after the date hereof, all references in
the Credit Agreement to "this Agreement," "hereof," "herein," or similar terms,
shall mean and refer to the Credit Agreement as amended by this Amendment.
(C) This Amendment may be executed by the parties hereto individually
or in combination, in one or more counterparts, each of which shall be an
original and all of which shall constitute one and the same agreement.
(D) This Amendment shall be governed and controlled by the laws of the
State of New York without reference to its choice of law principles.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
LESLIE FAY MARKETING, INC.
/s/
By: _______________________________________
Name:
Title:
THE CIT GROUP/COMMERCIAL
SERVICES, INC.
/s/
By: _______________________________________
Name:
Title:
-4-
EXECUTION
COPY
FIFTH AMENDMENT dated as of August 25, 1999 (the "Amendment") to REVOLVING
CREDIT AGREEMENT dated as of June 2, 1997 (the "Credit Agreement") between
LESLIE FAY MARKETING, INC. (the "Borrower") and THE CIT GROUP/COMMERCIAL
SERVICES, INC. ("CIT"). Terms which are capitalized in this Amendment and not
otherwise defined shall have the meanings ascribed to them in the Credit
Agreement.
WHEREAS, the Borrower has requested CIT's consent to a series of transactions
pursuant to which, among other things, the Parent will purchase or redeem
approximately one million shares of its capital stock; and
WHEREAS, the Borrower has requested CIT to consider making a term loan to the
Borrower in the original principal amount of $5 million, the proceeds of which
would be distributed by the Borrower to the Parent and used by the Parent to
partially fund such purchase or redemption; and
WHEREAS, the Borrower has further requested CIT to consider extending the
Original Term and modifying certain financial covenants and other covenants
contained in the Credit Agreement; and
WHEREAS, CIT has agreed to make such term loan to the Borrower, to extend the
Original Term and to modify such covenants, on the terms and subject to the
fulfillment of the conditions contained in this Amendment;
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION ONE - AMENDMENT OF CREDIT AGREEMENT. Upon the fulfillment of the
conditions contained in Section Three hereof, effective as of August 25, 1999,
the Credit Agreement is hereby amended to provide as follows:
(A) SECTION 10.1. CERTAIN DEFINITIONS. The definitions of the terms
Borrowing Base, Credit Extension, Loan, Obligations and Related Documents or
Loan Documents are deleted in their entirety, the following are substituted in
lieu thereof, and the terms "Fifth Amendment Closing Date", "Inventory Subline",
"Redemption", "Term Loan", and "Term Note", and the definition thereof, are
added to Section 1.01 in the appropriate alphabetical order, as follows:
"Borrowing Base" shall mean, as of the Relevant Date, an
amount equal to the difference between:
(i) the sum of (A) 85% of the Net Amount of Eligible Accounts
Receivable, plus (B) the lesser of (1) the sum of (x) 50% of
the Book Value of Eligible Inventory and (y) 50% of the amount
of L/C Inventory, provided that the Inventory with respect
thereto is not otherwise included in the Borrowing Base and
(2) the amount
<PAGE>
of the Inventory Subline then in effect, plus (C) 100% of
the excess, if any, of the balance in the Funds-in-Use
Account over the debit balance in the Loan Account, as of
the opening of business on such date; and
(ii) such reserves as CIT, in its sole discretion exercised
reasonably, may deem appropriate.
"Credit Extension" shall mean (a) the making of any Loan by
CIT , (b) the making of the Term Loan by CIT or (c) the
issuance, or extension of the expiration date of, any Letter
of Credit which CIT assists the Borrower in opening or
establishing.
"Fifth Amendment Closing Date" shall mean the first date on
which each of the conditions set forth in Section Three of the
Fifth Amendment to the Revolving Credit Agreement, dated as of
August 25, 1999, shall have been satisfied.
"Inventory Subline" shall mean the sum of $20,000,000, which
amount shall increase automatically by $1,000,000 each fiscal
year, effective on the last day of each such year, commencing
with the fiscal year ending on January 1, 2000.
"Loan" or "Loans" shall mean any and all loan or loans made by
CIT to the Borrower under Section 2.01(a) of this Agreement.
"Obligations" shall mean all obligations, liabilities and
indebtedness of the Obligors to CIT incurred under or related
to this Agreement, the Note, the Term Note, the Factoring
Agreement or any other Related Document, the letter agreement
dated on or about the Closing Date among Bank Boston, N.A.,
Bank America Business Credit, Inc., Heller Financial, Inc.,
The Leslie Fay Companies, Inc. and CIT and all Ledger Debt,
whether such obligations, liabilities or indebtedness are
direct or indirect, secured or unsecured, joint or several,
absolute or contingent, due or to become due, whether for
payment or performance, now existing or hereafter arising,
including, without limitation, those which are described in
either of the following clauses (i) or (ii):
(i) All indebtedness, obligations (including Reimbursement
Obligations) and liabilities of any nature whatsoever, from
time to time arising under or in connection with or evidenced
or secured by this Agreement, the Note, the Term Note, the
Letters of Credit or any other Related Document, including but
not limited to the principal amount of the Term Loan and the
Loans outstanding, together with interest thereon, the amount
of the Letter of Credit Exposure, together with interest
thereon and all expenses, fees and indemnities hereunder or
under any other Related Document. Without limitation, such
amounts include the Term Loan and interest thereon, all Loans
and
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interest thereon and the amount of all Letter of Credit
Exposure whether or not the Term Loan or such Loans were made
or any Letters of Credit to which such Letter of Credit
Exposure relates were issued in compliance with the terms and
conditions hereof or in excess of CIT's obligation to lend and
arrange for the issuance of Letters of Credit hereunder.
Except as otherwise provided in the Factoring Agreement with
respect to Factor Risk Accounts (as defined in the Factoring
Agreement), if and to the extent any amounts in any account
(including the Loan Account, the Depository Accounts or
otherwise) constituting Collateral are applied to Obligations
hereunder, and CIT is subsequently obligated to return or
repay any such amounts to any Person for any reason, other
than as a direct result of CIT's gross negligence or willful
misconduct as determined by a final judgment of a court of
competent jurisdiction, the amount so returned or repaid shall
be deemed a Loan hereunder and shall constitute an Obligation.
(ii) All indebtedness, obligations and liabilities from time
to time arising under or in connection with any account from
time to time maintained by the Borrower with CIT, including
but not limited to all Reimbursement Obligations, service
charges and interest in connection with any overdrafts or
returned items from time to time arising in connection with
any such account, or arising under or in connection with any
investment services, cash management services or other
services from time to time performed by CIT pursuant to or in
connection with this Agreement or any other Related Document.
