FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 1, 2000            COMMISSION FILE NO. 1-9196

                          THE LESLIE FAY COMPANY, INC.


             DELAWARE                                  13-3197085
  (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                   IDENTIFICATION NO.)

            1412 BROADWAY
         NEW YORK, NEW YORK                              10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000

                       SECURITIES REGISTERED UNDER SECTION
                               12(B) OF THE ACT:

                                      None

                       SECURITIES REGISTERED UNDER SECTION
                               12(G) OF THE ACT:

                           Common Stock, .01 par value

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein.   [ ]

The  aggregate  market  value of the voting  stock (based on the average bid and
asked prices of such stock) held by  non-affiliates  of the  registrant at March
24, 2000 was approximately $15,825,670.

There were 5,073,138 shares of Common Stock outstanding at March 24, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

                                      None




<PAGE>



                                     PART I
                                     ------

ITEM 1.  BUSINESS.
-------  ---------

         The Company is engaged  principally  in the design,  arranging  for the
manufacture,   and  the  sale  of  diversified  lines  of  women's  dresses  and
sportswear.  The Company's products focus on career, social occasion and evening
clothing  that cover a broad  retail  price range and offer the  consumer a wide
selection of styles,  fabrics and colors suitable for different ages,  sizes and
fashion  preferences.  The Company believes that it is among the major producers
of  moderate-price  dresses and that it is considered one of the major resources
to department store retailers of such products. The Leslie Fay business has been
in continuous operation as an apparel company since 1947.

         On June 4, 1997, the Company reorganized following a voluntary petition
under Chapter 11 of the Bankruptcy Code. (See "Reorganization  Under Chapter 11"
below).

         The Company's business is seasonal in nature, with sales being greatest
in the first and third quarters.  Accordingly, the inventory purchase levels are
highest during the second and fourth quarters.

RECENT DEVELOPMENTS

         On February 15, 2000, the Company entered into a license agreement with
the licensing subsidiary of Liz Claiborne, Inc. to manufacture dresses and suits
under the Liz Claiborne and Elisabeth trademarks. The Company also purchased the
dress finished goods and raw materials  inventory of Liz Claiborne and agreed to
honor related  manufacturing  commitments that had been made by Liz Claiborne as
of February 15, 2000.  Beginning for the Fall 2000 season that begins to ship in
June 2000, the Company will design and arrange the  manufacture of Liz Claiborne
and  Elisabeth  dresses.  Liz  Claiborne  and  Elisabeth  dresses  are  sold  in
department  and  specialty  stores  throughout  the United States and, to a much
lesser extent, in Canada, Mexico and other parts of the world.

         The  agreements  with Liz  Claiborne  provide that the Company will pay
royalties  including  guaranteed minimum royalty payments of up to approximately
$2,000,000  throughout the five year initial term of the agreement against 6% of
the net sales of Liz Claiborne and Elisabeth dresses and suits. The Company also
will  reimburse  Liz  Claiborne for certain  operating  costs on a  transitional
basis.  While the Company  anticipates adding about $25 million in net sales for
2000 from this  transaction,  a modest  dilutive effect on earnings for 2000 may
occur.  Beyond 2000, the Company expects  significant  sales growth and improved
profitability.



<PAGE>



PRODUCTS

         During  1999,  1998,  and 1997,  respectively,  dresses  accounted  for
approximately  73%, 64% and 57% of the  Company's  net sales  (exclusive  of the
Sassco  Fashions and  Castleberry  product  lines and other lines sold or closed
during such years [the "Sold Product Lines"]); and sportswear accounted for 27%,
36% and 43%,  respectively.  During  2000,  dresses are  expected to account for
approximately  78% of total  sales  and  sportswear  22%.  The  increase  in the
expected  dress  sales ratio will  result  mostly  from the  addition of the Liz
Claiborne and Elisabeth Dress lines (See "Recent Developments").

         DRESS PRODUCT LINES.  The Company sells  moderately  priced one and two
piece  dresses,  pant dresses and dresses  with  coordinated  jackets  under the
"Leslie  Fay",  "Leslie Fay Petite",  "Leslie Fay Women" and "Leslie Fay Women's
Petites" brands.  These products are offered in petite,  misses and large sizes.
The Company  also sells  moderate to  bridge-priced  career,  social and evening
occasion dresses under the "David Warren", "Warren Petite", "Rimini",  "Reggio",
and "Leslie Fay Evening"  brands.  At this time,  these  products are offered in
misses, petite and large sizes.

         SPORTSWEAR   PRODUCT  LINES.  The  Company  markets  moderately  priced
coordinated  sportswear and related separates under the "Leslie Fay Sportswear",
"Leslie Fay Sportswear Petite", "Leslie Fay Sportswear Woman", "Joan Leslie" and
"Haberdashery  by Leslie Fay" brands.  The Company's  products  include  skirts,
blouses, sweaters, pants and jackets which are related in color and material and
are intended to be sold as  coordinated  outfits.  These products are offered in
petite,  misses and large sizes. The Company also offered  contemporary  knitted
sportswear,  including  knitted  separates  and dresses  under the  "Outlander",
"Outlander Studio",  "Outlander Petite" and "Outlander Woman" brands,  styled to
appeal to women of a wide  range of ages and  available  in  misses,  petite and
large sizes. These Outlander products were discontinued in the Fall of 1997.

DESIGN

         The Company's  fashion designers or stylists create the styles that are
produced under the brands used by the Company. The Company has its own designers
and in some instances  utilizes  separate  design staffs for different  products
within  a   particular   brand.   The  design   staffs  work  closely  with  the
merchandising,  production  and  sales  staffs  to  review  the  status  of each
collection  and  to  discuss   adjustments   which  may  be  necessary  in  line
composition, pricing, fabric selection, construction and product mix.

         The  Company's  product  lines  generally  offer  four  or  five of the
following seasonal lines: Resort,  Spring,  Summer, Fall I, Fall II and Holiday.
The Company  typically  offers  these  seasonal  lines in ten to  thirteen  week
selling periods.




                                      -3-
<PAGE>





TRADEMARKS AND LICENSES

         The brands used by the Company are registered trademarks,  all of which
are owned by the  Company.  The Company  considers  its  trademarks  and license
agreements  to have  significant  value in the  marketing of its  products.  The
Company has licensed  certain of its names and  trademarks to various  companies
for their use in  connection  with the  manufacture  and  distribution  of their
respective  products.  These products are in categories  that are not offered by
the Company and during 1999 included women's socks, legwear,  handbags and small
leather goods.

         On February  15,  2000,  the Company  acquired a license to produce and
distribute  the Liz Claiborne and Elisabeth  Dress and Petite Dress  merchandise
lines (See "Recent Developments").

MARKETS AND DISTRIBUTION

         The Company's  products were sold during 1999 principally to department
and specialty stores located  throughout the United States.  Excluding the sales
of the Sold Product Lines,  during 1999, 1998, and 1997, the Company's Dress and
Sportswear  lines'  products  were  sold to  1,515,  1,012  and  788  customers,
respectively.  Dillard's Department Stores, Inc. accounted for 31%, 30% and 33%,
Federated  Department Stores, Inc. accounted for 10%, 7%, and 6%, May Department
Stores,  Inc. accounted for 10%, 7%, and 5%, and JC Penney accounted for 8%, 11%
and 12% of the  Company's  dress and  sportswear  sales  during  the  respective
periods.  No other customer  accounted for as much as 10% of the Company's dress
and  sportswear  sales during these three years.  The Company  believes that the
loss of the Dillard's  Department  Stores,  Inc.,  Federated  Department Stores,
Inc., May Department Stores, Inc., or JC Penney businesses would have a material
adverse effect on its operations.

         The Company  maintains its own employee and commission  sales force and
exhibits  its  products  in its  principal  showroom  in New York,  New York and
additional  showrooms  in Dallas,  Texas and Atlanta,  Georgia.  On February 20,
2000, the Company had an employee  sales force  consisting of 2 people in Dallas
and 19 in New York. For further  discussion,  see "Properties"  below.  While in
some instances the Company's  brands may compete with each other, as a practical
matter,  such  competition  is limited  because of the  differences in products,
price points and market segments.

         To most effectively reach its ultimate  consumers,  the Company assists
retailers in  merchandising  and marketing the Company's  products.  The Company
promotes  its  products  through  special  in-store  events,  as well as through
various sales, promotions and cooperative advertising.

         The Company's  products are sold under brand names that are  advertised
and promoted in newspapers and trade publications.




                                      -4-
<PAGE>



MANUFACTURING

         Apparel sold by the Company is produced in accordance with its designs,
specifications  and production  schedules.  All of such apparel is produced by a
number of independent  contractors  located  domestically  and abroad.  In 1999,
products  representing  approximately  89% of dress and  sportswear  sales  were
produced  abroad and imported into the United  States from the  Caribbean  Basin
countries of  Guatemala  and El Salvador  and  selected  contractors  in the Far
Eastern  countries of Taiwan,  South Korea and the  People's  Republic of China,
including Hong Kong.

         In 1999, three operating  subsidiaries of Cambridge Corp.  manufactured
41% of the Company's total  production.  No other contractor  produced more than
10% of the  Company's  total  production.  The  Company  has  had  satisfactory,
long-standing  relationships with most of its contractors.  In 1999, none of the
Company's   contracted   production  was  produced  by  contractors  who  worked
exclusively  for  the  Company.   The  Company   monitors   production  at  each
contractor's  facility,  in the United  States  and  abroad,  to ensure  quality
control,  compliance with its specifications and fair labor standards and timely
delivery of finished  goods to the Company's  distribution  center.  The Company
believes  it will be able to  obtain  the  services  of a  sufficient  number of
independent  suppliers  to  produce  quality  products  in  conformity  with its
requirements.

         The Company manufactures in accordance with plans prepared each season,
which are based primarily on projected orders, and to a lesser extent on current
orders and consultations  with customers.  These plans take into account current
fashion  trends  and  economic  conditions.  The  average  lead  time  from  the
commitment  of piece goods through the  production  and shipping of goods ranges
from  two to four  months  for  domestic  products  and four to six  months  for
imported  products.  These lead times impose substantial time constraints on the
Company  in that  they  require  production  planning  and  other  manufacturing
decisions and piece good commitments to be made  substantially in advance of the
receipt of orders from customers for the bulk of the items to be produced.

         The  purchase of raw  materials  is  controlled  and  coordinated  by a
centralized  purchasing function that works with the manufacturing,  design, and
sales staffs.  Most often, the Company  purchases and ships the raw materials to
its domestic contractors and certain of its foreign contractors.  Otherwise, the
raw materials are purchased  directly by the  contractors in accordance with the
Company's specifications. Raw materials, which are in most instances made and/or
colored especially for the Company,  consist principally of piece goods and yarn
and are  purchased by the Company from a number of domestic and foreign  textile
mills and converters.  The Company does not have long-term,  formal arrangements
with  any  of  its  suppliers  of  raw  materials.  The  Company,  however,  has
experienced  little  difficulty in satisfying its raw material  requirements and
considers its sources of supply adequate.




                                      -5-
<PAGE>





IMPORTS AND IMPORT RESTRICTIONS

         The Company's import  operations are subject to constraints  imposed by
bilateral textile  agreements  between the United States and a number of foreign
countries, including Taiwan, China (including Hong Kong), South Korea, Guatemala
and El Salvador (the principal  countries from which the Company imports goods).
These  agreements  impose  quotas on the  amount  and type of goods  that can be
imported into the United States from these countries.  In addition,  each of the
countries  in which the  Company's  products  are sold has laws and  regulations
regarding import  restrictions  which are controlled and regulated.  Because the
United  States  and  other  countries  in  which  the  Company's   products  are
manufactured  and sold  may,  from  time to time,  impose  new  quotas,  duties,
tariffs,  surcharges  or  other  import  controls  or  restrictions,  or  adjust
presently  prevailing quota  allocations or duty or tariff rates or levels,  the
Company monitors import and quota-related developments.  The Company continually
seeks to  minimize  its  potential  exposure to import and  quota-related  risks
through allocation of production to merchandise  categories that are not subject
to quota  pressures,  adjustments in product design and  fabrication,  shifts of
production among countries and  manufacturers,  geographical  diversification of
its  sources of supply  and other  measures.  The  United  States may enter into
bilateral trade  agreements  with  additional  countries and may, in the future,
include other types of garments in existing agreements.

         Imports are also affected by the higher cost and additional time needed
to transport  product into the United  States and by the  increased  competition
resulting from greater production demands abroad.

         The Company's  imported  products are subject to United States  Customs
duties and, in the ordinary course of its business,  the Company is from time to
time  subject to claims by the United  States  Customs  Service  for  additional
duties and other charges.

         The  Company  currently  imports  a  substantial  majority  of its  raw
materials,  primarily  fabric,  and a significant  portion of its finished goods
through  Far East  based  service  bureaus.  These  service  bureaus  secure the
manufacture  of raw  materials  from a number of  factories  (about 15)  located
throughout the Far East. The Company's  senior  management also meets with these
manufacturers  prior to placing  orders  with them.  The  Company  believes  its
primary risk is the timely  receipt of its raw materials  and finished  goods to
allow the timely shipment of its product.  Through the present time, the Company
has received its products in a timely manner. The Company monitors the status of
its orders through its Far East service bureaus continually. Payment for the raw
materials  and  finished  goods is  guaranteed  through  letters of credit which
require,  among  other  items,  timely  delivery  and  satisfaction  of  quality
standards.



                                      -6-
<PAGE>

         The Company does not "hedge" its foreign purchases as all contracts are
quoted in United States Dollars.  The typical  contract  extends for sixty days.
Prices are re-negotiated with each new contract.

                                      -7-
<PAGE>

         The Company does not sell its products in the Far East.

         In addition to the factors  outlined above, the Company's future import
operations  may be  adversely  affected by:  political or financial  instability
resulting in the  disruption  or delay of trade from  exporting  countries;  the
imposition of  additional  regulations  relating to, or duties,  taxes and other
charges on,  imports;  any  significant  fluctuation  in the value of the dollar
against foreign currencies; and restrictions on the transfer of funds.

BACKLOG

         On March 24,  2000,  the Company had unfilled  orders of  approximately
$72,836,000  of which  $12,285,000  are for dresses  ordered  under the licensed
brands "Liz Claiborne  Dresses",  "Liz  Claiborne  Petite  Dresses",  "Elisabeth
Dresses" and "Elisabeth Petite Dresses" (See "Recent Developments"). The Company
had  $49,681,000 of unfilled  orders at a comparable date in 1999. The amount of
unfilled  orders  at a  particular  time is  affected  by a number  of  factors,
including the scheduling of the manufacture  and shipment of the product,  which
in some  instances is dependent on the desires of the customer.  Accordingly,  a
comparison  of  unfilled  orders  from  period  to  period  is  not  necessarily
meaningful and may not be indicative of eventual actual shipments.

CREDIT AND COLLECTION

         Historically,  the Company had managed  substantially all of its credit
and  collection  functions  internally.  In connection  therewith,  it regularly
evaluated,  approved and monitored the credit of the Company's customers and was
responsible  for  collection of accounts  receivable.  In June 1997, the Company
entered an agreement  with the CIT  Group/Commercial  Services,  Inc.  (the "CIT
Factoring  Agreement").  This agreement provides that CIT purchase the Company's
approved  accounts  receivable  and  guarantee  collection  thereof,  except for
disputed amounts.  The vast majority of the Company's trade accounts  receivable
has been  purchased  by CIT.  As of  January  1, 2000,  the  purchased  accounts
receivable represent 96% of the Company's total accounts receivable.

COMPETITION

         The sectors of the  apparel  industry  for which the  Company  designs,
manufactures and markets products are highly  competitive.  The Company competes
with many other  manufacturers,  including  manufacturers of one or more apparel
items.  In addition,  department  stores,  including some of the Company's major
customers,  have  from time to time  varied  the  amount  of goods  manufactured
specifically  for them and sold under  their own  brands.  Many such stores have
also changed their manner of  presentation  of  merchandise  and in recent years
have become  increasingly  promotional.  Some of the Company's  competitors  are
larger and have

                                      -8-
<PAGE>

greater  resources  than the Company.  Based upon its knowledge of the industry,
the Company believes that it is among the leading  producers of moderate dresses
in the United  States and that it is  considered  one of the major  resources to
department store retailers of such products. The Company's business is dependent
upon its ability to evaluate and respond to changing  consumer demand and tastes
and to remain  competitive  in the  areas of style,  quality  and  price,  while
operating  within the significant  domestic and foreign  production and delivery
constraints of the industry.