"Redemption" shall mean the election of certain shareholders
of the Parent to receive cash for some or all of the shares of
stock of the Parent held by such shareholders, pursuant to the
Agreement and Plan of Merger dated May 12, 1999 among Three
Cities Offshore II C.V., Three Cities Fund II, L.P., TCR
Acquisition Sub Co. and The Leslie Fay Company, Inc.
"Related Documents" or "Loan Documents" means this Agreement,
the Customer Terms Agreement, the Note, the Term Note, the
Security Agreement, the Trademark Agreement, each Guaranty,
the Stock Pledge Agreement, the Letters of Credit, each Letter
of Credit Application, the Confirmation Order, the Factoring
Agreement, the Factoring Documents, the other documents,
instruments and agreements referred to in Section 7.01 hereof,
and all other instruments, agreements and documents now
existing or hereafter entered into or in effect by the
Obligors or any other Person from time to time creating,
evidencing, directly or indirectly guaranteeing, or granting
CIT a Lien to secure, any obligations under or in connection
with this Agreement, the Note, the Term Note, the Security
Agreement, the Trademark Agreement, each
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Guaranty, the Stock Pledge Agreement, the Letters of Credit,
each Letter of Credit Application, the Confirmation Order, the
Factoring Agreement, the Factoring Documents or any other
Related Document, and all other instruments, agreements and
documents from time to time delivered in connection with or
otherwise relating to any Related Document.
"Term Loan" shall mean the term loan in the original principal
amount of $5,000,000 made by CIT to the Borrower on the Fifth
Amendment Closing Date.
"Term Note" shall mean the promissory note of the Borrower,
substantially in the form attached hereto as Exhibit A-1,
executed and delivered under this Agreement, as modified,
amended, supplemented or restated from time to time and any
promissory note or notes issued in exchange or replacement
thereof, including all extensions, renewals, refinancings or
refundings thereof in whole or part.
(B) SECTION 2.01. REVOLVING CREDIT LOANS. Section 2.01 is re-captioned
"Revolving Credit Loans and Term Loan", and a new subsection (c) of Section 2.01
is added as follows:
"(c) Term Loan. Subject to the terms and conditions and
relying upon the representations and warranties herein set
forth, on the Fifth Amendment Closing Date, CIT agrees to make
the Term Loan to the Borrower."
(C) SECTION 2.02. NOTE. Section 2.02 is re-captioned "Note and Term
Note", and the following sentences are added to the end of Section 2.02:
"The obligation of the Borrower to repay the unpaid principal
amount of the Term Loan made to it by CIT and to pay interest
thereon shall be evidenced in part by the Term Note, dated as
of the Fifth Amendment Closing Date with the blanks
appropriately filled in. The executed Term Note shall be
delivered by the Borrower to CIT on the Fifth Amendment
Closing Date."
(D) SECTION 2.03. MAKING OF LOANS. Section 2.03 is re-captioned "Making
of Loans and Term Loan", and the following sentence is added to the end of
subsection (a) of Section 2.03:
"On the Fifth Amendment Closing Date, CIT shall make the full
amount of the Term Loan available to the Borrower by
depositing the proceeds thereof in the Disbursement Account,
or at the Borrower's request, by wire transfer of same to the
bank accounts and in the amounts set forth in a duly executed
Notice of Borrowing."
(E) SECTION 2.04. MANDATORY PREPAYMENT; OPTIONAL PREPAYMENT; COMMITMENT
REDUCTION. Section 2.04 is amended by (i) deleting clause (ii) of subsection (a)
of Section 2.04
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in its entirety, (ii) deleting subsection (b) of Section 2.04 in its entirety,
(iii) substituting the following clause (ii) and subsection (b), respectively,
in lieu thereof, and (iv) adding a new subsection (e) to Section 2.04, as
follows:
"(ii) Disposition of Assets, etc. Without limiting any other
provision of this Agreement or any other Related Document
permitting or requiring prepayment of the Term Loan or the
Loans in whole or part, the Borrower shall prepay the Term
Loan in whole or in part, until paid in full, and then the
Loans in whole or in part, in each case without premium or
penalty, except as otherwise set forth in Section 5.03 (a)
(v), in an amount equal to 100% of the Net Sale Proceeds
constituting cash received by any Obligor from any sale,
lease, transfer or other disposition of any asset outside of
the ordinary course of the business of the Obligors, the
proceeds of any claim made under any insurance policy covering
any assets of any Obligor and the proceeds of any condemnation
or similar proceeding with respect to any real property of any
Obligor. Any prepayment required under this clause (ii) shall
be made on the first Business Day after the consummation of
such transfer, sale, disposition, settlement, issuance or
other event triggering a prepayment."
"(b) Optional Prepayment. Except as otherwise set forth in
Section 5.03 (a) (v), the Borrower may without penalty or
premium at any time or from time to time prepay, in whole or
in part, the Term Loan and any or all Loans then outstanding."
"(e) Application of Prepayments of Term Loan. All prepayments
of the Term Loan shall be applied against the scheduled
installments of principal thereof, in inverse order of
maturity."
(F) SECTION 2.05. INTEREST RATE. Section 2.05 is deleted in its
entirety and the following is substituted in lieu thereof:
"2.05. Interest Rate. The Term Loan, and each Loan, shall bear
interest on the principal amount thereof from time to time
outstanding for each day during each calendar month, until
paid, at a rate per annum for each such day equal to the Prime
Rate in effect on the last day of the previous month (the
"then applicable Prime Rate") (i) in the case of the Term
Loan, plus an interest rate margin of two percent (2%), and
(ii) in the case of the Loans, minus an interest rate margin
of one-quarter of one-percent (1/4 of 1%). "Prime Rate", as
used herein, shall mean the interest rate per annum publicly
announced from time to time by the Bank in New York, New York
as its Prime Rate. In the event of any change in the Prime
Rate, the rates of interest hereunder shall change, as of the
first day of the month following any change, so as to remain
(i) in the case of the Term Loan, two per cent (2%) above the
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then applicable Prime Rate, and (ii) in the case of the Loans,
one-quarter of one percent (1/4 of 1%) below the then
applicable Prime Rate. The Prime Rate is not intended to be
the lowest rate of interest charged by the Bank to its
borrowers."
(G) SECTION 2.06. INTEREST PAYMENT DATES. Section 2.06 is deleted
deleted in its entirety and the following is substituted in lieu thereof:
"2.06. Interest Payment Dates. The Borrower shall pay interest
on the unpaid principal amount of the Term Loan, from the date
the Term Loan is made until such principal amount shall be
paid in full, and on the unpaid principal amount of each Loan,
from the date of such Loan until such principal amount shall
be paid in full, which interest shall be payable monthly in
arrears on the first day of each month, commencing on the
first day of the month following the month in which the
Closing Date occurs, in the case of the Loans, and in the case
of the Term Loan, commencing on the first day of month
following the Fifth Amendment Closing Date. After maturity of
any principal amount of the Term Loan or any Loan (by
acceleration, at scheduled maturity or otherwise), interest on
such amount shall be due and payable on demand."
(H) SECTION 2.07. AMORTIZATION. Section 2.07 is deleted in its
entirety and the following is substituted in lieu thereof:
"2.07 Amortization. To the extent not due and payable earlier
pursuant to the terms of this Agreement, (a) the entire unpaid
principal amount of each of the Loans shall be due and payable
in full on the Maturity Date and (b) the principal balance of
the Term Loan shall be paid in equal and successive monthly
installments, based on an amortization schedule consisting of
sixty (60) months, each of which installments shall be due and
payable on the first day of the month, commencing on the
earlier to occur of (i) January 1, 2000 and (ii) the first day
of the sixth month after the month during which the Fifth
Amendment Closing Date shall occur, provided, however, that
the outstanding and unpaid principal balance of the Term Loan,
and all accrued and unpaid interest thereon, shall be due and
payable in full on the Maturity Date."
(I) SECTION 2.08. PAYMENTS. Section 2.08 is amended by deleting
subsections (a) and (b) thereof in their entirety, substituting the following in
lieu thereof, re-lettering subsection (e) thereof as subsection (f), and by
adding a new subsection (e) thereof as follows:
"2.08. Payments.
(a) Time, Place and Manner. Except with respect to optional
prepayments as provided in Section 2.04(b) hereof, all
payments and prepayments to be made in respect of principal,
interest, fees or other amounts due from the Borrower
hereunder, under the Note,
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the Term Note or any other Related Document shall be payable
at or before 12:00 Noon, New York City time, on the day when
due without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived. Such payments
shall be made to CIT in Dollars in funds immediately available
at its Office without setoff, counterclaim or other deduction
of any nature. The Borrower hereby authorizes CIT to, and CIT
may, from time to time, when due and payable, charge the Loan
Account with any interest, fees or expenses that are due and
payable under this Agreement or any Related Document. The
Borrower confirms that any charges which CIT may so make to
the Loan Account as herein provided will be made as an
accommodation to the Borrower and solely at CIT's discretion
and shall constitute a Loan to the Borrower. On the last day
of each month, CIT shall transfer and credit to the Loan
Account the amount reflected in the Funds-in-Use Account on
such day. Credit balances in the Loan Account may be
transferred to the Borrower at any time and from time to time.
CIT shall use reasonable efforts to provide the Borrower with
copies or other evidence of all charges to the Loan Account
promptly and within five Business Days of the date such
charges are made, provided that the failure to provide such
copies or such other evidence to the Borrower shall not
relieve the Borrower of any of its obligations under this
Agreement. Interest on the Term Loan, and on all Loans and all
fees that accrue on a per annum basis, shall be computed on
the basis of the actual number of days elapsed in the period
during which interest or such fee accrues and a year
consisting of 360 days. In computing interest on the Term Loan
and on any Loan, the date of the making of the Term Loan and
such Loan shall be included and the date of payment shall be
excluded."
(b) Interest Upon Events of Default. To the extent permitted
by law, after there shall have occurred and so long as there
is continuing an Event of Default pursuant to Section 11.01 of
this Agreement, all principal, interest, fees, indemnities or
any other obligations for the payment of money under this
Agreement, the Note, the Term Note or any other Related
Document (and including interest accrued under this Section
2.08(b)) shall bear interest for each day until paid (before
and after judgment), payable on demand, at two percent (2%) in
excess of the rate of interest otherwise in effect under this
Agreement and, if no interest rate is otherwise in effect, at
a rate per annum of three percent (3%), or five percent (5%),
in the case of the Term Note, above the Prime Rate for such
day (collectively, the "Default Rate"). CIT shall use
reasonable efforts to promptly provide the Borrower with
notice that interest is accruing at the Default Rate and of
the Event of Default giving rise thereto, provided that the
failure of CIT to provide such notice to the Borrower shall
not limit the rights of
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CIT under this Section 2.08(b) or relieve the Borrower of its
obligations under this Section 2.08(b) or the Agreement."
"(e) Unused Line Fee. The Borrower shall pay to CIT in
arrears, on the first day of each month, commencing on the
first day of the month following the Fifth Amendment Closing
Date, and on the Maturity Date, a fee (the "unused line fee")
of .25% per annum on the average daily unused amount of the
Revolving Credit Commitment. For purposes of calculating such
average daily unused amount on any date of determination, each
Loan made on such date, and each Letter of Credit outstanding
on such date, shall be considered a use of the Revolving
Credit Commitment."
(J) SECTION 2.09. USE OF PROCEEDS. Section 2.09 is deleted in its
entirety, and the following is substituted in lieu thereof:
"2.09 Use of Proceeds. The Borrower hereby covenants,
represents and warrants that (a) except as otherwise set forth
in clause (b) hereof, the proceeds of the Loans made to it
will be used solely to fund working capital in the ordinary
course of the Borrower's business and for other general
corporate purposes of the Borrower and (b) the proceeds of the
Term Loan and of the Loans made to it on the Fifth Amendment
Closing Date will be used to fund the declaration and payment
of a distribution to the Parent, the proceeds of which will be
used to fund the Redemption."
(K) SECTION 2.10. INCREASED COSTS AND REDUCED RETURN. Subsections (a)
and (b) of Section 2.10 are deleted in their entirety, and the following are
substituted in lieu thereof:
"2.10. Increased Costs and Reduced Return.