EMPLOYEES

         In  February   2000,  the  Company   employed  444  persons,   of  whom
approximately 28% were in production, 31% in distribution,  13% in merchandising
and design,  7% in sales and 21% in  administrative  and  financial  operations.
Approximately 39% of the Company's  employees were members of unions,  primarily
the Union of  Needletrades,  Industrial  and Textile  Employees  ("UNITE"),  the
successor to the  International  Ladies' Garment Workers Union. On June 2, 1997,
the Company and UNITE reached an agreement on a four-year collective  bargaining
agreement,  terminating  on May 31, 2001  covering  non-supervisory  production,
maintenance, packing and shipping employees.
The Company believes that its relationship with its employees is satisfactory.

REORGANIZATION UNDER CHAPTER 11

         On April 5, 1993 (the "Filing  Date"),  The Leslie Fay Companies,  Inc.
("Leslie Fay") and certain of its wholly-owned subsidiaries  (collectively,  the
"Debtors")  filed a voluntary  petition under Chapter 11 of the Bankruptcy  Code
(the  "Bankruptcy  Code").  On November 15,  1995,  certain  other  wholly-owned
subsidiaries of Leslie Fay (collectively,  the "Retail Debtors") filed voluntary
petitions under Chapter 11 of the Bankruptcy Code. From their respective  filing
dates  until June 4,  1997,  the  Debtors  and the Retail  Debtors  operated  or
liquidated their businesses,  as applicable, as debtors in possession subject to
the jurisdiction  and supervision of the United States  Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court").

         On October  31,  1995,  the  Debtors  and the  Committee  of  Unsecured
Creditors (the "Creditors  Committee") filed a Joint Plan of Reorganization  (as
subsequently amended, the "Plan") pursuant to Chapter 11 of the Bankruptcy Code.
On December 5, 1996,  the Debtors  filed a Disclosure  Statement for the Amended
Joint Plan of  Reorganization  pursuant to Chapter 11 of the Bankruptcy Code (as
subsequently  amended,  the  "Disclosure   Statement").   The  Debtors  obtained
Bankruptcy Court approval of the Disclosure  Statement on February 28, 1997. The
Plan  was  approved  by the  Debtors'  creditors,  and on  April  21,  1997  the
Bankruptcy Court confirmed the Plan.

         On June 4, 1997 (the "Consummation  Date"), the Plan was consummated by
the  Company by 1)  transferring  the equity  interest  in both the  Company and
Sassco  Fashions,  Ltd.

                                      -9-
<PAGE>

("Sassco"),  which has since  changed its name to Kasper  A.S.L.,  Ltd.,  to its
creditors in exchange for relief from an aggregate amount of claims estimated at
$338,000,000;  2) assigning to certain  creditors the ownership  rights to notes
aggregating  $110,000,000  payable by Sassco; and 3) transferring the assets and
liabilities of the Company's Sassco Fashions product line (as more  particularly
described  below) to Sassco  and the  assets  and  liabilities  of its Dress and
Sportswear product lines to three wholly-owned  subsidiaries of the Company. The
Company  retained  approximately  $41,080,000 in cash, of which  $23,580,000 has
been or will be used to pay  administrative  claims as defined in the Plan.  The
assets  and  liabilities  of the  Sassco  Fashions  line  transferred  to Sassco
included cash ($10,963,000), accounts receivable, inventory, property, plant and
equipment,  other  assets  (including  the trade name  Albert  Nipon),  accounts
payable,  accrued expenses and other liabilities  related to the Sassco Fashions
line. In addition, the Company transferred to Sassco its 100% equity interest in
several  subsidiaries  associated  with the Sassco Fashions line. As provided in
the Plan, the creditors of the Company became the  stockholders of Sassco and of
the reorganized  Company.  To effectuate this, the Company issued  approximately
seventy-nine  (79%)  percent of its  6,800,000 new shares of Common Stock to its
creditors in July 1997.  The remaining  twenty-one  (21%) percent was being held
for the benefit of its creditors  pending the  resolution of certain  litigation
before the Bankruptcy Court. The existing stockholders of the Company at June 4,
1997 did not  retain or  receive  any value for  their  equity  interest  in the
Company,  which  was  canceled.  An  additional  distribution  of  approximately
1,250,000  shares  representing 88% of the 21% held for resolution of litigation
was  distributed  during February and March 1999 with approval of the Bankruptcy
Court. In August 1999, the Plan Administrator elected to receive $7.00 per share
in cash for 140,660 of the remaining undistributed shares in connection with the
merger  transaction  with an affiliate of Three Cities  Research,  Inc.  ("Three
Cities")  summarized  in  Note  10  of  the  Notes  to  Consolidated   Financial
Statements.  As of March  24,  2000,  the  Plan  Administrator  still  maintains
possession  of  39,420  undistributed  shares of  common  stock of the  Company.
Distribution  of the remaining  shares and cash held in trust is  anticipated in
the near future.

         The gain on the disposition of the assets and liabilities of the Sassco
Fashions  product line was a taxable event and a substantial  portion of the net
operating  loss  carryforward  available to the Company at December 28, 1996 was
utilized  to  offset a  significant  portion  of the  taxes  recognized  on this
transaction.

ITEM 2.  PROPERTIES.
-------  -----------

         Executive and sales offices, as well as design facilities,  are located
in New York City  under a lease  expiring  in 2008  (60,990  square  feet).  The
Company also leases sales offices and  showrooms in Dallas,  Texas (4,396 square
feet) and a showroom in Atlanta,  Georgia (737 square  feet).  In addition,  the
Company  operates two small  manufacturing  support  facilities - one located in
Pittston, Pennsylvania and owned by the Company (11,368 square feet) and another
leased by the Company in Guatemala  (5,202  square feet).  The Company  leases a
major  distribution and

                                      -10-
<PAGE>

administrative  center  (194,685  square feet) in Laflin,  Pennsylvania  under a
lease expiring in July 2001.

         All of the  Company's  facilities  are in good  condition.  None of the
Company's  principal  facilities are idle. The machinery and equipment contained
in the Company's facilities are modern and efficient.

ITEM 3.  LEGAL PROCEEDINGS.
-------  ------------------

         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.  However,  that matter is now moot based upon the proceedings
described in the next paragraph and the Claimants' lack of standing.

         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  for  relief.  The  petition  for
certiorari was denied on January 10, 2000.

         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

                                      -11-
<PAGE>

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.

                                      -12-
<PAGE>

         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.

         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.  In
October 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 began March 1, 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.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-------  ----------------------------------------------------

         None.




                                      -13-
<PAGE>




                                     PART II
                                     -------

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
-------  ----------------------------------------------------------------------

         On December 8, 1998,  the common stock of the Company  began trading on
the Nasdaq Small Cap market under the symbol "LFAY".  Prior thereto,  such stock
was traded on the  over-the-counter  market bulletin board.  The following table
sets  forth the high bid and low asked  prices  on the  bulletin  board for each
quarter  during 1998 and 1999 adjusted to give  retroactive  effect to a 2 for 1
split of the Company's common stock effected in July 1998:

                  Period                                High           Low
                  ------                                ----           ---

         1998     First Quarter                      $  8.44        $ 6.00
                  Second Quarter                        8.81          6.63
                  Third Quarter                         9.38          4.75
                  Fourth Quarter                        8.00          4.38

         1999     First Quarter                      $  6.75        $ 3.88
                  Second Quarter                        6.88          4.25
                  Third Quarter                         7.13          4.63
                  Fourth Quarter                        6.94          4.38

         2000     First Quarter                       $ 7.00        $ 4.06
                    (through March 24, 2000)

--------------------------------------------------------------------------------


         On March 24, 2000, the high bid price was $5.63 and the low asked price
was $5.44.  As of March 24,  2000,  there were  approximately  1,154  holders of
record of the common stock of the Company.

         The  Company  did  not  pay  any   dividends  on,  or  make  any  other
distributions with respect to, its common stock during 1998 or 1999.

         On June 4, 1997, the Company issued an aggregate of 6,800,000 shares of
Common Stock to its creditors  pursuant to its plan of  reorganization.  Of such
shares, 5,372,000 shares were distributed in July 1997 and 1,250,000 shares were
distributed in February and March 1999 (the shares above are adjusted to reflect
the two-for-one  stock split referred to below).  No sales commissions were paid
in connection with the transactions. The shares were issued in reliance upon the
exemption from  registration  afforded by Section 3(a)(10) of the Securities Act
of 1933, as amended (the "Act").





                                      -14-
<PAGE>



         On each of June 3, 1998 and  August 23,  1999,  the  Company  issued an
aggregate of 12,000 shares of Common  Stock,  consisting of 2,000 shares to each
of its six non-employee directors, in accordance with the terms of the Company's
1997  Non-Employee  Director  Stock Option and Stock  Incentive Plan (the shares
above are adjusted to reflect the two-for-one stock split referred to below). No
consideration  was paid by such directors for the stock and no sales commissions
were paid by the Company in connection with its issuance. The shares were issued
issued in reliance upon the exemption from registration afforded by Section 4(2)
the Act.

         On July 1, 1998 the Company effected a two-for-one stock split pursuant
to which it issued 3,406,000  shares of Common Stock. No sales  commissions were
paid in  connection  with this  transaction.  The shares were issued in reliance
upon the exemption from registration afforded by Section 2(3) of the Act.





                                      -15-
<PAGE>




ITEM 6.  SELECTED FINANCIAL DATA.
-------  ------------------------

         The following  selected financial data of the Company should be read in
conjunction  with  the  Consolidated  Financial  Statements  and  related  Notes
appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>

                      (In thousands, except per share data)


                         Reorganized Company                                               Predessor Company
                         -------------------                                               -----------------
                                                        For   The   Periods   Ended


                                                Pro Forma
                        Fifty-Two   Fifty-Two  Fifty-Three  Thirty-One                 Twenty-Two
                       Weeks Ended Weeks Ended Weeks Ended  Weeks Ended                Weeks Ended
                       January 1,  January 2,   January 3,  January 3,    Pro Forma      June 4,
                          2000        1999       1998 (a)    1998 (b)      1996(a)      1997 (c)        1996        1995
                        (Audited)   (Audited)  (Unaudited)   (Audited)   (Unaudited)                 (Audited)    (Audited)

<S>                   <C>           <C>         <C>         <C>           <C>           <C>          <C>         <C>
Net  Sales               $197,446    $152,867    $132,160    $ 73,091      $110,053       $197,984   $429,676      $442,084

Operating Income           14,139      13,020      11,782       4,322         4,079         14,355     17,965         1,235

Reorganization Costs           --          --          --          --            --          3,379(d)   5,144 (d)    16,575 (d)

Interest Expense and
  Financing Costs           2,258         950       1,113         336         2,298          1,372      3,932 (e)     3,262 (e)

Tax Provision
(Benefit)                   2,654       3,212       2,684         677           130            451       (839)(f)     (761) (f)

Other Non-Recurring
    Items                     911(g)       --          --          --            --         36,341 (h)     --            --

Net Income (Loss)          $8,316      $8,858      $7,985      $3,309        $1,651       $145,494     $9,728      ($17,841)

Net Income (Loss) per
  Share - Basic             $1.46      $1.35       $1.17(i)    $0.49 (i)     $0.24 (i)            --   $0.52 (i)    ($0.95)
           - Diluted        $1.39      $1.31       $1.16(i)    $0.48 (i)     $0.24 (i)            --   $0.52 (i)    ($0.95)(i)

</TABLE>

<TABLE>
<CAPTION>

                          As of       As of       As of                  As of        As of        As of
                       01/01/2000   01/02/99     01/03/98              06/04/97      12/28/96    12/30/95
                       ----------   --------     --------              --------      --------    --------
<S>                   <C>          <C>          <C>                   <C>           <C>         <C>
Total Assets               $69,000     $67,804      $61,051                $77,789     $237,661    $245,980

Assets of Product
Lines
   Held for Sale  and           --          --           --                     --    3,003 (j)     326 (j)
   Disposition

Long-Term Debt
 (Including Capital
  Lease)                     4,052          17           49                    108       -- (k)       -- (k)


</TABLE>




                                      -16-
<PAGE>



NOTES TO SELECTED FINANCIAL DATA
--------------------------------

(a)      The unaudited pro forma adjustments to the statements are as follows:

         Disposition of Sassco:
                  The  operating  results of the Sassco  Fashions line have been
         eliminated to give effect to the disposition as of the beginning of the
         period presented, including depreciation expense on its property, plant
         and  equipment,  an  allocated  corporate  charge  based on workload by
         department  related to the  Sassco  Fashions  line and  direct  charges
         associated  with  financing  fees on its  factoring  agreement and fees
         incurred  on  letters  of credit  issued  on its  behalf.  For  periods
         including  June 4, 1997,  the gain recorded on the  disposition  of the
         Sassco Fashions line has been reversed.

         Disposition of Castleberry:
                  The  operating  results  of the  Castleberry  line  have  been
         eliminated to give effect to the disposition as of the beginning of the
         period presented, including depreciation expense on its property, plant
         and  equipment and an allocated  corporate  charge based on workload by
         department related to the Castleberry line.

         Fresh-Start Reporting:
                  The Company used fresh-start reporting to record the estimated
         effect of the Plan as if it had been  effective as of the  beginning of
         period presented. This includes adjustments for the following items:

                  i)  The  elimination  of  the  historical   depreciation   and
         amortization for the remaining product lines,  including the amounts in
         cost of sales,  on the  beginning  of  period  asset  balances  and the
         recording  of the  amortization  credit for the "Excess of revalued net
         assets acquired over equity under  fresh-start  reporting"  (assuming a
         three-year amortization period).

                  ii) The elimination of historical  reorganization expense that
         will not be incurred after June 4, 1997.

                  iii) The elimination of the fresh-start revaluation charge and
         the reversal of the gain on debt discharge pursuant to the Plan.

(b)      Financial  information  for the thirty-one  weeks ended January 3, 1998
         represents the consolidated results of the reorganized entity after the
         consummation of the Plan.

(c)      Financial  information  for the  twenty-two  weeks  ended  June 4, 1997
         represents  the audited  consolidated  results  prior to the  Company's
         consummation of the Plan. The

                                      -17-
<PAGE>

         income  statement  information  includes the results of Castleberry and
         Sassco  Fashions  lines prior to their sale or  spin-off in  connection
         with the consummation of the Plan.

(d)      The Company incurred  reorganization costs in 1997, 1996 and 1995 while
         operating as a debtor in possession. Included in 1997, 1996 and 1995 is
         a  provision  of  $0,  $652,000  and  $3,181,000,  respectively,  for a
         write-down  of a portion of the excess  purchase  price over net assets
         acquired  in the 1984  leveraged  buyout  of The  Leslie  Fay  Company,
         related to certain of the Company's  product  lines,  which the Company
         believes will be unrecoverable.

(e)      On January 2, 1994,  the  Company  decided  not to accrue  interest  on
         approximately  $253,000,000 of pre-petition debt. During 1996 and 1995,
         the Company had direct  borrowings  under the FNBB Credit  Agreement on
         one hundred and two (102) days in the second and third quarters of 1996
         and ten (10) days in the third quarter of 1995, the highest  amounts of
         which were $28,672,000 and $3,956,000, respectively. Interest on direct
         borrowings  was incurred at a rate of prime plus 1.5%. The terms of the
         FNBB  Credit  Agreement  are  described  in Note  7(b) of the  Notes to
         Consolidated Financial Statements.

(f)      The  Company   recognized  an  income  tax  credit  of  $1,103,000  and
         $1,811,000 in 1996 and 1995, respectively,  representing a reduction of
         foreign income tax liabilities as a result of negotiated settlements on
         prior years' estimated  taxes.  The Company only paid state,  local and
         foreign taxes in 1996 and 1995.

(g)      The Company  incurred  $911,000 of other  non-recurring,  non-operating
         legal  and  administrative  expense  related  to  the  merger  with  an
         affiliate of Three Cities.

(h)      Amount   consists  of  the   following   three   components:   Gain  on
         Sale/Transfer  of the  Sassco  Fashions  line  of  $89,810,000  (net of
         $3,728,000  of income  taxes),  charge  for  Revaluation  of Assets and
         Liabilities  Pursuant  to the  Adoption  of  Fresh-Start  Reporting  of
         ($27,010,000)  and Gain on Debt  Discharge (an  extraordinary  item) of
         $73,541,000.

(i)      Net income (loss) per share for the pro forma  fifty-three  weeks ended
         January 3, 1998,  thirty-one  weeks ended January 3, 1998 and pro forma
         1996 was  calculated  based on  6,800,000  shares of new common  stock,
         adjusted  to give  effect to the 2 for 1 stock  split  effected in July
         1998, issued in connection with the consummation of the Plan.  Earnings
         per common  share for the  twenty-two  weeks  ended June 4, 1997 is not
         presented  because such presentation  would not be meaningful.  The old
         stock of 18,771,836  shares,  used in calculating the net income (loss)
         per share in 1995 and  1996,  was  canceled  under the Plan and the new
         stock was not issued until June 4, 1997.

                                      -18-
<PAGE>

(j)      The  Company  classified  certain  product  lines as "Assets of Product
         Lines Held for Sale and Disposition",  as the Company had announced its
         intention to dispose of these lines.

(k)      Amount  excludes  long-term debt  classified in liabilities  subject to
         compromise.

                                      -19-
<PAGE>



ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS.
--------------

(A)      RESULTS OF OPERATIONS


FIFTY-TWO  WEEKS  ENDED  JANUARY 1, 2000 AS COMPARED  TO  FIFTY-TWO  WEEKS ENDED
--------------------------------------------------------------------------------
JANUARY 2, 1999
---------------

         The Company  recorded net sales of $197,446,000 for the fifty-two weeks
ended January 1, 2000,  compared with of  $152,867,000  for the fifty-two  weeks
ended January 2, 1999, a net increase of  $44,579,000,  or 29.2%.  Net sales for
the Warren brands were  $45,584,000 and $3,260,000 for the fifty-two weeks ended
January 1, 2000 and January 2, 1999,  respectively,  an increase of $42,324,000.
This increase resulted from the effect of a full year's operation by the Company
vs. two months in the prior year as well as greater demands at the retail level.
On a comparable  basis,  after  excluding the effect of the Warren  brands,  the
remaining  businesses had an increase in net sales of  $2,255,000,  or 1.5%, for
the fifty-two  weeks ended  January 1, 2000 as compared to the  fifty-two  weeks
ended  January 2, 1999.  This  increase  was due to a 3.7%  increase  within the
Sportswear  product  line while  volume  within  Leslie Fay Dress  product  line
remained consistent with the prior year.

         Gross  profit  for the  fifty-two  weeks  ended  January  1,  2000  was
$48,756,000  or 24.7% of net sales  compared with  $37,320,000  or 24.4% for the
fifty-two  weeks  ended  January  2,  1999.  Excluding  the effect of the Warren
brands,  the gross profit of the remaining  comparable  businesses  decreased by
$2,162,000  for the fifty-two  weeks ended January 1, 2000 versus the prior year
and the gross margin percent decreased to 22.6% from 24.4%. The Leslie Fay Dress
line's  gross  profit  decreased  $729,000  to 24.2%  from  25.0%  mostly due to
additional discounts given to closeout excess inventories. The Sportswear line's
gross profit decreased  $1,443,000 to 19.7% of sales from 23.1% due to inventory
liquidation in the Leslie Fay Sportswear and  Haberdashery  brands.  The Company
plans to consolidate  the Leslie Fay Sportswear and  Haberdashery  brands into a
Haberdashery by Leslie Fay Sportswear  brand in the future to better service the
retail needs of its customers without duplicate product offerings.

         Selling, warehouse,  general and administrative expenses were 19.2% and
18.4% of net sales for the fifty-two  weeks ended January 1, 2000 and January 2,
1999,  respectively.  Expenses are up primarily due to the additional  operating
expenses  related to the Warren  brands,  which have a higher expense ratio than
the other  operating  brands of the  Company.  The full year effect of increased
costs  incurred to extend the  Company's  lease for showroom and office space in
New York in 1998 and additional co-op and direct  advertising  expenses incurred
to promote the  Company's  product  offerings  in both the day and evening  wear
dress markets also generated increased expenses over the prior year.




                                      -20-
<PAGE>




         Depreciation  and  amortization  expense for the fifty-two  weeks ended
January 1, 2000 and January 2, 1999 was $1,367,000  and $406,000,  respectively,
an increase of $961,000. Of this increase,  $704,000 resulted primarily from the
depreciation  generated  by the build up of the  Company's  asset  base that was
written-off  at June 4, 1997  under  fresh-start  reporting.  This  increase  in
depreciation  expense is expected to increase  during the next three years until
the Company  completes a full five-year cycle of capital asset  acquisition post
emergence from bankruptcy.  The remaining $257,000 increase resulted from a full
year's amortization of the excess of purchase price over net assets acquired for
the Warren  brands.  This  excess is being  amortized  over a fifteen  year life
ending  in  October  2013.  The  Company  realized  income  of  $4,572,000  from
amortization  of the excess revalued net assets acquired over equity (see Note 2
of Notes to  Consolidated  Financial  Statements)  for both the fifty-two  weeks
ended January 1, 2000 and January 2, 1999.

         The Company's  adoption of SFAS No. 123,  "Accounting  for  Stock-Based
Compensation", to value stock options and the issuance of shares of common stock
as partial  payment for  services  rendered by the  non-employee  members of the
Company's Board of Directors generated non-cash stock based compensation expense
of $1,380,000 and  $1,724,000 for the fifty-two  weeks ended January 1, 2000 and
January 2, 1999, respectively.

         Other income was  $1,498,000  and  $1,334,000  for the fifty-two  weeks
ended January 1, 2000 and January 2, 1999, respectively.  The increase is due to
the revenues  generated  from the licensing  agreements  acquired as part of the
acquisition of the Warren trademarks as well as revenues generated from expanded
licensing of the Leslie Fay trademark.

         Interest  expense and  financing  costs,  net of interest  income,  was
$2,258,000  and  $950,000  for the  fifty-two  weeks  ended  January 1, 2000 and
January 2, 1999, respectively.  The interest expense and financing fees incurred
during the fifty-two weeks ended January 1, 2000 were higher than those incurred
during the fifty-two weeks ended January 2, 1999 due to additional  usage of the
Company's  credit  facility to support the working  capital  needs of the Warren
brands during their full year with the Company.

         The Company  incurred  $911,000 of other  non-recurring,  non-operating
legal and  administrative  expenses  related to the merger with an  affiliate of
Three Cities. .

         The provision for taxes was $2,654,000 and $3,212,000 for the fifty-two
weeks ended January 1, 2000 and January 2, 1999, respectively.


                                      -21-
<PAGE>



FIFTY-TWO  WEEKS ENDED  JANUARY 2, 1999 AS COMPARED TO  FIFTY-THREE  WEEKS ENDED
--------------------------------------------------------------------------------
JANUARY 3, 1998
---------------

         For purposes of this discussion the fifty-three  weeks ended January 3,
1998 was calculated by summarizing the Consolidated  Statements of Operations of
the  Reorganized  Company for the thirty-one  weeks ended January 3, 1998 and of
the Predecessor Company for the twenty-two weeks ended June 4, 1997.

         The Company  recorded net sales of $152,867,000 for the fifty-two weeks
ended January 2, 1999,  compared with  $271,075,000  for the  fifty-three  weeks
ended  January 3, 1998, a net decrease of  $118,208,000,  or 43.6%.  The primary
factors  contributing  to this decrease was the sale of the Sassco  Fashions and
Castleberry   product  lines,  which  generated   $136,107,000  and  $2,808,000,
respectively,  and the  discontinuation  of the Outlander  brand which  provided
$5,877,000 in net sales for the  fifty-three  weeks ended  January 3, 1998.  The
additional week in the period ended January 3, 1998 generated  $1,225,000 of net
sales  for  the  continuing  product  lines.   Offsetting  those  decreases  was
$3,260,000 of additional  volume generated by the Dress brands acquired from the
Warren  Apparel  Group,  Ltd. and  $6,608,000  of volume  generated by the newly
offered Sportswear brand "Haberdashery by Leslie Fay" during the fifty-two weeks
ended January 2, 1999. On a comparable basis,  after excluding the effect of the
above  mentioned  businesses  and the additional  week of volume,  the remaining
businesses had a net sales increase of $17,941,000,  or 14.3%, for the fifty-two
weeks ended January 2, 1999 as compared to the  fifty-three  weeks ended January
3, 1998.  This  increase was due to  $19,201,000  or 25.6% of  increased  volume
within the Leslie Fay Dress product line offset by a $1,260,000 or 2.5% decrease
within the Sportswear product line.

         Gross  profit  for the  fifty-two  weeks  ended  January  2,  1999  was
$37,320,000  or 24.4% of net sales  compared with  $65,080,000  or 24.0% for the
fifty-three  weeks ended January 3, 1998.  The Sassco  Fashions and  Castleberry
lines generated $34,534,000 and $545,000,  respectively, in gross profit for the
fifty-three  weeks ended January 3, 1998. These product lines had a higher gross
profit  percent to net sales than the  remaining  lines.  Also,  gross profit of
$321,000 related to the discontinued  Outlander brand and $443,000 for the extra
week was  generated  during the  fifty-three  weeks ended  January 3, 1998.  The
remaining  comparable  businesses,  excluding  $1,377,000  and $880,000 of gross
profit  realized from the new  Haberdashery  and Warren brands,  increased gross
profit by $5,826,000  for the  fifty-two  weeks ended January 2, 1999 versus the
prior year and the gross  margin  percent  increased  to 24.5% from  23.4%.  The
Leslie Fay Dress  line's  gross profit  increased  $5,187,000  or a gross profit
percent of 25.0% from  24.4%.  The  Sportswear  line's  gross  profit  increased
$639,000 to 23.7% of sales from 21.8%.


                                      -22-
<PAGE>



         Selling, warehouse,  general and administrative expenses were 18.4% and
18.0% of net sales for the fifty-two and fifty-three weeks ended January 2, 1999
and January 3, 1998, respectively. After excluding the costs associated with the
product lines sold,  the comparable  remaining  businesses had expenses of 18.2%
for the fifty-three weeks ended January 3, 1998.  Expenses were up mostly due to
the additional  operating  expenses  related to the Warren brands,  which have a
higher  expense  ratio than the  Company's  other  operating  brands,  increased
straight-line  costs  incurred to extend the  Company's  lease for  showroom and
office space in New York and additional costs incurred during the  restructuring
of the Sportswear product line during 1998.

         Depreciation  and  amortization  expense for the fifty-two  weeks ended
January 2, 1999 was  $406,000  due to the  write-off  of fixed assets at June 4,
1997 under fresh-start  reporting.  In addition,  the Company realized income of
$4,572,000  from  amortization  of the excess  revalued net assets acquired over
equity (See Note 2 of Notes to Consolidated Financial Statements).  Depreciation
and  amortization  expense  for the  fifty-three  weeks  ended  January  3, 1998
consisted of $2,104,000,  including $860,000 of depreciation  related to product
lines  sold and  amortization  of the  excess  purchase  price  over net  assets
acquired of $473,000,  including  $257,000 of amortization  related to the lines
sold. This  amortization  expense related to the leveraged  buyout of The Leslie
Fay  Company on June 28,  1984.  The  remaining  comparative  product  lines had
depreciation  expense  of  $771,000  and  realized  income  of  $2,667,000  from
amortization  of the excess  revalued net assets acquired over equity during the
fifty-three  week  period  ended  January  3,  1998  (See  Note  2 of  Notes  to
Consolidated Financial Statements).

         The Company's  adoption of SFAS No. 123,  "Accounting  for  Stock-Based
Compensation", to value stock options and the issuance of shares of common stock
as partial  payment for  services  rendered by the  non-employee  members of the
Company's Board of Directors generated non-cash stock based compensation expense
of $1,724,000 and $351,000 for the fifty-two and fifty-three weeks ended January
2, 1999 and January 3, 1998,  respectively.  There was no  non-cash  stock based
compensation expense recorded prior to June 4, 1997.

         Other  income was  $1,334,000  and  $2,143,000  for the  fifty-two  and
fifty-three weeks ended January 2, 1999 and January 3, 1998,  respectively.  The
decrease is primarily due to the licensing revenues related to trade names which
were  spun-off  with the Sassco  Fashions  product  line and the  expiration  of
certain licensing agreements which were not renewed.

         Interest  expense  and  financing  costs,  net of  interest  income was
$950,000 and $1,708,000 for the fifty-two and fifty-three weeks ended January 2,
1999 and January 3, 1998,  respectively.  The  financing  fees under the new CIT
Credit  Agreement (see Note 7) were offset by income earned on the cash invested
for the fifty-two  weeks ended January 2, 1999. The financing fees incurred were
significantly below those incurred during the fifty-three weeks ended January 3,
1998 due to the higher  line  needed to  finance  the  operations  of the Sassco
Fashions and Castleberry  product lines. In addition,  the Company  maintained a
higher  average cash balance  during the period and earned  additional  interest
income compared to the prior year.


                                      -23-
<PAGE>



         The provision for taxes was $3,212,000 and $1,128,000 for the fifty-two
and fifty-three  weeks ended January 2, 1999 and January 3, 1998,  respectively.
The  lower   provision  in  1997  resulted  from  net  operating   loss  ("NOL")
carryforwards  which were available for use for the period through the Company's
emergence from bankruptcy,  which are recorded in capital in excess of par value
after the Company emerged from bankruptcy.  During the pre-emergence period, the
NOL utilization reduced the provision for taxes.


      (B)  LIQUIDITY AND CAPITAL RESOURCES

         On June 2, 1997, the Company  obtained  $30,000,000  of  post-emergence
financing  (see Note 7 of Notes to  Consolidated  Financial  Statements),  which
became  effective  with the  consummation  of the Plan on June 4, 1997.  The CIT
Credit  Agreement  as amended,  currently  provides a working  capital  facility
commitment  of  $42,000,000,  including  a  $25,000,000  sublimit  on letters of
credit.  The  Company had  $12,185,000  committed  for letters of credit,  a net
borrowing  availability  under its Credit Agreement of $24,815,000 on January 1,
2000, net of the $5,000,000 minimum excess  availability  required under the CIT
Credit  agreement.  Peak borrowing  during the fiscal year ended January 1, 2000
was $16,157,000.  As of March 24, 2000, there were approximately  $10,265,984 in
direct  borrowings  under the  revolving  line of  credit  and the  Company  was
utilizing  approximately  $14,139,969 of the CIT Credit Agreement for letters of
credit.

         At January 1, 2000, there were no direct  borrowings  outstanding under
the CIT Credit Agreement and cash and cash  equivalents  amounted to $5,466,000.
Of this amount,  $3,432,000 will be used to pay remaining  administrative claims
as defined in the Plan. Working capital increased $1,722,000,  to $37,300,000 at
January 1, 2000 from January 2, 1999.  The primary  changes in the components of
working capital were: an increase in cash and cash equivalents of $1,253,000; an
increase in accounts  receivable  of  $780,000;  a decrease  in  inventories  of
$4,401,000;  an increase of  $1,732,000  in prepaid  expenses and other  current
assets and a decrease in current liabilities of $2,358,000. The increase in cash
and cash  equivalents  resulted mostly from the lower investment in inventory at
January 1, 2000 versus January 2, 1999. The decreased  inventory levels were due
to the later receipt of the Resort and Spring  seasons  product lines versus the
prior  year.  No  significant  orders were lost as a result of the timing of the
receipt of these goods.  The increase in prepaid  expenses  resulted mostly from
excess federal and state income taxes paid.  These prepaid taxes will be applied
to the Company's  first quarter 2000 tax liabilites or refunds will be requested
with the  filing  of the 1999  income  tax  returns.  The  decrease  in  current
liabilities is  predominately  a result of lower  accounts  payable due to lower
inventory levels at year end.