(a) If CIT or the Letter of Credit Issuer shall have
determined that the adoption or implementation of, or any
change in, any law, rule, treaty or regulation, or any policy,
guideline or directive of, or any change in the interpretation
or administration thereof by, any court, central bank or other
administrative or Governmental Authority, or compliance by the
Letter of Credit Issuer or CIT or any Person controlling CIT
or the Letter of Credit Issuer with any directive of or
guideline from any central bank or other Governmental
Authority or the introduction of or change in any accounting
principles applicable to the Letter of Credit Issuer, CIT or
any Person controlling CIT or the Letter of Credit Issuer (in
each case, whether or not having the force of law), shall (i)
change the basis of taxation of payments to the Letter of
Credit Issuer, CIT or any Person controlling CIT or the Letter
of Credit Issuer of any amounts payable hereunder (except for
taxes on the overall net income of the Letter of Credit
Issuer, CIT or any Person controlling CIT or the Letter of
Credit Issuer), (ii) impose, modify or deem
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applicable any reserve, special deposit or similar requirement
against the Term Loan, any Loan, Letter of Credit or against
assets of or held by, or deposits with or for the account of,
or credit extended by, the Letter of Credit Issuer, CIT, or
any Person controlling CIT or the Letter of Credit Issuer or
(iii) impose on the Letter of Credit Issuer, CIT or any Person
controlling CIT or the Letter of Credit Issuer any other
condition regarding this Agreement, the Term Loan, any Loan or
Letter of Credit, and the result of any event referred to in
clauses (i), (ii) or (iii) above shall be to increase the cost
to the Letter of Credit Issuer or CIT of making the Term Loan,
any Loan, issuing or guaranteeing any Letter of Credit, or
agreeing to make the Term Loan, any Loan or issue or guaranty
any Letter of Credit, or to reduce any amount received or
receivable by the Letter of Credit Issuer or CIT hereunder,
then, upon demand by the Letter of Credit Issuer or CIT, the
Borrower shall pay to the Letter of Credit Issuer or CIT such
additional amounts as will compensate the Letter of Credit
Issuer or CIT for such increased costs or reductions in
amount.
(b) If CIT or the Letter of Credit Issuer shall have
determined that any Capital Guideline or adoption or
implementation of, or any change in, any Capital Guideline by
the Governmental Authority charged with the interpretation or
administration thereof, or compliance by the Letter of Credit
Issuer, CIT or any Person controlling such Letter of Credit
Issuer or CIT with any Capital Guideline or with any request
or directive of any such Governmental Authority with respect
to any Capital Guideline, or the implementation of, or any
change in, any applicable accounting principles (in each case,
whether or not having the force of law), either (i) affects or
would affect the amount of capital required or expected to be
maintained by the Letter of Credit Issuer, CIT or any Person
controlling the Letter of Credit Issuer or CIT, and the Letter
of Credit Issuer or CIT determines that the amount of such
capital is increased as a direct or indirect consequence of
the Term Loan or any Loans made or maintained, Letters of
Credit issued or any guaranty with respect thereto, or the
Letter of Credit Issuer's or CIT's other obligations
hereunder, or (ii) has or would have the effect of reducing
the rate of return on the Letter of Credit Issuer's, CIT's or
any such other controlling Person's capital to a level below
that which the Letter of Credit Issuer, CIT or such
controlling Person could have achieved but for such
circumstances as a consequence of the Term Loan or any Loans
made or maintained, Letters of Credit issued, or any guaranty
with respect thereto or any agreement to make the Term Loan or
Loans, to issue Letters of Credit or the Letter of Credit
Issuer's or CIT's other obligations hereunder (in each case,
taking into consideration the Letter of Credit Issuer's, CIT's
or such other controlling Person's policies with respect to
capital adequacy), then, upon demand by the Letter of Credit
Issuer or CIT, the Borrower shall pay to the Letter of
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Credit Issuer or CIT from time to time such additional amounts
as will compensate the Letter of Credit Issuer or CIT for such
cost of maintaining such increased capital or such reduction
in the rate of return on the Letter of Credit Issuer's, CIT's
or such other controlling Person's capital."
(L) SECTION 5.01. TERMINATION. Section 5.01 is deleted in its
entirety, and the following is substituted in lieu thereof:
"5.01. Term of Agreement. Subject to CIT=s rights under
Article XI hereof, this Agreement shall be in effect during
the period commencing on the Closing Date and ending on June
2, 2004 (the "Original Term"), and thereafter shall
automatically renew itself for successive one-year periods
(each a "Renewal Term"), unless sooner terminated as provided
in Section 5.02 hereof."
(M) SECTION 5.03. EFFECT OF TERMINATION. Clause (v) of subsection
(a) of Section 5.03 is deleted in its entirety, and the following is substituted
in lieu thereof:
"(v) if such Notice of Termination is given by the Borrower to
CIT, and the Termination Date specified therein is a date
which is (x) prior to June 2, 2000, the Borrower shall pay to
CIT on such Termination Date an early termination fee in an
amount equal to one per cent (1%) of the "average outstanding
amount", as hereinafter defined, (y) on or after June 2, 2000
but prior to June 2, 2001, the Borrower shall pay to CIT on
such Termination Date an early termination fee in an amount
equal to three-quarters of one per cent (3/4 of 1%) of the
average outstanding amount, or (z) on or after June 2, 2001
but prior to June 2, 2004, the Borrower shall pay to CIT on
such Termination Date an early termination fee in an amount
equal to one-half of one per cent (1/2 of 1%) of the average
outstanding amount. As used in this Section, the term "average
outstanding amount" means, for the twelve month period ending
with the month preceding the Termination Date specified by the
Borrower in its Notice of Termination, the sum of (A) the
average amount of the Loans outstanding at the end of each day
during such period plus (B) the average amount of Letter of
Credit Exposure outstanding at the end of each day during such
period."
(N) SECTION 10.05. LOANS, ADVANCES AND INVESTMENTS. Section 10.05
is deleted in its entirety, and the following is substituted in lieu thereof:
"10.05. Loans, Advances and Investments. Except as otherwise
expressly permitted by this Section 10.05, the Borrower shall
not at any time make or suffer to remain outstanding any loan
or advance to, or purchase, acquire or own any stock, bonds,
notes or securities of, or any partnership interest (whether
general or limited) in, or any other interest in, or make any
capital contribution to, any other Person. By way of
illustration, and without limitation
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of the foregoing, it is understood that the Borrower will be
deemed to have made an advance to a Person: (x) to the extent
that the Borrower performs any service for such Person
(including but not limited to management services), or
transfers any property to such Person, and is not reimbursed
for such service or property and (y) to the extent that the
Borrower pays any obligation on behalf of such Person. The
amount of such advance shall be deemed to be the fair value of
the services so performed or property so transferred (in the
case of clause (x)) or the amount so paid by the Borrower (in
the case of clause (y)).