                                      -24-
<PAGE>



         The Company estimated it had approximately $50,000,000 of NOL available
at June 4, 1997 to offset future  taxable  income,  if any,  through fiscal year
2011. The utilization of the NOL for federal  purposes,  however,  is subject to
limitations,  including  an annual  limitation  of about  $1,500,000  imposed by
Section 328 of the Internal  Revenue Code. As of January 1, 2000,  the remaining
aggregate loss utilization  limitation through fiscal year 2011 is approximately
$18,000,000.

         Capital  expenditures  were  $2,040,000  for the fifty-two  weeks ended
January 1, 2000, of which $75,000  relates to capital leases entered into during
December 1999. The anticipated  capital  expenditures of $3,550,000 for the 2000
fiscal year include:  approximately  $750,000 for the capital  requirements  for
accommodating  the Liz Claiborne  Dress brands with showroom and office space in
New  York;  $1,250,000  to  improve  management   information,   production  and
distribution  systems; an estimated  $1,000,000 to create the first phase of the
Company's planned internet web site;  approximately $275,000 for improvements to
the Company's  distribution  facility and  approximately  $275,000 for all other
purposes.  The Company believes that its financing  arrangements and anticipated
level of  internally  generated  funds will be sufficient to finance its capital
spending during 2000.

         The  provisions of the Company's  Credit  Agreement  with CIT have been
modified to the following:

         On June 2, 1997, in  preparation  for the  consummation  of the Plan, a
wholly-owned  subsidiary  of the Company  entered into the CIT Credit  Agreement
with CIT which was amended on October 27, 1998 to extend the agreement from June
2, 1999 through June 2, 2001 to provide  direct  borrowings and to issue letters
of credit on the  Company's  behalf.  Direct  borrowings  bear interest at prime
minus .25%  (8.25% at January  1,2000) and the CIT Credit  Agreement  requires a
fee, payable monthly,  on average  outstanding letters of credit at a rate of 2%
annually.  There  were no direct  borrowings  outstanding  under the CIT  Credit
Agreement and approximately $12,185,000 was committed under unexpired letters of
credit as of January 1, 2000.

         The CIT Credit  Agreement  has been  modified  five times 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  Warren  acquisition  as well as the Liz
Claiborne Licensing Agreement,  permitting the Company's stock buy-back program,
extending the CIT Credit  Agreement and  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|  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 to
     $25,000,000 from  $20,000,000.  The limit on inventory based collateral has
     been raised to $21,000,000 from $12,000,000 and will increase by $1,000,000
     automatically each fiscal year.


                                      -25-
<PAGE>


|X|  The interest rate on direct borrowings has been reduced from prime plus 100
     basis points to prime less 25 basis points.

|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 payment or stock repurchase.  Borrowing  availability
     before and after the making of any such  dividend or stock  repurchase  can
     not be less than $5,000,000. As of March 24, 2000, approximately $3,034,000
     of this amount remains available.

|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.

         To  support  the  working  capital  requirements  of the Liz  Claiborne
license (see Recent Developments), the Company is negotiating an increase to its
credit agreement.

         The CIT  Credit  Agreement,  as  amended,  contains  certain  reporting
requirements,  as well as financial and operating  covenants  related to capital
expenditures,  minimum  tangible net worth,  maintenance  of a current assets to
current  liabilities ratio, and an interest to earnings ratio and the attainment
of minimum earnings. 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 all  requirements
contained in the CIT Credit Agreement.

         The Company  initially  paid $150,000 in commitment and related fees in
connection with the credit facility which was written-off as part of fresh-start
reporting and paid another  $250,000 in commitment fees in June 1997. These fees
have been  amortized as interest and  financing  costs over the two years of the
original CIT Credit Agreement.


                                      -26-
<PAGE>


YEAR 2000
---------

         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.

         A review and  verification  of the  Company's  systems  and  technology
supporting Year 2000 compliance  issues was successfully  completed.  The review
identified  changes in the Company's  hardware and software as well as sensitive
operating equipment that was up graded and tested prior to year-end.

         The Company did not  experience any  significant  year 2000 problems or
disruptions  in the  business  process  caused  by its own  systems  or those of
unrelated  third parties.  The financial  condition or results of operations for
the  fiscal  year  ended  January  1,  2000 were not  affected  by any year 2000
problems.  Since  there was no material  difference  in the actual cost and that
which was  previously  disclosed,  there was no remediation  dividend  affecting
financial  comparisons.  Additionally,  there are no remaining  contingencies or
reserves relative to year 2000.

         There were no significant  changes in the Company's  inventory level or
cash flow caused by attempts to mitigate the risk of year 2000 related  business
interruptions.  The revenue  patterns of the  Company  were not  affected by any
unusual  customer buying levels,  either  positively or negatively at the end of
fiscal 1999.

         There were no  significant  information  technology  projects that were
deferred in fiscal 1999 that will require "catch-up" in the year 2000.

         The Company also passed  through the critical date of February 29, 2000
with no  significant  issues.  The Company  will  continue to monitor  year 2000
issues and will update disclosures appropriately.

         A number of statements contained herein are forward-looking  statements
within the meaning of the Private Securities  Litigation Reform Act of 1995 that
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those expressed or implied in the applicable  statements.  These
risks and  uncertainties  include,  but are not limited to, the  uncertainty  of
potential  manufacturing  difficulties,  the  dependence on key  personnel,  the
possible  impact of competitive  products and pricing,  the Company's  continued
ability  to  finance  its  operationns,  general  economic  conditions  and  the
achievement and maintenance of profitable operations and positive cash flow.


                                      -27-
<PAGE>



TEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
-------------------------------------------------------------------

         None.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------  --------------------------------------------

         See the  Consolidated  Financial  Statements  and  Financial  Statement
Schedule of The Leslie Fay Company,  Inc. and  Subsidiaries  attached hereto and
listed on the Index to Consolidated Financial Statements set forth in Item 14 of
this Form 10-K.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------

         None.




                                      -28-
<PAGE>





                                    PART III
                                    --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
-------------------------------------------------------------

DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>

                                        Principal Occupation and                                 Director
Name and Age                            Offices with the Company                                   Since
------------                            ------------------------                                   -----
<S>                                     <C>                                                      <C>
John J. Pomerantz (66)                  Chairman of the Board and Chief Executive Officer             1984
                                        of the Company

John A. Ward (46)                       President of the Company                                      1997

Clifford B. Cohn (48)                   Principal of Cohn & Associates (2)(3)                         1997

Mark Kaufman (43)                       Senior Vice President  of Amroc Investments  (2)(3)           1997
Bernard Olsoff  (71)                    Former Chief Executive Officer and President of               1998
                                        Frederick Atkins, Inc. (1)(2)

Robert L. Sind (66)                     President of Recovery Management                              1997
                                        Corporation (1)(2)(3)

H. Whitney Wagner (44)                  Managing Director of Three Cities Research, Inc.              1999
                                        (1)(2)

Thomas G. Weld (37)                     Managing Director of Three Cities Research, Inc.              1999
                                        (2)(3)
</TABLE>

--------------------------------------------------------------------------------

(1)      Member of Compensation Committee of the Board of Directors.
(2)      Member of the Finance Committee of the Board of Directors.
(3)      Member of the Audit Committee of the Board of Directors.






                                      -29-
<PAGE>


EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>

Name                                Positions with the Company                          Age
----                                --------------------------                          ---
<S>                                <C>                                                <C>
John J. Pomerantz                   Chairman of the Board and                           66
                                    Chief Executive Officer

John A. Ward                        President and Chief Operating Officer46

Dominick Felicetti                  Senior Vice President-Manufacturing                 46
                                    and Sourcing

Warren T. Wishart                   Senior Vice President-Administration                47
                                    and Finance, Secretary and
                                    Chief Financial Officer
</TABLE>

CERTAIN  INFORMATION  CONCERNING  DIRECTORS,  EXECUTIVE OFFICERS AND SIGNIFICANT
EMPLOYEES OF THE COMPANY

         The term of office of each executive  officer of the Company expires on
the date of the organizational  meeting of the Board of Directors of the Company
following each Annual Meeting of Stockholders of the Company and when his or her
respective successor is elected and has qualified.

         John J.  Pomerantz  has been the  Chief  Executive  or Chief  Operating
Officer  of the  Company  and its  predecessors  since  1971,  and  has  been an
executive  thereof for over 30 years.  Mr. Pomerantz was President of the Leslie
Fay business from 1971 until August 1986,  when he became  Chairman of the Board
of Directors of the Company.

         John A. Ward  joined the  Company in August  1989 as head of the Andrea
Gayle  division.  From July 1991 to June 1993, he was Chairman of the Leslie Fay
Sportswear  Group.  In June 1993, he became  Chairman of the combined Leslie Fay
Dress and  Sportswear  lines.  He was  elected a Senior  Vice  President  of the
Company in September  1991 and President of the Company in June 1997.  From June
1988 until August 1989,  he was Senior Vice  President  and General  Merchandise
Manager for Ready-to-Wear,  Men's and Boys' at B. Altman & Co. For fifteen years
prior thereto, he had been an executive at Filene's.

         Clifford B. Cohn has been a principal  with Cohn & Associates  law firm
since  September 1994. From September 1992 to September 1994, he was a principal
with Sernovitz & Cohn law firm. Mr. Cohn has been a Director of GlassTech,  Inc.
since 1998,  and was Director of Publicker  Industries  from 1980 to 1999,  Vice
President of PubliCARD  from 1982 to 1984 and  Director of Kasper  A.S.L.,  Ltd.
from 1997 to 1998.

                                      -30-
<PAGE>

         Mark  Kaufman has been a Senior  Vice  President  of Amroc  Investments
since  January 1999.  Prior to joining  Amroc,  Kaufman was a Vice  President of
Dickstein Partners, Inc. from July 1992. From 1990 to July 1992, Mr. Kaufman was
a Senior Vice President of Oppenheimer & Co., an investment  banking firm. Prior
to that,  Mr.  Kaufman was a Vice President of GAF Corp., a chemical and roofing
manufacturer.

         Bernard Olsoff was President and Chief  Executive  Officer of Frederick
Atkins,  Inc.  ("Atkins"),  an international  retail  merchandising  and product
development  organization for department  stores.  He joined Atkins as Executive
Vice President in 1983 and was named  President and Chief  Operating  Officer in
1987. In January 1994, he became Chief Executive Officer until his retirement in
April 1997.  Prior to joining  Atkins,  he was  President  of May  Merchandising
Corporation , a subsidary of May Department  Stores  Company,  from 1971 to 1983
and Vice President and General Merchandise  Manager of Associated  Merchandising
Corporation from August 1955 to August 1971.

         Robert L. Sind founded Recovery Management Corporation ("RMC") in 1984.
RMC specializes in developing and implementing hands-on business,  financial and
operational  turnaround  programs and  providing  crisis  management to troubled
commercial,   industrial  and  real  estate   companies  and  their   creditors.
Previously,  Mr. Sind had been an investment  banker for ten years and, spanning
over twelve years,  held senior  corporate  operating  and financial  positions,
including Senior Vice President at The Londontown  Manufacturing  Company, Chief
Financial Officer at Beker Industries Corporation and Chief Operating Officer at
both Nice-Pak Products, Inc. and Marker International.  He is also a Director of
Northside Center for Child Development,  Inc. (a not for profit organization) of
which he is also Treasurer and Chairman of the Finance Committee.

         H. Whitney Wagner is Managing  Director of Three Cities Research,  Inc.
which he joined in 1983. Mr. Wagner is responsible for deal origination and also
focuses on the development and execution of exit strategies.  Previously, he was
an officer in the corporate  division of Chemical  Bank.  Mr.  Wagner  currently
serves as a director of Factory 2-U Stores.

         Thomas G. Weld is Managing  Director  of Three  Cities  Research,  Inc.
which he joined in 1993.  Mr. Weld focuses on the  development  and execution of
growth  strategies  for  portfolio  companies.  Prior to  joining  Three  Cities
Research,  Inc., he worked on a variety of client engagements  focused on profit
improvement as a consultant with McKinsey & Company.

         Dominick  Felicetti  rejoined  the  Company in May 1995 as Senior  Vice
President of Worldwide  Sourcing and  Manufacturing.  From 1994 to 1995,  he was
Vice President of Manufacturing and Production for S.L. Fashions.  Mr. Felicetti
was previously employed by The Leslie Fay Companies,  Inc. from December 1991 to
July 1993 in the  position of Director of  Technical  Services  and  Production.
Prior to that,  from 1986 to 1990,  he served as  President  of  American  Dress
Company and from 1979 to 1986, as Production Manager for Betsy's Things.

                                      -31-
<PAGE>

         Warren  T.  Wishart  joined  the  Company  in March  1993.  He held the
position of Vice  President - Planning from July 1993 through  December 1994. In
January 1995, he became Senior Vice President - Finance.  In September  1995, he
was appointed  Chief  Financial  Officer and  Treasurer of the Company.  In June
1997, he became Senior Vice President - Administration and Finance and Secretary
of the Company.  Before  joining  Leslie Fay, Mr.  Wishart was Vice  President -
Strategic  Planning of Galerias Preciados from 1991 to the end of 1992. Prior to
that,  he had  seventeen  years of financial  management  and business  planning
experience with several department stores including Filene's and the L.J. Hooker
Retail Group.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Pursuant  to  Section 16 of the  Securities  Exchange  Act of 1934,  as
amended,  officers,  directors  and holders of more than 10% of the  outstanding
shares of the Company's  Common Stock are required to file  periodic  reports of
their ownership of, and transactions involving,  the Company's Common Stock with
the Securities and Exchange Commission.  Based solely on its review of copies of
such reports  received by the Company,  the Company  believes that its reporting
persons have complied with all Section 16 filing requirements applicable to them
with respect to the  Company's  fiscal year ended January 1, 2000 except that H.
Whitney  Wagner,  a director of the Company,  filed a late Form 5 reflecting  an
option to purchase 10,000 shares of the Company's Common Stock.


ITEM 11.  EXECUTIVE COMPENSATION.
--------  -----------------------

         Summary of Cash and Certain  Other  Information.  The  following  table
shows, for 1999, 1998 and 1997, the compensation  paid or accrued by the Company
and its  subsidiaries to the Chief  Executive  Officer and the other most highly
compensated   executive   officers  of  the  Company  during  1999  (the  "Named
Officers").  All share, option and exercise and market price information in this
Item 11 has been adjusted to give  retroactive  effect to a 2 for 1 split of the
Company's common stock effective in July 1998.

SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>



                                               Annual Compensation (1)            Long Term Compensation
                                               ---------------------------------------------------------
                                                                                    Awards       Payouts
                                                                                    ------       -------
                                                                    Restricted     Securities
Name and Principal                                                   Stock        Underlying     LTIP         All Other
Position                        Year      Salary (2)     Bonus        Awards       Options (#)    Payouts     Compensation
--------                        ----      ----------     -----        ------       -----------    -------     ------------
<S>                           <C>      <C>           <C>           <C>           <C>             <C>          <C>
John J. Pomerantz              1999    $500,000      $440,000          --             --            --      $   3,450  (3)
  Chairman of the              ----
  Board of Directors and       1998    $498,654      $350,000          --           117,042         --      $   2,650  (3)
  Chief Executive Offcier      ----
                               1997    $611,129      $300,000          --           263,756         --      $   8,699  (4)
                               ----
</TABLE>


                                      -32-
<PAGE>

<TABLE>
<CAPTION>

---------------------------- --------- ------------- ------------ ------------- ---------------- ---------- ---------------
<S>                           <C>      <C>           <C>           <C>           <C>             <C>          <C>
John A. Ward                   1999    $450,000      $350,000          --               --          --      $   3,450 (3)
   President                   ----
                               1998    $449,039      $280,000          --            91,440         --      $   2,650 (3)
                               ----
                               1997    $462,692      $225,000          --           140,120         --      $   2,650 (4)
                               ----
---------------------------- --------- ------------- ------------ ------------- ---------------- ---------- ---------------

Dominick Felicetti             1999    $350,000      $285,000          --              --           --      $   3,450 (3)
  Senior Vice President -      ----
  Senior Vice President -      1998    $349,519      $230,000          --           78,638          --      $   2,650 (3)
  Manufacturing and            ----
  Sourcing                     1997    $337,500      $200,000          --           140,120         --      $   1,938 (4)
                               ----
---------------------------- --------- ------------- ------------ ------------- ---------------- ---------- ---------------

Warren T. Wishart              1999    $225,000      $250,000          --              --           --      $   3,450 (3)
  Senior Vice President-       ----
  Administration and -         1998    $224,519      $200,000          --            78,638         --      $   2,650 (3)
  Finance, Chief               ----
  Financial Officer and        1997    $207,692      $180,000          --           140,120         --      $102,650(4)
  Treasurer                    ----
---------------------------- --------- ------------- ------------ ------------- ---------------- ---------- ---------------
</TABLE>


(1)      In 1999, 1998 and 1997, perquisites and other personal benefits did not
         exceed  the  lesser of $50,000  or 10% of  reported  annual  salary and
         bonuses for any of the Named Officers.