The following are excepted from the operation of this Section 10.05:
(a) loans or advances to Dominick Felicetti or any of the
Designated Officers (each, including Dominick Felicetti, a
"senior manager"), provided that (i) the proceeds of such
loans or advances are used to fund the acquisition of shares
of capital stock of the Parent, (ii) such shares shall be
owned or controlled, beneficially and of record, by the senior
manager to whom such loan or advance shall be made, (iii) the
principal amount of such loan or advance, together with the
unpaid principal amount of all previous loans and advances
made to such senior manager for such purpose, shall not
exceed, in the aggregate, the amount of the annual base salary
of such senior manager, as in effect on the date of such loan
or advance, and (iv) such senior manager shall pledge and
collaterally assign to CIT, or cause to be pledged and
collaterally assigned to CIT, pursuant to a duly executed
Stock Pledge Agreement, and shall deliver to CIT, or cause to
be delivered to CIT, all of the shares of capital stock of the
Parent so acquired, as collateral security for all
Obligations;
(b) in addition to loans and advances to employees permitted
under clause (a) above, (i) advances to employees to meet
expenses incurred or to be incurred by such employees, salary
advances and other similar advances to employees and (ii)
advances to Persons performing contracting services for the
Borrower, so long as such advances are made against the
amounts to be paid by the Borrower for such services, in each
case to non-Affiliates and in the ordinary course of the
Borrower's business, provided that all advances in the case of
clause (i) may not exceed $200,000 in the aggregate at any one
time outstanding, and in the case of clause (ii) may not
exceed $300,000 in the aggregate at any one time outstanding
(exclusive of that certain loan in the original principal
amount of $220,000 made, or which may be made, by the Borrower
to Metrix Computer Cutting, Inc.);
(c) ownership of any capital stock, bonds, notes, securities,
partnership or joint venture interests on the Closing Date;
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(d) the Cash Collateral Account and the other accounts
permitted or required to be maintained pursuant hereto, any
investment of funds on deposit in the foregoing to the extent
expressly permitted hereunder; and
(e) (i) direct obligations of the United States of America, or
any agency or instrumentality thereof, or obligations
guaranteed by the United States of America; (ii) certificates
of deposit maturing within one year from the date of
acquisition, bankers acceptances, or overnight bank deposits,
in each case issued by, created by, or with, a United States
bank whose long-term certificates of deposit have an
investment grade rating by S&P or Moody's; (iii) commercial
paper given a rating of A-1 or higher by S&P or P-1 or higher
by Moody's and maturing not more than 270 days from the date
of creation thereof; (iv) tender bonds, with a maturity day or
tender option of not in excess of one year, with ratings of
A-1 or AA or higher by S&P or P-1 or Aa or higher by Moody's
or the payment of the principal of and interest on which is
fully supported by a letter of credit issued by a United
States bank whose long-term certificates of deposit are rated
at least AA or the equivalent thereof by S&P and Aa or the
equivalent thereof by Moody's; and (v) repurchase agreements
pertaining to investments of the types described in clauses
(i) (ii), (iii) and (iv) hereof."
(O) SECTION 10.06. DIVIDENDS AND RELATED DISTRIBUTIONS.
Section 10.06 is deleted in its entirety, and the following is substituted in
lieu thereof:
"10.06. The Borrower shall not declare, make, pay or agree to
pay, any dividend or other distribution of any nature (whether
in cash, property, securities or otherwise) on account of or
in respect of shares of its capital stock or on account of the
purchase, redemption, retirement or acquisition of any shares
of capital stock (or warrants, options or rights therefor),
provided, however, that, in addition to amounts paid by the
Borrower on or prior to the Fifth Amendment Closing Date as
dividends or to repurchase stock, the Borrower shall be
permitted to declare and pay dividends or repurchase stock so
long as the amount to be declared and paid as a dividend or
the amount to be paid to repurchase stock, as the case may be,
together with all such amounts theretofore paid after the
Fifth Amendment Closing Date, shall not exceed, in the
aggregate, the sum of $2,000,000 plus, if and to the extent
that the Net Income of the Parent, calculated on a cumulative
basis for the period commencing with the fiscal quarter during
which the Fifth Amendment Closing Date occurs and ending with
the fiscal quarter preceding any date of determination,
exceeds $1,000,000, an amount equal to (x) one-half of such
cumulative Net Income in excess of $1,000,000 minus (y) all
amounts after the Fifth Amendment Closing Date and prior to
such date of determination distributed as dividends or paid to
repurchase stock (including
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amounts so distributed or paid pursuant to the $2,000,000
basket hereinabove provided), provided further that (a) at the
time of, and after giving effect to, any such payment of
dividends or repurchase of stock, no Event of Default shall
have occurred and be continuing, (b) the undrawn Availability
before and after the making of any such dividend payment or
stock repurchase shall be not less than $5,000,000.00 and (c)
solely for purposes of determining the Borrower's compliance
with this covenant, the calculation of such Net Income shall
exclude negative goodwill."
(P) SECTION 10.15. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Section
10.15 is deleted in its entirety, and the following is substituted in lieu
thereof:
"10.15 Minimum Consolidated Tangible Net Worth. The Borrower
will not permit the Parent's Consolidated Tangible Net Worth,
as of any date of determination, to be less than an amount
equal to $35,000,000 minus the aggregate amount of dividends
and repurchases of stock paid in cash, in accordance with the
terms of Section 10.06, during the period commencing on the
Fifth Amendment Closing Date and ending on such date of
determination, provided, however, that solely for purposes of
determining the Borrower's compliance with this covenant, the
calculation of such Consolidated Tangible Net Worth shall
include the value of goodwill, determined in accordance with
GAAP, created from the acquisition, directly or indirectly, by
the Parent, after the Fifth Amendment Closing Date, of stock
or assets, so long as such acquisition shall have been
consented to in advance, in writing, by CIT."
(Q) SECTION 10.16. MINIMUM CONSOLIDATED WORKING CAPITAL. Section 10.16
is deleted in its entirety, and the following is substituted in lieu thereof:
"10.16 Minimum Consolidated Working Capital. The Borrower will
not permit the Parent's Consolidated Working Capital, as of
any date of determination, to be less than an amount equal to
$30,000,000 minus the aggregate amount of dividends and
repurchases of stock paid in cash, in accordance with the
terms of Section 10.06, during the period commencing on the
Fifth Amendment Closing Date and ending on such date of
determination, provided, however, that solely for purposes of
determining the Borrower's compliance with this covenant, the
calculation of such Consolidated Working Capital shall include
the value of goodwill, determined in accordance with GAAP,
created from the acquisition, directly or indirectly, by the
Parent, after the Fifth Amendment Closing Date, of stock or
assets, so long as such acquisition shall have been consented
to in advance, in writing, by CIT."