(2)      1997 was a 53 week  year.  1999 and 1998  were 52 week  years.  Amounts
         represent salaries paid during the above calendar years.

(3)      For 1999 and 1998,  consists of amounts contributed as Company matching
         contributions for each Named Officer under the Company's 401(k) savings
         plan (the "401(k) Plan") for such year.

(4)      For 1997, consists of the following: (a) amounts contributed as Company
         matching  contributions  for each  Named  Officer  under the  Company's
         401(k) Plan as follows:  Mr.  Pomerantz  $2,286;  Mr. Ward $2,650;  Mr.
         Felicetti  $1,938 and Mr.  Wishart  $2,650 and (b) amounts  paid by the
         Company for split  dollar  life  insurance  coverage  as  follows:  Mr.
         Pomerantz  $6,413;  and  (c)  amount  paid  by the  Company  as  earned
         retention for Mr. Wishart $100,000.



                                      -33-
<PAGE>




OPTION/SAR GRANTS IN LAST FISCAL YEAR

         No options were granted in fiscal 1999.



<PAGE>


AGGREGATED  OPTION/SAR  EXERCISES  IN LAST FISCAL YEAR AND FISCAL YEAR END VALUE
TABLE

                  The following table sets forth information with respect to the
Named Officers  concerning  the exercise of options during 1999 and  unexercised
options  held as of the end of such year.  The  average bid and asked price of a
share of Common  Stock of the Company on the close of  business on December  31,
1999 (the last trade day prior to January 1, 2000) was $6.1250.

<TABLE>
<CAPTION>

                                                                Number of Securities          Value of Unexercised
                                  Shares                        Underlying Unexercised        In-the-Money Options
                                  Acquired         Value        Options at Fiscal Year-End    at Fiscal Year-End
Name                              On Exercise      Realized     Exercisable/Unexercisable     Exercisable/Unexercisable (1)
----                              ------------     --------     -------------------------     --------------------------
<S>                              <C>              <C>          <C>                           <C>
John J. Pomerantz                 None             None         232,600/148,198               $ 705,941/449,787

John A. Ward                      None             None          138,199/93,361               $ 419,437/283,348

Dominick Felicetti                None             None          131,798/86,960               $ 400,013/263,924

Warren T. Wishart                 None             None          131,798/86,960               $ 400,013/263,924
</TABLE>


(1)      Aggregate  market  value of the shares of Common  Stock  covered by the
         options at fiscal year end less the exercise price of such options.

COMPENSATION OF DIRECTORS

         Each  director who is not a full-time  employee of or consultant to the
Company  receives an annual  director's  fee of $12,500 and 2,000  shares of the
Company's  common stock.  Each initial  non-employee  director,  upon becoming a
director,  received stock options to purchase 20,000 shares,  vesting  one-third
each year and each subsequent  non-employee director,  upon becoming a director,
has received or will receive stock options to purchase  10,000  shares,  vesting
one-third each year.

EMPLOYMENT CONTRACTS

         The Company has an employment agreement with John J. Pomerantz expiring
on January 3, 2001,  pursuant to which he is employed as Chief Executive Officer
at a base salary of $500,000 per annum.

         The Company also has an employment agreement with John A. Ward expiring
on

                                      -34-
<PAGE>

January 3, 2001, pursuant to which he is employed as President of the Company
at a base salary of $450,000 per annum.

         The Company also has an employment  agreement  with Dominick  Felicetti
expiring  on January 3, 2001,  pursuant  to which he is  employed as Senior Vice
President--Manufacturing and Sourcing at a base salary of $350,000 for the first
two years and $375,000 for the third year.

         The Company  also has an  employment  agreement  with Warren T. Wishart
expiring  on January 3, 2001,  pursuant  to which he is  employed as Senior Vice
President--Administration  and Finance, Chief Financial Officer and Treasurer at
a base salary of  $225,000  for the first two years and  $250,000  for the third
year.

         In addition,  these  employment  agreements  provide for a shared bonus
pool  payable to the  employees  of the  Company  if EBITDA (as  defined in such
agreements) exceeds $4,626,550. The bonus pool will equal 9.6% of EBITDA plus an
additional 0.2% of EBITDA for each $54,430 by which EBITDA exceeds $4,626,550 up
to a maximum  of 12.5% of EBITDA  plus an  additional  5% of the amount by which
EBITDA exceeds $11,500,000, subject to certain adjustments.

SEVERANCE AGREEMENTS

         None

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The  Compensation  Committee  of the Board of Directors is charged with
determining  the  compensation  of  officers.   During  1999,  the  Compensation
Committee  consisted of H. Whitney  Wagner (from June 29, 1999),  Robert L. Sind
(from June 29, 1999), Bernard Olsoff (from June 29, 1999), Chaim Edelstein (from
November 10, 1998 through June 29,  1999),  Clifford B. Cohn  (through  June 29,
1999) and Mark B. Dickstein (through May 12, 1999).





                                      -35-
<PAGE>



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------  ---------------------------------------------------------------

         (a) The following table sets forth certain  information with respect to
each person  (including any "group" as that term is used in Section  13(d)(3) of
the Securities  Exchange Act of 1934, as amended) who is known to the Company to
be the  beneficial  owner of more than 5% of the  Company's  Common  Stock as of
March 24, 2000. To the knowledge of the Company,  each of such  stockholders has
sole voting and investment power as to the shares shown unless otherwise noted.

<TABLE>
<CAPTION>


                                                               Number of Shares         Percentage of Ownership of
        Names and Address of Beneficial Owners                Beneficially Owned                 Common Stock
        --------------------------------------                ------------------                 ------------
<S>                                                         <C>                        <C>
Three Cities Research, Inc.                                     3,512,566 (1)                        69.2%
650 Madison Avenue
New York, New York 10022

John J. Pomerantz                                               2,400,600 (2)                        45.2%
c/o The Leslie Fay Company, Inc.
1412 Broadway
New York, New York   10018

Constable Asset Management, Ltd.                                  441,407 (3)                         8.7%
Constable Partners, L.P.
5 Radnor Corp. Center
100 Matsonford Rd.
Suite 520
Radnor, Pennsylvania  19087
</TABLE>

--------------------------------------------------------------------------------

(1) Includes  1,215,081 and 2,054,885  shares of Common Stock  directly owned by
Three  Cities  Fund II,  L.P.  ("Fund II") and Three  Cities  Offshore  II, C.V.
("Offshore  II"),  respectively.  Pursuant  to Rule 13d-5  under the  Securities
Exchange Act of 1934, as amended, Fund II and Offshore II may each be considered
the beneficial owner of 3,512,564  shares of Common Stock. TCR Associates,  L.P.
("TCR  Associates") is the sole general partner of Fund II and may be deemed the
beneficial  owner of all of the  shares  beneficially  owned  by Fund II.  Three
Cities Research,  Inc. ("TCR") is the sole general partner of TCR Associates and
is the investment  advisor to Fund II and Offshore II.  Pursuant to a management
agreement, TCR has voting and dispositive power over all of the shares of Common
Stock  beneficially  owned  by Fund II and  Offshare  II and may be  deemed  the
beneficial owner of all of such shares. TCR Offshore Associates ("TCR Offshore")
is the sole  general  partner of  Offshore  II and may be deemed the  beneficial
owner of all of the shares of Common  stock  beneficially  owned by Offshore II.
Three Cities Associates,  N.V. ("TCA,  N.V.") is the sole general partner of TCR
Offshore and may be deemed the  beneficial  owner of all of the shares of Common
Stock  beneficially  owned  by TCR

                                      -36-
<PAGE>

Offshore. J. William Uhrig is the sole stockholder,  President and sole director
of TCA,  N.V.  and,  pursuant  to Rules  13d-3  and 13d-5  under the  Securities
Exchange Act of 1934, as amended,  may be deemed the beneficial  owner of all of
the shares  beneficially  owned by TCA, N.V. The information  provided above was
obtained from  Amendment No. 1 to a Schedule 13D filed with the  Securities  and
Exchange  Commission on August 30, 1999. Also includes  242,600 shares of Common
Stock beneficially owned by John J. Pomerantz, as described in note (2) below.

(2) Includes  232,600 shares of Common Stock issuable upon exercise of presently
exercisable  stock  options and  2,158,000  shares  beneficially  owned by Three
Cities.  Mr.  Pomerantz has entered into a letter  agreement dated July 26, 1999
with Fund II and Offshore II containing certain agreements as to the election of
directors of the Company.

 (3)  Consists of 441,407 and  356,789  shares of Common  Stock as to which John
Constable d/b/a/ Constable Asset Management,  Ltd. and Constable Partners, L.P.,
respectively,  have shared voting and dispositive  power.  John Constable is the
General Partner of Constable Partners,  L.P. The information  provided above was
obtained from a Schedule 13G filed with the Securities  and Exchange  Commission
on December 10, 1999.







                                      -37-
<PAGE>


(b) The following table sets forth certain information as of March 24, 2000 with
respect  to the  beneficial  ownership  of the  Company's  Common  Stock by each
director, each of the Named Officers and by all directors and executive officers
of the Company as a group. To the knowledge of the Company, each of such persons
has sole voting and  investment  power as to the shares shown  unless  otherwise
noted.

<TABLE>
<CAPTION>

                                                                                          Percentage of
                                                           Number of Shares               Ownership of
Name and Address of Beneficial Owners                      Beneficially Owned             Common Stock
-------------------------------------                      ------------------             ------------
<S>                                                       <C>                             <C>
John J. Pomerantz                                              2,400,600 (1)               45.2%

John A. Ward                                                     138,199 (2)               2.7%

Dominick Felicetti                                               133,798 (3)               2.6%

Warren T. Wishart                                                131,798 (2)               2.5%

Clifford B. Cohn                                                 17,200(4)                  (8)

Robert L. Sind                                                   17,200(4)                  (8)

Mark Kaufman                                                      12,600 (5)                (8)

Bernard Olsoff                                                    7,300(6)                  (8)

H. Whitney Wagner                                                 12,000                    (8)

Thomas G. Weld                                                    12,000                    (8)

Officers and Directors as a group                              2,882,695 (7)               50.2%

</TABLE>
--------------------------------------------------------------------------------

(1)      Includes  232,600  shares of Common  Stock  issuable  upon  exercise of
         presently  exercisable stock options and 2,158,000 shares  beneficially
         owned  by  Three  Cities.  Mr.  Pomerantz  has  entered  into a  letter
         agreement  dated July 26, 1999 with Fund II and Offshore II  containing
         certain agreements as to the election of directors of the Company.

                                      -38-
<PAGE>

(2)      Consists of shares of Common Stock  issuable upon exercise of presently
         exercisable stock options.

(3)      Includes  131,798  shares of Common  Stock  issuable  upon  exercise of
         presently exercisable stock options.

(4)      Includes  13,200  shares of Common  Stock  issuable  upon  exercise  of
         presently exercisable stock options.

(5)      Includes  6,600  shares of  Common  Stock  issuable  upon  exercise  of
         presently exercisable stock options.

(6)      Includes  3,300  shares of  Common  Stock  issuable  upon  exercise  of
         presently exercisable stock options.

(7)      Includes  670,695  shares of Common  Stock  issuable  upon  exercise of
         presently  exercisable stock options and 2,158,600 shares  beneficially
         owned by Three Cities as to which Mr.  Pomerantz  shares certain voting
         rights as to the election of directors.

(8)      Less than 1% of the outstanding shares of Common Stock .

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
--------  -----------------------------------------------

None.



                                      -39-
<PAGE>




PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
--------  -----------------------------------------------------------------

         (a)      Documents filed as part of this report:

                  (1)      Financial Statements:

                           The Consolidated  Financial  Statements are set forth
                           in the Index to Consolidated Financial Statements and
                           Financial Statement Schedule on page F-1 hereof.

                  (2)      Financial Statement Schedule:

                           The Financial  Statement Schedule is set forth on the
                           Index  to  Consolidated   Financial   Statements  and
                           Financial Statement Schedule on page F-1 hereof.

                  (3)      Exhibits:

                           Exhibits  are set forth on the "Index to Exhibits" on
                           page E-1 hereof.

         (b)      Reports on Form 8-K:

                  Since the end of the third  quarter of 1999,  the  Company has
                  not filed any Current Reports on Form 8-K.



                                      -40-
<PAGE>




                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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,  in the City of New
York, State of New York, on the 31st day of March, 2000.

                                        THE LESLIE FAY COMPANY, INC.

                                        By:     /s/ John J. Pomerantz
                                           -------------------------------------
                                              John J. Pomerantz
                                              Chief  Executive  Officer  and
                                              Chairman of the Board of Directors


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been signed by the  following  persons on behalf of the Company
and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>



                     Signatures                                         Title                                Date
                     ----------                                         -----                                ----
<S>                                                   <C>                                      <C>
    /s/John J. Pomerantz                               Chief Executive Officer                   March 31, 2000
-----------------------------------------
        John J. Pomerantz                              Chairman of the Board of
                                                       Directors

    /s/Warren T. Wishart                               Chief Financial and Accounting Officer    March 31, 2000
---------------------------------------
        Warren T. Wishart

    /s/John A. Ward                                    Director                                  March 31, 2000
---------------------------------------
        John A. Ward

    /s/Clifford B. Cohn                                Director                                  March 31, 2000
---------------------------------------
        Clifford B. Cohn

    /s/Mark Kaufman                                    Director                                  March 31, 2000
---------------------------------------
        Mark Kaufman

    /s/Bernard Olsoff                                  Director                                  March 31, 2000
---------------------------------------
        Bernard Olsoff

        Robert L. Sind                                 Director                                  March __, 2000
---------------------------------------
        Robert L. Sind

</TABLE>

                                      -41-
<PAGE>

<TABLE>
<CAPTION>


<S>                                                   <C>                                      <C>
    /s/H. Whitney Wagner                               Director                                  March 31, 2000
---------------------------------------
        H. Whitney Wagner

    /s/Thomas G. Weld                                  Director                                  March 31, 2000
---------------------------------------
        Thomas G. Weld

</TABLE>


                                      -42-
<PAGE>



                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                                       Page No.
                                                                       --------

Report of Independent Public Accountants                               F - 2

Consolidated Financial Statements:

         Consolidated Balance Sheets                                   F - 3

         Consolidated Statements of Operations                         F - 4

         Consolidated Statements of Stockholders' Equity               F - 5

         Consolidated Statements of Cash Flows                         F - 6

         Notes to Consolidated Financial Statements                    F - 7

Financial Statement Schedule:

         Schedule II-Valuation and Qualifying Accounts                 F-33




                                      F-1
<PAGE>




Report of Independent Public Accountants
----------------------------------------

To the Stockholders and Board of Directors of
The Leslie Fay Company, Inc.:

     We have audited the accompanying  consolidated balance sheets of The Leslie
Fay Company, Inc. (a Delaware corporation and formerly The Leslie Fay Companies,
Inc.) and  subsidiaries  as of  January 1, 2000 and  January  2,  1999,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the fiscal  years  ended  January 1, 2000,  and  January 2, 1999,  the
thirty-one  weeks ended January 3, 1998, and the twenty-two  weeks ended June 4,
1997. These consolidated financial statements and the schedule referred to below
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these consolidated financial statements and schedule based
on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     As more fully described in Note 2 to the consolidated financial statements,
effective June 4, 1997, the Company emerged from protection  under Chapter 11 of
the U.S.  Bankruptcy Code pursuant to a Reorganization  Plan which was confirmed
by the Bankruptcy Court on April 21, 1997. In accordance with AICPA Statement of
Position 90-7, the Company adopted "Fresh Start  Reporting"  whereby its assets,
liabilities  and new capital  structure were adjusted to reflect  estimated fair
values as of June 4, 1997. As a result,  the consolidated  financial  statements
for the periods subsequent to June 4, 1997 reflect the Reorganized Company's new
basis  of  accounting  and  are  not  comparable  to the  Predecessor  Company's
pre-reorganization consolidated financial statements.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of The Leslie Fay Company, Inc.
and  subsidiaries  as of January 1, 2000 and January 2, 1999 and the results of
their  operations  and their cash flows for the fiscal  years  ended  January 1,
2000, and January 2, 1999,  the thirty-one  weeks ended January 3, 1998, and the
twenty-two  weeks ended June 4, 1997 in conformity  with  accounting  principles
generally accepted in the United States.





                                      F-2
<PAGE>




     Our  audits  were made for the  purpose  of forming an opinion on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index to
consolidated  financial  statements  is presented  for the purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial  statements.   This  schedule  has  been  subjected  to  the  auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion,  fairly states in all material  respects the financial data required to
be set forth therein in relation to the basic  financial  statements  taken as a
whole.




                                                            Arthur Andersen LLP
New York, New York
February 29, 2000




                                      F-3
<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>


                                                                               JANUARY 1,             JANUARY 2,
                                ASSETS                                            2000                   1999
                                ------                                            ----                   ----
<S>                                                                           <C>                    <C>
Current Assets:
    Cash and cash equivalents.......................................                  $2,034                  $ 946
    Restricted cash and cash equivalents............................                   3,432                  3,267
    Accounts receivable- net of allowances for possible losses of
       $5,468 and $6,825, respectively..............................                  16,952                 16,172
    Inventories.....................................................                  34,226                 38,627
    Prepaid expenses and other current assets.......................                   2,702                    970
                                                                                      ------                 ------
       Total Current Assets.........................................                  59,346                 59,982
    Property, plant and equipment, at cost, net of accumulated
       depreciation of $1,535 and $409, respectively................                   3,695                  2,781
    Excess of purchase price over net assets acquired, net of
       accumulated amortization of $357 and $50, respectively.......                   4,330                  4,490
    Deferred charges and other assets...............................                   1,629                    551
                                                                                      ------                 ------
    Total Assets....................................................                 $69,000                $67,804
                                                                                     =======                =======

                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:

    Short term debt.................................................                 $ 1,000                $ 1,162
    Accounts payable................................................                   9,454                 12,070
    Accrued expenses and other current liabilities..................                   8,121                  7,486
    Accrued expenses and other current confirmation liabilities.....                   3,432                  3,267
    Income taxes payable............................................                       -                    371
    Current portion of capitalized leases...........................                      40                     48
                                                                                      ------                 ------
       Total Current Liabilities....................................                  22,047                 24,404

    Long term note payable..........................................                   4,000                      -

    Excess of  revalued  net assets  acquired  over  equity  under  fresh  start
         reporting, net of accumulated amortization of $11,811
       and $7,239, respectively.....................................                   1,897                  6,469
    Long term debt-capitalized leases...............................                      52                     17
    Deferred liabilities............................................                     863                    477
                                                                                      ------                 ------
    Total Liabilities...............................................                  28,859                 31,367
                                                                                      ------                 ------

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.....................................                  31,212                 28,824
  Retained earnings.................................................                  20,483                 12,167
                                                                                      ------                 ------
    Subtotal........................................................                  51,764                 41,060
 Treasury stock, at cost; 1,817 and 817 shares, respectively........                  11,623                  4,623
                          -----     ---                                               ------                  -----
    Total Stockholders' Equity......................................                  40,141                 36,437
                                                                                      ------                 ------
 Total Liabilities and Stockholders' Equity.........................                 $69,000                $67,804
                                                                                     =======                =======
</TABLE>


           The accompanying Notes to Consolidated Financial Statements
           are an integral part of these consolidated balance sheets.

                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                                           THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                          (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                                                                                                         PREDECESSOR
                                                                               REORGANIZED COMPANY                         COMPANY
                                                                               -------------------                         -------

                                                                  FIFTY-TWO        FIFTY-TWO          THIRTY-ONE          TWENTY-TWO
                                                              WEEKS ENDED         WEEKS ENDED        WEEKS ENDED         WEEKS ENDED
                                                                JANUARY 1,         JANUARY 2,         JANUARY 3,           JUNE 4,
                                                                      2000            1999               1998                1997
<S>                                                          <C>                 <C>               <C>                 <C>
Net Sales..............................................              $197,446          $152,867             $73,091      $197,984
Cost of Sales..........................................               148,690           115,547              58,719       147,276
                                                                     --------          --------             -------      --------
   Gross profit........................................                48,756            37,320              14,372        50,708
                                                                     --------          --------             -------      --------
Operating Expenses:
      Selling, warehouse, general and
         administrative expenses.......................                37,940            28,076              13,299        35,459
                                                                                                                               --
   Non-cash stock based compensation...................                 1,380             1,724                 351

   Depreciation and amortization expense...............                 1,367               406                  14         2,090
                                                                     --------          --------             -------      --------
       Total operating expenses........................                40,687            30,206              13,664        37,549

   Other (income)......................................               (1,498)           (1,334)                           (1,196)
                                                                                                              (947)
   Amortization of excess revalued net assets acquired
       over equity.....................................               (4,572)           (4,572)            ( 2,667)            --
                                                                     --------          --------             -------      --------
   Total operating expenses, net.......................                34,617            24,300              10,050        36,353
                                                                     --------          --------             -------      --------
   Operating income....................................               14,139            13,020               4,322        14,355

 Interest and Financing Costs (excludes
   contractual Interest of $-0-, $-0-, $-0-
   and $7,513, respectively)...........................                2,258               950                 336         1,372
 Other Expenses........................................                  911                --                    --          --
                                                                     --------          --------             -------      --------
      Income before reorganization costs, taxes, gain
           on sale, fresh-start revaluation and
             extraordinary item........................               10,970            12,070               3,986        12,983
Reorganization Costs...................................                   --                --                  --         3,379
                                                                     --------          --------             -------      --------
   Income before taxes, gain on sale, fresh-start
       revaluation and extraordinary item..............                10,970            12,070               3,986         9,604

Provision  for taxes...................................                 2,654             3,212                 677           451
                                                                     --------          --------             -------      --------
   Net Income before gain on sale, fresh-start
       revaluation and extraordinary item                               8,316             8,858               3,309         9,153
 Gain on  disposition  of Sassco  Fashions line (net of
    $3,728 of income taxes), loss on revaluation of assets
    pursuant to adoption of fresh-start  reporting and
   extraordinary gain on debt discharge                                    --                --                  --       136,341
                                                                     --------          --------             -------      --------
   Net Income .........................................                $8,316            $8,858              $3,309      $145,494
                                                                    =========         =========           =========      =========
   Net Income  per Share - Basic.......................                 $1.46             $1.35               $0.49         *
                                                                    =========         =========           =========      =========
                         - Diluted ....................                 $1.39             $1.31               $0.48         *
                                                                    =========         =========           =========      =========
Weighted Average Shares Outstanding - Basic............             5,688,347         6,553,637           6,800,000         *
                                                                    =========         =========           =========      =========

                                   - Diluted...........             5,967,711         6,777,614           6,917,130         *
</TABLE>



          *Earnings per share is not presented for the twenty-two weeks
             ended June 4, 1997 because such presentation would not
               be meaningful. The old stock was canceled under the
                plan of reorganization and the new stock was not
                       issued until the consummation date.

           The accompanying Notes to Consolidated Financial Statements
        are an integral part of these consolidated financial statements.




                                     F-5
<PAGE>


<TABLE>
<CAPTION>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)






                                                                                CAPITAL IN
                                                        COMMON STOCK            EXCESS OF     RETAINED       TREASURY STOCK

                                                    SHARES        PAR VALUE     PAR VALUE     EARNINGS      SHARES      AMOUNT
<S>                                                 <C>           <C>         <C>           <C>            <C>          <C>

BALANCE AT DECEMBER 28, 1996                          20,000,000      $20,000        $49,012   ($202,105)   1,228,164  ($12,966)
Comprehensive Income

   Net Income                                                 --           --             --      145,494          --         --
   Revaluation Adjustment                                     --           --             --       56,611          --         --
   Extinguishment of Old Stock                      (20,000,000)     (20,000)       (49,012)           -- (1,228,164)     12,966
   New Stock Issuance                                  3,400,000           34         24,966           --          --         --

   As previously reported 2-for-1 stock
     split effective July 1, 1998                      3,400,000           34           (34)           --          --         --

REORGANIZED AS OF JUNE 4, 1997                         6,800,000          $68        $24,932         $ --          --       $ --

Balance at June 4, 1997                                6,800,000          $68        $24,932         $ --          --     $
                                                                                                                              --
   Net Income                                                 --           --             --        3,309          --         --
   Use of Pre-Consummation Deferred Taxes                     --           --            554           --          --         --
   SFAS No. 123 - Stock Option Compensation                   --           --            351           --          --         --

BALANCE AT JANUARY 3, 1998                             6,800,000          $68        $25,837       $3,309          --       $ --
   Net Income                                                 --           --             --        8,858          --         --

   New Stock Issuance                                     58,238            1            231           --          --         --
   Treasury Stock Repurchase                                  --           --             --           --     817,100    (4,623)

   Use of Pre-Consummation Deferred Taxes                     --           --          1,084           --          --         --

   SFAS No. 123 - Stock Option Compensation                   --           --          1,672           --          --         --

BALANCE AT JANUARY 2, 1999                             6,858,238          $69                                 817,100   ($4,623)
                                                                                 $28,824       $12,167


   Net Income                                                 --           --             --        8,316          --         --

   New Stock Issuance                                     12,000           --             82           --          --         --
   Treasury Stock Repurchase                                  --           --             --           --   1,000,000   ($7,000)

   Use of Pre-Consummation Deferred Taxes                     --           --            997           --          --         --
   SFAS No. 123 - Stock Option Compensation                   --           --          1,309           --          --         --

BALANCE AT JANUARY 1, 2000                             6,870,238          $69                               1,817,100  ($11,623)
                                                                                 $31,212       $20,483
</TABLE>









 ACCUMULATED       TOTAL
    OTHER      STOCKHOLDERS'      TOTAL
COMPREHENSIVE    (DEFICIT)    COMPREHENSIVE

     INCOME        EQUITY          INCOME


           $581   ($145,478)


             --      145,494         $145,494
             --       56,611
          (581)     (56,627)
             --       25,000


             --           --

           $ --      $25,000

           $ --      $25,000

             --        3,309           $3,309
             --          554
             --          351

           $ --      $29,214
             --        8,858           $8,858

             --          232
             --      (4,623)

             --        1,084

             --        1,672

           $ --      $36,437



             --        8,316           $8,316

             --           82
             --     ($7,000)

             --          997
             --        1,309

           $ --      $40,141
























    The accompanying Notes to Consolidated  Financial Statements are an integral
part of these consolidated financial statements.

                                      F-6

<PAGE>


                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>


                                                                                                                      PREDECESSOR
                                                                                REORGANIZED COMPANY                     COMPANY
-----------------------------------------------------------------------------------------------------------------------------------

                                                                  FIFTY-TWO          FIFTY-TWO       THIRTY-ONE WEEKS    TWENTY-TWO
                                                                 WEEKS ENDED        WEEKS ENDED      ENDED JANUARY 3,   WEEKS ENDED
                                                                 JANUARY 1,          JANUARY 2,            1998          JUNE 4,
                                                                    2000                1999                               1997
                                                                    ----                ----                               ----
<S>     <C>    <C>    <C>    <C>    <C>    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income .............................................     $8,316             $8,858             $3,309           $145,494
   Adjustments  to  reconcile  net  income  to net cash
     provided by (used  in) operating activities:
     Depreciation and amortization.........................      1,433                445                 14              2,222
     Amortization of excess net assets acquired over equity    (4,572)            (4,572)            (2,667)                 --
     Provision for possible losses on accounts receivable..         --               (22)              (182)                199
     Provision for stock based compensation and stock
     option grants.........................................      1,380              1,724                351                 --
     Gain on sale of fixed assets..........................         --                 --                 --              (347)
     Changes in assets and liabilities, net of impact of
      acquisition:
       Restricted short-term investments...................         --              2,989            (2,989)                 --
       Accounts receivable.................................      (780)            (8,155)             6,845             (1,248)
       Inventories.........................................      4,401           (10,354)            (7,586)             25,538
       Prepaid expenses and other current assets...........    (1,769)              (148)                377               (66)
       Deferred charges and other assets...................    (1,078)              (402)              (149)                125
       Accounts payable, accrued expenses and other current
           liabilities.....................................    (1,109)                359            (6,544)            (4,167)
       Income taxes payable................................      (371)                346              (806)            (1,515)
       Deferred liabilities................................        386                334                143                374
     Changes due to reorganization activities:
       Gain on disposition of Sassco Fashions line,
         fresh-start                                                --                 --                 --          (136,341)
          revaluation and extraordinary gain on debt
         discharge
       Reorganization costs................................         --                 --                 --              3,379
       Payment of reorganization costs.....................         --                 --                 --              (917)
       Use of pre-consummation deferred taxes..............        997              1,084                554                --
                                                                 -----           -------             ------              ------
         Total adjustments.................................    (1,082)           (16,372)           (12,639)          (112,764)
                                                                 -----           -------             ------              ------
         Net cash provided by (used in) operating activities     7,234            (7,514)            (9,330)             32,730
                                                                 -----           -------             ------              ------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures....................................    (1,965)            (2,331)              (859)            (3,731)
   Net cash paid for acquisition...........................       (97)            (1,250)                 --                 --
   Merger costs............................................      (874)                 --                 --                 --
   Proceeds from sale of assets............................         --                 --                 --                467
   Proceeds from sale of Castleberry.......................         --                 --                 --                600
   Cash paid to sell/transfer the Sassco Fashions line-----         --                 --                 --           (10,963)
                                                                 -----           -------             ------              ------
         Net cash (used in) investing activities...........    (2,936)            (3,581)              (859)           (13,627)
                                                                 -----           -------             ------              ------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from borrowings ...............................     65,851              1,162                 --                 --
   Repayment of borrowings ................................   (66,179)                 --                 --                 --
   Proceeds from notes payable ............................      5,000                 --                 --                 --
   Repayment of  notes payable ............................      (834)                 --                 --                 --
   Treasury stock repurchase...............................    (7,000)            (4,623)                                    --
   Proceeds from new stock issuance and options exercised..         --                180                 --                 --
   Capital leases .........................................       (48)              (144)              (135)                 --
   Proceeds (payments) of obligations under Plan
   of                           Reorganization, net........        165            (1,080)           (10,943)                 --
                                                                 -----           -------             ------              ------
             Net cash (used in) financing activities.......    (3,045)            (4,505)           (11,078)                 --
                                                                 -----           -------             ------              ------
   Net  increase (decrease) in cash and cash equivalents...      1,253           (15,600)           (21,267)             19,103

   Cash and cash equivalents, at beginning of period.......      4,213            19,813              41,080             21,977
                                                                 -----           -------             ------              ------

   Cash and cash equivalents, at end of period.............     $5,466             $4,213            $19,813            $41,080
                                                                ======             ======            =======            =======

</TABLE>

       The  accompanying  Notes  to  Consolidated  Financial  Statements  are an
integral part of these consolidated financial statements.


                                      F-7
<PAGE>





                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   BASIS OF PRESENTATION AND ORGANIZATION:

         The  consolidated   financial  statements  included  herein  have  been
prepared by The Leslie Fay Company,  Inc.  (formerly  The Leslie Fay  Companies,
Inc.)  and   subsidiaries   (The  Leslie  Fay  Company,   Inc.  being  sometimes
individually  referred  to,  and  together  with its  subsidiaries  collectively
referred to, as the  "Company" as the context may require),  in accordance  with
generally accepted accounting principles.  The Company's fiscal year ends on the
Saturday  closest to December  31st.  The fiscal  years  ended  January 1, 2000,
January 2, 1999 and January 3, 1998 included 52, 52 and 53 weeks, respectively.