-13-
<PAGE>
(R) SECTION 10.17. MINIMUM RATIO OF CONSOLIDATED CURRENT ASSETS TO
CONSOLIDATED CURRENT LIABILITIES. Section 10.17 is deleted in its entirety, and
the following is substituted in lieu thereof:
"10.17 Minimum Ratio of Consolidated Current Assets to
Consolidated Current Liabilities. The Borrower will not permit
the ratio of the Parent's Consolidated Current Assets to the
Parent's Consolidated Current Liabilities, as of any date of
determination, to be less than 2.50 to 1.00, provided,
however, that solely for purposes of determining the
Borrower's compliance with this covenant, the calculation of
such Consolidated Current Assets shall be deemed to be
increased by (i) the aggregate amount of dividends and
repurchases of stock paid in cash, in accordance with the
terms of Section 10.06, during the period commencing on the
Fifth Amendment Closing Date and ending on such date of
determination, and (ii) the value of goodwill, determined in
accordance with GAAP, created from the acquisition, directly
or indirectly, by the Parent, after the Fifth Amendment
Closing Date, of stock or assets, so long as such acquisition
shall have been consented to in advance, in writing, by CIT."
(S) SECTION 10.18. MINIMUM RATIO OF CONSOLIDATED EBITDA TO CONSOLIDATED
INTEREST EXPENSE. Section 10.18 is deleted in its entirety, and the following is
substituted in lieu thereof:
"10.18 Minimum Ratio of Consolidated EBITDA to Consolidated
Interest Expense. The Borrower will not permit the ratio of
the Parent's Consolidated EBITDA to the Parent's Consolidated
Interest Expense as at the end of each fiscal quarter,
commencing with the fiscal quarter ended on January 2, 1999,
on a cumulative basis with the preceding fiscal quarters of
the then current fiscal year, to be less than 3.00 to 1.00."
(T) A new Exhibit A-1, in the form of Exhibit A-1 annexed to this
Amendment, is hereby added to the Credit Agreement.
(U) In each instance in which the phrase "the Loan", "the Loans", or
"any Loan" appears in Sections 10.21, 12.06, 12.11 and 12.14, each such Section
shall be deemed amended by the insertion immediately before such phrase of the
phrase "the Term Loan and" or "the Term Loan or", as applicable, and in each
instance in which the phrase "the Note" appears in Section 5.03, 7.27, 11.02,
12.01 through 12.05, 12.11, 12.12 and 12.15, each such Section shall be deemed
amended by the insertion immediately before such phrase of the phrase "the Term
Note and" or "the Term Note or", as applicable.
SECTION TWO - CONSENT. Based on the representations and warranties made
by the Borrower pursuant to Section Four hereof, upon the fulfillment of the
conditions contained in Section Three hereof, effective as of August 25, 1999,
CIT hereby consents to the distribution by the Borrower to the Parent,
concurrent with and pursuant to the consummation of the Redemption, of cash in
an aggregate amount not to exceed $7,087,640, of which $5,000,000 shall
constitute proceeds of the Term Loan and up to $2,087,640 of which shall
-14-
<PAGE>
constitute proceeds of Loans, in each case made by CIT to the Borrower on the
Fifth Amendment Closing Date. CIT has been advised by the Borrower that during
the month of December, 1998, the Paymaster Affiliate merged with and into the
Borrower. The Borrower hereby represents and warrants that immediately prior to
the effectiveness of such merger, the Paymaster Affiliate had no obligations,
liabilities or indebtedness of any kind, whether absolute or contingent, whether
disclosable on a balance sheet prepared in accordance with GAAP, or otherwise,
except for (i) the contingent liability of the Paymaster Affiliate arising under
the Guaranty dated as of June 2, 1997 executed by the Paymaster Affiliate in
favor of CIT and (ii) as set forth on the Schedule annexed hereto. Based on such
representation and warranty, CIT hereby consents to such merger as of the
effective date thereof, and CIT hereby waives as an Event of Default the
Borrower's violation of Section 10.07 of the Credit Agreement, which prohibits
such merger.
SECTION THREE-CONDITIONS PRECEDENT. This Amendment shall become
effective on the date when all of the following conditions, the fulfillment of
each of which is a condition precedent to the effectiveness of this Amendment,
shall have occurred:
(A) CIT shall have received a fully executed counterpart or original of
this Amendment and the Term Note, together with a First Amendment to the
Factoring Agreement, in substantially the form annexed hereto as Exhibit B, and
a letter agreement executed in favor of CIT by each of the Guarantors, by the
Parent, as pledgor under the Stock Pledge Agreement, and by the Trademark
Affiliate, as party to the Trademark Agreement, in substantially the form
annexed hereto as Exhibit C.
(B) CIT shall have received a Certificate of the Secretary of the
Borrower relating to the adoption of the resolutions of the Board of Directors
of the Borrower, approving this Amendment, and a Solvency Certificate from the
chief financial officer of the Parent and the Borrower;
(C) Upon the effectiveness of this Amendment, all representations and
warranties set forth in the Credit Agreement (except for such inducing
representations and warranties that were only required to be true and correct as
of a prior date) shall be true and correct in all material respects on and as of
the effective date hereof, and no Event of Default shall have occurred and be
continuing;
(D) No event or development shall have occurred since the date of
delivery to CIT of the most recent financial statements of the Parent and its
Subsidiaries which event or development has had or is reasonably likely to have
a Material Adverse Effect;
(E) All corporate and legal proceedings and all documents and
instruments executed or delivered in connection with this Amendment shall be
satisfactory in form and substance to CIT and its counsel;
(F) CIT shall have received payment for its own account of a closing
fee in the amount of $250,000, which shall be payable in cash and which, when
paid, shall be deemed to be fully earned and non-refundable;
(G) The Redemption shall have been consummated in accordance with the
terms of the agreement described in the definition of such term, all of the
conditions precedent to
-15-
<PAGE>
its effectiveness shall have occurred, and CIT and its counsel shall have
received and reviewed to their satisfaction true and correct copies all of
material documents and agreements executed or delivered in connection with the
Redemption;
(H) CIT shall have received and reviewed to its satisfaction an
appraisal of the trademarks and other intellectual property of the Trademark
Affiliate; and (I) CIT shall have received a legal opinion from the firm of
Parker Chapin Flattau & Klimpl, LLP, in form and substance satisfactory to CIT
and its counsel, and such further agreements, consents, instruments and
documents as may be necessary or proper in the reasonable opinion of CIT and its
counsel to carry out the provisions and purposes of this Amendment.
SECTION FOUR-REPRESENTATIONS AND WARRANTIES. The Borrower represents
and warrants (which representations and warranties shall survive the execution
and delivery hereof) to CIT that:
(A) The Borrower has the corporate power, authority and legal right to
execute, deliver and perform this Amendment, and the instruments, agreements,
documents and transactions contemplated hereby, and has taken all actions
necessary to authorize the execution, delivery and performance of this
Amendment, and the instruments, agreements, documents and transactions
contemplated hereby;
(B) No consent of any Person (including, without limitation,
stockholders or creditors of the Borrower or creditors of the Parent, as the
case may be) other than CIT, and no consent, permit, approval or authorization
of, exemption by, notice or report to, or registration, filing or declaration
with (collectively a "Consent") any governmental authority, is required in
connection with the execution, delivery, performance, validity or enforceability
of this Amendment, and the instruments, agreements, documents and transactions
contemplated hereby;
(C) This Amendment has been duly executed and delivered on behalf of
the Borrower by its duly authorized officer, and constitutes the legal, valid
and binding obligation of the Borrower, enforceable in accordance with its
terms;
(D) The Borrower is not in default under any indenture, mortgage, deed
of trust, or other material agreement or material instrument to which it is a
party or by which it may be bound. Neither the execution and delivery of this
Amendment, nor the consummation of the transactions herein contemplated, nor
compliance with the provisions hereof will (i) violate any law or regulation
applicable to it, or (ii) cause a violation by the Borrower, of any order or
decree of any court or government instrumentality applicable to it, or (iii)
conflict with, or result in the breach of, or constitute a default under, any
indenture, mortgage, deed of trust, or other material agreement or material
instrument to which the Borrower is a party or by which it may be bound, or (iv)
result in the creation or imposition of any lien, charge, or encumbrance upon
any of the property of the Borrower, except in favor of CIT, to secure the
Obligations, or (v) violate any provision of the Certificate of Incorporation,
By-Laws or any capital stock provisions of the Borrower;
(E) No Event of Default has occurred and is continuing; and
(F) Since the date of CIT's receipt of the financial statements of the
Parent and Subsidiaries on a consolidated and consolidating basis for the annual
period ending on January 2,
-16-
<PAGE>
1999, no change or event has occurred which has had or is reasonably likely to
have a Material Adverse Effect.
SECTION FIVE-GENERAL PROVISIONS.
(A) Except as herein expressly amended, the Credit Agreement and all
other agreements, documents, instruments and certificates executed in connection
therewith, are ratified and confirmed in all respects and shall remain in full
force and effect in accordance with their respective terms.
(B) All references in the Related Documents and Loan Documents to the
Credit Agreement shall mean the Credit Agreement as amended as of the effective
date hereof, and as amended hereby and as hereafter amended, supplemented or
modified from time to time. From and after the date hereof, all references in
the Credit Agreement to "this Agreement," "hereof," "herein," or similar terms,
shall mean and refer to the Credit Agreement as amended by this Amendment.
(C) This Amendment may be executed by the parties hereto individually
or in combination, in one or more counterparts, each of which shall be an
original and all of which shall constitute one and the same agreement.
(D) This Amendment shall be governed and controlled by the laws of the
State of New York without reference to its choice of law principles.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
LESLIE FAY MARKETING, INC.
/s/
By:________________________________________
Name:
Title:
THE CIT GROUP/COMMERCIAL SERVICES, INC.
/s/
By:________________________________________
Name:
Title:
-17-
<PAGE>
EXHIBIT A-1
TERM NOTE
$5,000,000 New York, New York
as of August 25, 1999
FOR VALUE RECEIVED, LESLIE FAY MARKETING, INC., a Delaware corporation
("Borrower"), promises to pay to the order of THE CIT GROUP/COMMERCIAL SERVICES,
INC. ("CIT") on or before the Maturity Date (as defined in the Agreement
referred to below), the principal sum of FIVE MILLION DOLLARS ($5,000,000) or so
much of such principal sum as shall be outstanding and unpaid on the Maturity
Date. The Borrower further promises to pay to the order of CIT (a) the principal
amount of this Term Note in installments as set forth in Section 2.07 of the
Agreement, (b) mandatory prepayments of principal of this Term Note as set forth
in Section 2.04 of the Agreement and (c) interest on the unpaid principal amount
hereof from time to time outstanding at the rate per annum set forth in Section
2.05 to the Agreement, payable on the dates set forth in the Agreement.
This Note is the "Term Note" referred to in, and is entitled to the
benefits of, the Revolving Credit Agreement dated as of June 2, 1997 by and
between the Borrower and CIT (as the same may be amended, modified or
supplemented from time to time, the "Agreement") which, among other things,
provides for the acceleration of the maturity hereof upon the occurrence of
certain events and for prepayments in certain circumstances and upon certain
terms and conditions. Terms defined in the Agreement have the same meanings
herein.
This Term Note is secured by and is entitled to the benefits of the
liens and security interests granted by the Agreement and the other Related
Documents referred to in the Agreement, and is further entitled to the benefits
of the security agreements, guarantees and other Related Documents referred to
in the Agreement.
The Borrower hereby expressly waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Term Note and the
Agreement, and an action for amounts due hereunder or thereunder shall
immediately accrue.
This Term Note shall be governed by, construed and enforced in
accordance with the laws of the State of New York, without regard to choice of
law principles.
LESLIE FAY MARKETING, INC.
______________________________________________
By: Warren Wishart
Title: Senior Vice President
Chief Financial Officer and Treasurer
<PAGE>
Exhibit 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT No. 1 dated as of January __, 1999 (this "Amendment") to the
EMPLOYMENT AGREEMENT between THE LESLIE FAY COMPANY, INC., a Delaware
corporation (the "Corporation"), and JOHN J. POMERANTZ, residing at Hidden
Spring Farm, 19 Winfield Avenue, Harrison, New York 10528 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation and the Executive have entered into an
Employment Agreement dated as of January 4, 1998 (the "Employment Agreement");
and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement with respect to the terms set forth below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises contained herein, the parties hereto hereby agree as
follows:
1. Capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Employment Agreement. In the event of a
conflict between the terms of this Amendment and the terms of the Employment
Agreement, the terms of this Amendment shall govern.
2. Section 7(e) of the Employment Agreement is hereby amended in
its entirety to read as follows:
"(e) The Executive shall be awarded, as of January 4, 1998, ten
year options to acquire 58,521 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share which will vest in four equal
installments beginning January 4, 1998, subject to acceleration and expiration
as provided in the aforesaid plan. On June 4, 1997, the Executive was awarded
ten year options to acquire 131,878 shares of the Corporation's common stock,
par value $.01 per share, under the Corporation's 1997 Management Stock Option
Plan, at an exercise price of $6.18 per share which will vest in three equal
installments beginning June 4, 1998, which options remain in effect."