         As a result of the  consummation  of the Joint  Plan of  Reorganization
(the "Plan" - see Note 2) and the adoption of  fresh-start  reporting  under the
American Institute of Certified Public Accountants'  Statement of Position 90-7,
"Financial  Reporting by Entities in  Reorganization  Under the Bankruptcy Code"
("SOP 90-7"),  the Company's results for the twenty-two weeks ended June 4, 1997
reflect the effects of the adoption of fresh-start reporting and consummation of
the Plan. The significant  fresh-start  reporting  adjustments are summarized in
Note 2.

2.   REORGANIZATION CASE AND FRESH-START REPORTING:

         On April 5, 1993 ("the Filing Date"),  The Leslie Fay  Companies,  Inc.
("Leslie Fay") and each of Leslie Fay Licensing Corp., Spitalnick Corp. and Hue,
Inc.,  wholly-owned  subsidiaries  of Leslie Fay  (collectively  the "Debtors"),
filed  a  voluntary  petition  under  Chapter  11 of the  Bankruptcy  Code  (the
"Bankruptcy  Code").  The  Debtors  operated  their  businesses  as  debtors  in
possession  subject to the  jurisdiction  and  supervision  of the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
Pursuant to an order of the Bankruptcy  Court,  the individual  Chapter 11 cases
were consolidated for procedural purposes only and were jointly  administered by
the Bankruptcy Court.

         On November  15,  1995,  Leslie Fay Retail  Outlets,  Inc.;  Leslie Fay
Factory Outlet (Alabama),  Inc.; Leslie Fay Factory Outlet  (California),  Inc.;
Leslie  Fay  Factory  Outlet  (Iowa),   Inc.;  and  Leslie  Fay  Factory  Outlet
(Tennessee),  Inc., all  wholly-owned  subsidiaries of Leslie Fay  (collectively
referred to as the "Retail Debtors") filed voluntary  petitions under Chapter 11
of the Bankruptcy  Code. The Retail Debtors operated their businesses as debtors
in  possession  following  the November  15, 1995 filing date while  pursuing an
orderly  liquidation  of their assets,  also under Chapter 11 of the  Bankruptcy
Code.




                                      F-8
<PAGE>


         In the Chapter 11 cases,  substantially  all liabilities as of April 5,
1993 (the "Filing Date"),  were subject to compromise under the Plan. As part of
the cases,  the Debtors and Retail Debtors  notified all known claimants for the
purpose of identifying all pre-petition  claims against them. Pursuant to orders
of the  Bankruptcy  Court,  all  proofs of claim  were  required  to be filed by
December  10, 1993  against the Debtors and December 12, 1995 against the Retail
Debtors.  Excluded  from the  requirement  to file by the  December 10, 1993 bar
date, among others, were certain claims by the Internal Revenue Service ("IRS"),
which were required to be filed by March 31, 1995. On April 8, 1996, the Debtors
and Retail Debtors filed amended  schedules of  liabilities  with the Bankruptcy
Court which  established  May 8, 1996 as the  supplemental  bar date for certain
creditors.

         On October  31,  1995,  the  Debtors  and the  Committee  of  Unsecured
Creditors (the "Creditors  Committee")  filed the Plan pursuant to Chapter 11 of
the  Bankruptcy  Code.  The Plan was  subsequently  amended  on March 13,  1996,
December 5, 1996,  February 3, 1997 and February 28, 1997.  On December 5, 1996,
the  Debtors  filed  a  Disclosure  Statement  for  the  Amended  Joint  Plan of
Reorganization  pursuant to Chapter 11 of the Bankruptcy  Code (the  "Disclosure
Statement"),  which  was also  subsequently  amended  on  February  3,  1997 and
February 28, 1997. The Plan provided for, among other things,  the separation of
the Debtors' estates and assets into two separate  reorganized  entities.  Under
the Plan,  stockholders of the Company would not retain or receive any value for
their interest. The Debtors obtained Bankruptcy Court approval of the Disclosure
Statement on February 28, 1997.  The Plan was approved by the  creditors  and on
April 21, 1997,  the  Bankruptcy  Court  confirmed the Plan. The total number of
claims, after resolution of the claims objection process, approximated 4,300 and
the claims' value aggregated approximately $338,000,000.

         On June 4, 1997 (the "Consummation  Date"), the Plan was consummated by
the Company 1)  transferring  the equity interest in both the Company and Sassco
Fashions,  Ltd.  ("Sassco"),  which changed its name to Kasper  A.S.L.,  Ltd. on
November 5, 1997,  to its  creditors in exchange  for relief from the  aggregate
amount  of the  claims  estimated  at  $338,000,000;  2)  assigning  to  certain
creditors  the ownership  rights to notes  aggregating  $110,000,000  payable by
Sassco;  and 3)  transferring  the assets  (including  $10,963,000  of cash) and
liabilities  of the  Company's  Sassco  Fashions  product line to Sassco and the
assets  and  liabilities  of its Dress  and  Sportswear  product  lines to three
wholly-owned  subsidiaries  of the Company.  In addition,  the Company  retained
approximately $41,080,000 in cash of which $23,580,000 was to pay administrative
claims as defined in the Plan. As provided for in the Plan,  the Company  issued
seventy-nine  (79%) percent of its 6,800,000 new shares to its creditors in July
1997. The remaining  twenty-one  (21%) percent was issued,  but was held back by
the Plan  Administrator  pending the resolution of certain litigation before the
Bankruptcy Court.  During the period of February 15, 1999 through March 5, 1999,
approximately  1,250,000  shares  were  distributed   representing  88%  of  the
previously  undistributed shares. In August 1999, the Plan Administrator elected
to receive  $7.00 per share in cash for 140,660 of the  remaining  undistributed
shares in  connection  with the merger  transaction  with an  affiliate of Three
Cities Research,  Inc. ("Three Cities")  summarized in Note 10. As of January 1,
2000, the Plan Administrator still maintains  possession of 39,420 undistributed
shares of common stock of the Company. The existing  stockholders of the Company
at June 4, 1997 did not retain or receive any value for their equity interest in
the Company.





                                      F-11
<PAGE>




         In  accordance  with the Plan,  the  remaining  liabilities  subject to
compromise  were  discharged and the Company  recognized a gain of  $73,541,000,
which  is  reflected  as  an  extraordinary   gain  on  debt  discharge  in  the
consolidated  statement of  operations  for the  twenty-two  weeks ended June 4,
1997.

Fresh-Start Reporting
---------------------

         Pursuant to the guidelines  provided by SOP 90-7,  the Company  adopted
fresh-start  reporting and reflected the  consummation  distributions  under its
Plan in the consolidated balance sheet as of June 4, 1997 (the effective date of
the  consummation  of the  Plan  for  accounting  purposes).  Under  fresh-start
reporting,  the Company's  reorganization  value of $25,000,000 was allocated to
its net assets on the basis of the purchase method of accounting.

         The  significant  fresh-start  reporting  adjustments are summarized as
follows:

          1.   Cancellation of the old common stock pursuant to the Plan against
               the accumulated deficit.

          2.   Allocation  of the  fair  market  value of the  identifiable  net
               assets in excess of the reorganization  value (negative goodwill)
               in  accordance  with  the  purchase  method  of  accounting.  The
               negative  goodwill amount  remaining  after reducing  non-current
               assets  acquired  to zero  was  recorded  as a  deferred  credit,
               "Excess  of  revalued  net  assets  acquired  over  equity  under
               fresh-start  reporting"  and is being  amortized  over  three (3)
               years.

         The  resulting   charge  of  $27,010,000   from  all  the   fresh-start
adjustments,  including  the  write-off of all revalued  noncurrent  assets (but
excluding the write-off of the old stock for $56,611,000), is presented as "loss
on revaluation of assets  pursuant to adoption of fresh-start  reporting" in the
consolidated  statement of  operations  for the  twenty-two  weeks ended June 4,
1997.

         The  fresh-start  reporting  reorganization  value of  $25,000,000  was
established as the midpoint of a range  ($20,000,000 - $30,000,000)  established
by the Company's financial advisors. The calculation of the range was based on a
five-year  analysis of the  Company's  projected  operations  for the  remaining
operating product lines (fiscal years ended 1996 - 2001),  which was prepared by
management, and a discounted cash flow methodology was applied to those numbers.

         The  five-year  cash  flow  projections  were  based on  estimates  and
assumptions  about  circumstances  and events that had not yet taken place. Such
estimates and  assumptions  are inherently  subject to significant  economic and
competitive  uncertainties and contingencies  beyond the control of the Company,
including,  but not limited to, those with  respect to the future  course of the
Company's business activity.





                                      F-12
<PAGE>



3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(A)  BUSINESS -

         The Company is principally engaged in the design,  manufacture and sale
of diversified lines of women's apparel. The Company's products focus on career,
social occasion and evening clothing. The Company currently operates in one line
of  business  women's  apparel.  The  operations  of the  Company  are  directed
principally by the Chief Executive Officer, with the consensus of the management
team and Board of Directors.  The Company utilizes a common support platform for
the management of its operations, consisting of uniform distribution, inventory,
management  strategies and marketing  approaches,  as well as a shared financial
and accounting  organization and universal  information systems. All business is
domestic in nature with no sales outside the U.S.

(B)  PRINCIPLES OF CONSOLIDATION -

         The  consolidated  financial  statements  include  the  accounts of the
Company  and  its  subsidiaries.   All  significant  intercompany  balances  and
transactions have been eliminated in consolidation.

(C)  CASH EQUIVALENTS AND SHORT TERM INVESTMENTS -

         All highly liquid investments with an original maturity of three months
or less at the date of  acquisition  are  classified  as cash  equivalents.  The
carrying amount of cash equivalents approximates fair value. At January 1, 2000,
$3,432,000  of  restricted  cash,   included  within  cash  equivalents  on  the
consolidated  statement of cash flows, will be used to pay administrative claims
as defined in the Plan.

(D)  INVENTORIES -

         Inventories  are  valued  at the  lower of cost  (first-in,  first-out;
"FIFO") or market.

(E)  PROPERTY, PLANT AND EQUIPMENT -

         Land,  buildings,  fixtures,  equipment and leasehold  improvements are
recorded at cost.  Property  under capital lease is recorded at the lower of the
net present value of the lease  payments or the fair market value when acquired.
Major  replacements or betterments are capitalized.  Maintenance and repairs are
charged to earnings as incurred. For financial statement purposes,  depreciation
and  amortization  are  computed  utilizing  the  straight-line  method over the
estimated useful lives of the assets.




                                      F-13
<PAGE>




 (F) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED -

         The excess of purchase  price over net assets  acquired of  $4,330,000,
which is net of  accumulated  amortization,  as of January 1, 2000 resulted from
the acquisition by the Company of certain specific assets and liabilities of The
Warren Apparel Group Ltd. on October 27, 1998. The asset is being amortized on a
straight-line basis over a fifteen-year  period. The Company  incorporated those
assets  acquired,  relating to better  priced day,  social and evening  occasion
dresses, into the Dress Product Line.

         The  Company   reviews   goodwill   on  a  periodic   basis  to  assess
recoverability from future operations using undiscounted cash flows. Impairments
are  recognized in operating  results to the extent that carrying  value exceeds
fair value.

(G) EXCESS OF  REVALUED  NET  ASSETS  ACQUIRED  OVER  EQUITY  UNDER  FRESH-START
REPORTING -

         Upon  consummation  of the Plan,  the Company  revalued  its assets and
liabilities in accordance with the purchase  method of accounting.  The revalued
net assets under fresh-start  reporting exceeded the equity value of the Company
by  $13,708,000.  This  negative  goodwill  amount  is  being  amortized  over a
three-year period ending in May 2000.

(H)  INCOME TAXES -

         The Leslie Fay Company and its subsidiaries file a consolidated Federal
income tax  return  and  record  their tax  expense  and  liabilities  under the
liability  method (see Note 8).  Under this method,  any  deferred  income taxes
recorded  are provided for at  currently  enacted  statutory  rates based on the
differences  in the  basis  of  assets  and  liabilities  for tax and  financial
reporting  purposes.  If recorded,  deferred  income taxes are classified in the
balance  sheet as current or  non-current  based  upon the  underlying  asset or
liability.

         No provision  has been made for Federal  income taxes on  approximately
$24,200,000 of foreign  earnings of  subsidiaries,  repatriated as a part of the
Plan as of June 4, 1997, as the Company's net operating  loss  carryforward  was
utilized to offset the repatriation.

(I)  NET INCOME PER SHARE -

         Net income per share is based on the  weighted  average  common  shares
outstanding and the common stock  equivalents that would arise from the exercise
of stock  options,  if dilutive in accordance  with SFAS No. 128 - "Earnings Per
Share".  Basic earnings per share  represents net income divided by the weighted
average shares  outstanding.  Diluted  earnings per share  represents net income
divided by the weighted average shares outstanding  adjusted for the incremental
dilution of outstanding  employee stock options and awards,  if dilutive,  using
the treasury stock method.

         For the years ended January 1, 2000, January 2, 1999 and the thirty-one
weeks  ended  January  3,  1998,  the  basic  weighted   average  common  shares
outstanding was 5,688,347,  6,553,637 and 6,800,000,  respectively. The weighted
average  shares  outstanding  assuming  dilution was  5,967,711,  6,777,614  and
6,917,130  as of  January  1,  2000,  January  2,  1999  and  January  3,  1998,
respectively.  The  differences of 279,364,  223,977 and 117,130,  respectively,
relate to  incremental  shares  issuable  relating  to  dilutive  stock  options
calculated using the treasury stock method.




                                      F-14
<PAGE>




(J)  PRIOR YEARS' RECLASSIFICATION -

         Certain  items  previously   reported  in  specific   captions  in  the
accompanying consolidated financial statements have been reclassified to conform
with the current year's presentation.

(K) USE OF ESTIMATES -

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure  of  contingent  gains  and  losses  at the  date  of  the  financial
statements and the reported amounts of revenues and expenses during the reported
period.
Actual results could differ from those estimates.

4.    ACQUISITIONS:

         On October 27, 1998, the Company purchased certain assets of The Warren
Apparel  Group Ltd.  ("Warren").  Warren was a  privately  owned  wholesaler  of
women's  career,  social  occasion and evening  dresses sold in  department  and
specialty stores nationwide  primarily under the "David Warren",  "DW3", "Warren
Petites",  "Reggio"  and  "Rimini"  brands.  These  brands  were merged into the
Company's  Dress Product Line. The Company  received all rights and ownership of
the  trademarks  related  to  the  brand  names  listed  above  as  part  of the
transaction.  This  transaction  generated an excess of purchase  price over net
assets  acquired of  $4,687,000,  which the Company  elected to amortize  over a
fifteen year period.

         The Company  financed the acquisition of Warren through  operating cash
flow, and a non-interest bearing note to the former owners of Warren,  amounting
to  $834,000,  which was paid over one year.  The  Warren  acquisition  has been
accounted for as a purchase,  and, accordingly,  the operating results of Warren
have been included in the Company's  consolidated financial statements since the
date of the acquisition.

The purchase price allocation as of January 1, 2000 is as follows:

                                                              (In thousands)
Payment for purchase of Warren assets:
     Cash paid at closing                                       $1,250
     Note to Warren shareholders                                   834
     Price adjustment due the Company                             (497)
Assumed liabilities                                              2,192
Acquisition and integration costs and reserves                   1,880
                                                                 -----
Total purchase price                                           $5,659

Fair value of assets acquired, primarily inventory                (972)
                                                                 -----

Excess of purchase price over net assets acquired               $4,687
                                                                ======


                                      F-15
<PAGE>



         The  following  summarized  unaudited  pro forma  combined  results  of
operations  for the  fifty-three  week  period  ended  January  3, 1998 has been
prepared  assuming the Warren  acquisition  occurred at the  beginning of fiscal
1997.  The former owners of the Warren  business were unable to provide the 1998
financial  statements  in order for the  Company to  compute  the 1998 pro forma
combined results. However,  unaudited combined net sales for the fifty-two weeks
ended January 2, 1999 were $182,701,000.