4. Except as expressly amended by this Amendment, the Employment
Agreement shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
THE LESLIE FAY COMPANY, INC.
/s/ John A. Ward
By:_______________________________________
John A. Ward
President
/s/ John J. Pomerantz
__________________________________________
JOHN J. POMERANTZ
-2-
<PAGE>
Exhibit 10.2
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT No. 1 dated as of January __, 1999 (this "Amendment") to the
EMPLOYMENT AGREEMENT between THE LESLIE FAY COMPANY, INC., a Delaware
corporation (the "Corporation"), and JOHN A. WARD, residing at 80 Glenville
Road, Greenwich, Connecticut 06831 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation and the Executive have entered into an
Employment Agreement dated as of January 4, 1998 (the "Employment Agreement");
and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement with respect to the terms set forth below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises contained herein, the parties hereto hereby agree as
follows:
1. Capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Employment Agreement. In the event of a
conflict between the terms of this Amendment and the terms of the Employment
Agreement, the terms of this Amendment shall govern.
2. Section 7(e) of the Employment Agreement is hereby amended in its
entirety to read as follows:
"(e) The Executive shall be awarded, as of January 4, 1998, ten
year options to acquire 45,720 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share which will vest in four equal
installments beginning January 4, 1998, subject to acceleration and expiration
as provided in the aforesaid plan. On June 4, 1997, the Executive was awarded
ten year options to acquire 70,060 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share which will vest in three equal
installments beginning June 4, 1998, which options remain in effect."
4. Except as expressly amended by this Amendment, the Employment
Agreement shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
THE LESLIE FAY COMPANY, INC.
/s/ John J. Pomerantz
By:________________________________________
John J. Pomerantz
Chief Executive Officer and
Chairman of the Board
/s/ John A. Ward
________________________________________
JOHN A. WARD
Executive
-2-
<PAGE>
Exhibit 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT No. 1 dated as of January __, 1999 (this "Amendment") to the
EMPLOYMENT AGREEMENT between THE LESLIE FAY COMPANY, INC., a Delaware
corporation (the "Corporation"), and DOMINICK FELICETTI, residing at 221 Penn
Estates, East Stroudsburg, Pennsylvania 18301 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation and the Executive have entered into an
Employment Agreement dated as of January 4, 1998 (the "Employment Agreement");
and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement with respect to the terms set forth below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises contained herein, the parties hereto hereby agree as
follows:
1. Capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Employment Agreement. In the event of a
conflict between the terms of this Amendment and the terms of the Employment
Agreement, the terms of this Amendment shall govern.
2. Section 7(e) of the Employment Agreement is hereby amended in its
entirety to read as follows:
"(e) The Executive shall be awarded, as of January 4, 1998, ten
year options to acquire 39,319 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share which will vest in four equal
installments beginning January 4, 1998, subject to acceleration and expiration
as provided in the aforesaid plan. On June 4, 1997, the Executive was awarded
ten year options to acquire 70,060 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share which will vest in three equal
installments beginning June 4, 1998, which options remain in effect."
4. Except as expressly amended by this Amendment, the Employment
Agreement shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
THE LESLIE FAY COMPANY, INC.
/s/ John J. Pomerantz
By:_______________________________________
John J. Pomerantz
Chief Executive Officer and
Chairman of the Board
/s/ Dominick Felicetti
__________________________________________
DOMINCICK FELICETTI
Executive
-2-
<PAGE>
Exhibit 10.4
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT No. 1 dated as of January __, 1999 (this "Amendment") to the
EMPLOYMENT AGREEMENT between THE LESLIE FAY COMPANY, INC., a Delaware
corporation (the "Corporation"), and WARREN T. WISHART, residing at 5 Crestview
Road, Mountain Lakes, New Jersey 07046 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Corporation and the Executive have entered into an
Employment Agreement dated as of January 1, 1998 (the "Employment Agreement");
and
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement with respect to the terms set forth below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises contained herein, the parties hereto hereby agree as
follows:
1. Capitalized terms not defined herein shall have the respective
meanings ascribed to them in the Employment Agreement. In the event of a
conflict between the terms of this Amendment and the terms of the Employment
Agreement, the terms of this Amendment shall govern.
2. The first sentence of the Employment Agreement is hereby amended in
its entirety to read as follows:
"AGREEMENT, dated as of January 4, 1998, between the
Leslie Fay Company, Inc., a Delaware corporation, with its
principal office at 1412 Broadway, New York, New York (the
"Corporation"), and Warren T. Wishart, residing at 5
Crestview Road, Mountain Lakes, New Jersey 07046 (the
"Executive")."
3. Section 7(e) of the Employment Agreement is hereby amended in its
entirety to read as follows:
"(e) The Executive shall be awarded, as of January 4, 1998, ten
year options to acquire 39,319 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share which will vest in four equal
installments beginning January 4, 1998, subject to acceleration and expiration
as provided in the aforesaid plan. On June 4, 1997, the Executive was awarded
ten year options to acquire 70,060 shares of the Corporation's common stock, par
value $.01 per share, under the Corporation's 1997 Management Stock Option Plan,
at an exercise price of $6.18 per share which will vest in three equal
installments beginning June 4, 1998, which options remain in effect."
<PAGE>
4. Except as expressly amended by this Amendment, the Employment
Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
THE LESLIE FAY COMPANY, INC.
/s/ John J. Pomerantz
By:_____________________________________
John J. Pomerantz
Chief Executive Officer and
Chairman of the Board
/s/ Warren T. Wishart
________________________________________
WARREN T. WISHART
Executive
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000796226
<NAME> LESLIE FAY COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-3-1999
<PERIOD-END> OCT-2-1999
<CASH> 4,304
<SECURITIES> 0
<RECEIVABLES> 46,769
<ALLOWANCES> 6,536
<INVENTORY> 28,681
<CURRENT-ASSETS> 74,276
<PP&E> 5,060
<DEPRECIATION> 1,237
<TOTAL-ASSETS> 84,794
<CURRENT-LIABILITIES> 36,918
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 39,740
<TOTAL-LIABILITY-AND-EQUITY> 84,794
<SALES> 158,216
<TOTAL-REVENUES> 158,216
<CGS> 116,923
<TOTAL-COSTS> 26,890
<OTHER-EXPENSES> 900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,661
<INCOME-PRETAX> 11,842
<INCOME-TAX> 3,451
<INCOME-CONTINUING> 8,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,391
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.36
</TABLE>