         The unaudited pro forma  information also assumes that the consummation
of the Plan and resulting fresh start  adjustments  occurred as of the beginning
of  fiscal  1997  and,  as a  result,  excludes  the  operations  of  all of the
businesses  disposed  of  as  a  part  of  the  Reorganization.  The  pro  forma
information  is provided for  informational  purposes  only and does not contain
estimates  of synergies  which  management  believes  would have  occurred  upon
consolidation.  It is  based  on  historical  information,  as well  as  certain
assumptions and estimates,  and does not necessarily  reflect the actual results
that would have occurred nor is it  necessarily  indicative of future results of
operations of the combined company:
                                           (In thousands, except per share data)
                                                       Unaudited
                                                       ---------

Net sales                                              $166,598
Net income                                                6,170
Net income per share:
   - Basic                                                $0.91
   - Diluted                                              $0.90


5.   INVENTORIES:

         Inventories consist of the following:
<TABLE>
<CAPTION>


                                                           January 1,        January 2,
                                                              2000              1999
                                                              ----              ----
<S>                                                        <C>              <C>
  (In thousands)

  Raw materials                                             $14,338          $10,763

  Work in process                                             3,654            2,613

  Finished goods                                             16,234           25,251
                                                             ------           ------
     Total inventories                                      $34,226          $38,627
                                                            =======          =======

</TABLE>



                                      F-16
<PAGE>



6.   PROPERTY, PLANT AND EQUIPMENT:

         Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>

                                                             January 1,     January 2,    Estimated
                                                                2000         1999         Useful Life
                                                                ----         ----         -----------
  (In thousands)
<S>                                                          <C>          <C>           <C>
  Machinery, equipment and fixtures                           $4,287       $2,651        5 - 10 years
  Building and leasehold improvements                            682          238          Various
  Construction in progress                                       261          301          N/A
                                                              ------       ------
     Property, plant and equipment, at cost                    5,230        3,190
  Less: Accumulated depreciation
    and amortization                                          (1,535)        (409)
                                                              ------       ------
  Total property, plant and equipment, net                  $  3,695     $  2,781
                                                            ========     ========
</TABLE>

7.   DEBT:

(A) CIT CREDIT AGREEMENT -

         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% (8.25% at
January 1, 2000) 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 $29,815,000
on January 1, 2000 and peak borrowing  during the fifty-two  weeks ended January
1, 2000 was $16,157,000.  There were no direct borrowings  outstanding under the
CIT Credit Agreement and approximately $12,185,000 was committed under unexpired
letters of credit as of January 1, 2000.  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 January 1, 2000),  which was used to repurchase
1,000,000 shares of the Company's common stock. (See Note 10.).




                                      F-17
<PAGE>



         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 Warren acquisition
as well as the Liz Claiborne Licensing Agreement, permitting the Company's stock
buy-back  program,  extending  the  CIT  Credit  Agreement  and  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|  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 to
     $25,000,000 from  $20,000,000.  The limit on inventory based collateral has
     been raised to $21,000,000 from $12,000,000 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.

|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 payment or stock repurchase.  Borrowing  availability
     before and after the making of any such  dividend or stock  repurchase  can
     not  be  less  than  $5,000,000.  As  of  January  1,  2000,  approximately
     $3,034,000 of this amount remains available.

|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.

         The CIT  Credit  Agreement,  as  amended,  contains  certain  reporting
requirements,  as well as financial and operating  covenants  related to capital
expenditures,  minimum  tangible net worth,  maintenance  of a current assets to
current  liabilities ratio, and an interest to earnings ratio and the attainment
of minimum earnings. 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 all  requirements
contained in the CIT Credit Agreement.


                                      F-18
<PAGE>


         (b) FNBB Credit Agreement/DIP Credit Agreement -

         The  Company  previously  had  a  facility  for  a  $60,000,000  credit
agreement  with The First  National  Bank of  Boston  ("FNBB")  and  BankAmerica
Business Credit,  Inc.  ("BABC"),  as Facility Agents and FNBB as Administrative
Agent (the "FNBB Credit Agreement").  In connection with the consummation of the
Plan, the Company entered into an agreement (the "Paydown  Agreement")  with its
lenders  under the FNBB Credit  Agreement to paydown any  remaining  obligations
under the FNBB Credit  Agreement and terminate the FNBB Credit Agreement on June
4, 1997. The FNBB Credit Agreement had expired on May 31, 1997, but continued in
effect until the  consummation  of the Plan with the consent of both the lenders
and the Company.

         Direct  borrowings  bore interest at prime plus 1.5% (9.75% at December
28, 1996) and the FNBB Credit  Agreement  required a fee,  payable  monthly,  on
average outstanding letters of credit at a rate of 2% annually.

         The  Company  incurred  $473,000  in  commitment  and  related  fees in
connection  with the credit  facilities for the  twenty-two  weeks ended June 4,
1997.  These fees were amortized as interest and financing  costs over the terms
of the respective agreements.

         Interest  was  not  accrued  during  the  periods   presented  for  the
pre-petition  debt  obligations,  as the  Company  did not  believe  it would be
required to pay it under the Bankruptcy laws.

(C) SHORT-TERM NOTES PAYABLE -

         Partial  payment for the assets acquired from The Warren Apparel Group,
Ltd.  (see  Note 4) was made in the form of a  short-term  note  payable  in the
amount  of  $834,000.  Payment  was made on this  note in four  equal  quarterly
installments ended on October 27, 1999.

(D) LONG-TERM NOTES PAYABLE -

         The Company  borrowed  $5,000,000 and issued a term note payable to CIT
as part of the fifth amendment to its credit agreement (see Note 7(a)) on August
25, 1999 to partially fund the Company's  common stock  repurchase on August 25,
1999 (see Note 10).  The note  bears  interest  at prime  plus 200 basis  points
(10.25%  as of  January  1,  2000).  The note  matures  on June 5,  2004 and the
principal is to be paid on a  sixty-month  straight-line  amortization  schedule
with the  balance  of the  note due at  maturity.  Interest  on the  outstanding
principal is due and payable monthly.



                                      F-19
<PAGE>





8.   INCOME TAXES:

         For the fifty-two,  fifty-two,  thirty-one  and twenty-two  weeks ended
January  1,  2000,   January  2,  1999,  January  3,  1998  and  June  4,  1997,
respectively, the Company recognized the following tax provision (benefit).

<TABLE>
<CAPTION>

                                                                       (In thousands)


                                            Fifty-Two            Fifty-Two            Thirty-One             Twenty-Two Weeks
                                           Weeks Ended          Weeks Ended           Weeks Ended               Ended June
                                           January 1,            January 2,           January 3,                    4,
                                              2000                  1999                 1998                      1997
                                        ----------------      ----------------     -----------------        -----------------
<S>                                     <C>                 <C>                  <C>                       <C>
Current:
             Federal                         $ 3,046              $ 1,851                $ 460                    $ 1,400

             State                               216                  733                  217                      2,428

             Foreign                              --                   --                   --                        351
                                             -------              -------                -----                    -------
                                               3,262                2,584                  677                      4,179
                                             -------              -------                -----                    -------
Deferred:
             Federal                         ( 1,469)               ( 334)                  --                        --

             State                             ( 136)               ( 122)                  --                        --

             Foreign                              --                   --                   --                        --
                                             -------              -------                -----                    -------
                                             ( 1,605)              ( 456)                   --                        --
                                             -------              -------                -----                    -------


Deferred Non-Cash
Pre-Emergence Tax Provision:

             Federal                               374                  675                 --                        --

             State                                 623                  409                 --                        --
                                               -------              -------                -----                    -------
                                                   997                1,084                     --                    --
                                               -------              -------                -----                    -------

Total tax provision  for income taxes
                                                2,654                 3,212                  677                    4,179
Less: Taxes on sale
of Sassco Fashions line
                                                   --                   --                    --                   (3,728)
                                              -------              -------                -----                    -------
Tax provision
for income taxes                             $ 2,654               $ 3,212               $ 677                     $ 451
                                       =     =======        =      =======        =      =====                     =====
</TABLE>


         As a consequence of the adoption of fresh-start  reporting and SFAS No.
109,  any tax  benefits  realized  after the  Consummation  Date  pertaining  to
pre-consummation temporary differences,  as well as for the pre-consummation net
operating  loss  carryforwards,  are reported as  additions  to paid-in  capital
rather than as reductions in the tax provision.




                                      F-20
<PAGE>





         The reconciliation  between the Company's effective income tax rate and
the statutory Federal income tax rate is as follows:
<TABLE>
<CAPTION>

-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
                                            Fifty-Two            Fifty-Two            Thirty-One            Twenty-Two Weeks
                                           Weeks Ended          Weeks Ended           Weeks Ended             Ended June 4,
                                           January 1,            January 2,           January 3,                 1997
                                               2000                 1999                 1998
                                         ---------------      ----------------     ----------
<S>                                    <C>                   <C>                 <C>                         <C>
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
Effective Tax Rate                             24.2%                 26.6%                 17.0%                     2.8%
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----

-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
Net state tax                                ( 4.2%)              ( 5.6%)               ( 5.4%)                  ( 1.3%)
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
Net foreign tax                                --                    --                    --                    ( 0.2%)
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
Intangibles                                    14.2%                 12.9%                23.4%                     --
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
Utilization of net operating
  losses                                       --                    --                    --                      35.0%
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
Other                                          ( 0.2%)                0.1%                  --                     (1.3%)
                                       ----    -------      -----     ----        ------    ----            ----   ------
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----

-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
-------------------------------------- -------------------- --------------------- -------------------- ---- ------------------ ----
Federal statutory rate                         34.0%                 34.0%                 35.0%                    35.0%
                                       ===     =====        ===      =====        ====     =====            ====    =====
-------------------------------------- -------------------- --------------------- -------------------- ---- -----
</TABLE>
<TABLE>
<CAPTION>


         The amounts comprising the temporary differences,  characterized by the
difference  between  financial  statement  carrying  values and the tax basis of
balance sheet elements, at the end of the respective periods are as follows:
                                                     (In thousands)
---------------------------------------------- ------------------ ------------------- ------------------- --
                                                  January 1,          January 2,          January 3,
---------------------------------------------- ------------------ ------------------- ------------------- --
---------------------------------------------- ------------------ ------------------- ------------------- --
                                                                                              1998
                                                       2000               1999
<S>                                           <C>                 <C>                <C>

---------------------------------------------- ------------------ ------------------- ------------------- --
---------------------------------------------- ------------------ ------------------- ------------------- --
Customer reserves and allowances                         $ 7,881             $ 6,620             $ 4,108
---------------------------------------------- ------------------ ------------------- ------------------- --
---------------------------------------------- ------------------ ------------------- ------------------- --
Depreciation                                              14,699              14,487               6,713
---------------------------------------------- ------------------ ------------------- ------------------- --
---------------------------------------------- ------------------ ------------------- ------------------- --
Inventory                                                  5,417               5,240               2,553
---------------------------------------------- ------------------ ------------------- ------------------- --
---------------------------------------------- ------------------ ------------------- ------------------- --
Worker's compensation
   insurance                                                 133                 181                 572
---------------------------------------------- ------------------ ------------------- ------------------- --
---------------------------------------------- ------------------ ------------------- ------------------- --
Vacation pay accrual                                         724                 646                 490
---------------------------------------------- ------------------ ------------------- ------------------- --
---------------------------------------------- ------------------ ------------------- ------------------- --
Other                                                    4,892               3,106                   608
                                               ----      -------  ----       -------  --------       ---
---------------------------------------------- ------------------ ------------------- ------------------- --
---------------------------------------------- ------------------ ------------------- ------------------- --
Total temporary differences                              $33,746             $30,280            $ 15,044
                                                         =======             =======            ========
---------------------------------------------- ------------------ ------------------- ------------------- --

--------------------------------------------- ------------------- ------------------- ------------------- -------------------

Tax effect of temporary differences                     $ 13,498            $ 12,718              $5,265
--------------------------------------------- ------------------- ------------------- ------------------- -------------------
--------------------------------------------- ------------------- ------------------- -------------------
Valuation allowance                                     (13,498)            (12,718)             (5,265)
                                                        --------  -         --------  ---        -------
--------------------------------------------- ------------------- ------------------- -------------------
--------------------------------------------- ------------------- ------------------- -------------------
Deferred tax assets recognized                        $  --               $ --                 $  --
                                                      ==========          ==========           =====
--------------------------------------------- ------------------- ------------------- -------------------

</TABLE>




                                      F-21
<PAGE>



         At June 4, 1997 approximately $50,000,000 of consolidated net operating
losses were  available to reduce future taxable income through fiscal year 2011.
However,  the  utilization of such losses is subject to an annual  limitation as
set forth in Internal  Revenue  Code  Section  382.  The  maximum  amount of net
operating  losses  that may be utilized by the Company in any period is annually
limited to  $1,500,000.  As of January 1, 2000,  the  remaining  aggregate  loss
utilization limitation through fiscal year 2011 is approximately $18,000,000. As
such,  the  NOL  available  to  the  Company,  after  taking  into  account  the
aforementioned  limitation,  is  $18,000,000  as of  January  1,  2000.  A  full
valuation  reserve has been  established  for the deferred tax asset  associated
with the net operating loss carryforwards.


9.   COMMITMENTS AND CONTINGENCIES:

(A)  LEASES -

         The Company rents real and personal  property under leases  expiring at
various  dates  through 2008.  Certain of the leases  stipulate  payment of real
estate  taxes and other  occupancy  expenses.  Total  rent  expense  charged  to
operations for the fifty-two,  fifty-two,  thirty-one and twenty-two weeks ended
January 1, 2000, January 2, 1999, January 3, 1998 and June 4, 1997,  amounted to
$3,292,000, $2,540,000, $1,365,000 and $4,599,000, respectively.

         Minimum  annual rental  commitments  under  operating  and  capitalized
leases in effect at January 1, 2000 are summarized as follows:

                                                           Capitalized
                           Fiscal     Real    Equipment      Equipment
                           Years     Estate   & Other    (including interest)
                           -----     ------   -------    --------------------
                                                (In thousands)
                            2000   $ 2,334   $   274         $   104
                            2001     2,056       251             106
                            2002     1,819        64             106
                            2003     2,013         2              19
                            2004     2,013      --                --
                        Thereafter   8,141      --                --
                                   -------   -------         -------

Total minimum lease payments       $18,376   $   591         $   335
                                   =======   =======         =======




                                      F-22
<PAGE>





(B)  LEGAL PROCEEDINGS -

         As  discussed  in Notes 1 and 2, on the Filing  Dates the  Company  and
several of its  subsidiaries  filed voluntary  petitions in the Bankruptcy Court
under Chapter 11 of the  Bankruptcy  Code. 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.  However, that matter is now moot based upon the proceedings described in
the next paragraph and the Claimants' lack of standing.

         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  for  relief.  The  petition  for
certiorari was denied on January 10, 2000.

         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.

         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.




                                      F-23
<PAGE>





         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.  In
October 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  is expected to begin March 1,
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.


(C)  MANAGEMENT AGREEMENTS -

         The Company is currently committed to management contracts with several
officers and key employees with annual salaries of $2,134,000 and $1,805,000 for
fiscal 2000 and 2001, respectively.

(D)  CONCENTRATIONS OF CREDIT RISK -

         Financial   instruments  which   potentially   expose  the  Company  to
concentrations  of credit risk, as defined by SFAS No. 105, consist primarily of
trade accounts  receivable.  The Company's customers are not concentrated in any
specific geographic region, but are concentrated in the retail apparel business.
For the fifty-two  weeks ended January 1, 2000,  three  customers  accounted for
31%, 10% and 10% of the Company's  sales.  For the fifty-two weeks ended January
2, 1999,  three customers  accounted for 30%, 11% and 9% of the Company's sales.
For the  fifty-three  weeks ended January 3, 1998,  excluding the Sassco Fashion
and  Castleberry  product lines,  three  customers of the continuing  Leslie Fay
business  accounted for 33%, 12% and 8% of the reorganized  Company's sales. The
Company has  established  an allowance  for  possible  losses based upon factors
surrounding the credit risk of specific  customers,  historical trends and other
information.




                                      F-24
<PAGE>





         On June 2, 1997 the Company  entered  into a factoring  agreement  with
CIT,  whereby CIT provides a guarantee of collection for all shipments  approved
by CIT. Under the factoring agreement these receivables are purchased by CIT. On
January 1, 2000 and January 2, 1999 the Company's accounts  receivables included
$16,297,000 and $14,915,000, respectively, due from CIT, net of reserves.

10.      STOCKHOLDERS' EQUITY

         The  authorized  common stock of the  reorganized  Company  consists of
20,000,000 shares of common stock with a par value of $.01 per share. On June 3,
1998,  the  Company's  Board of Directors  approved a  two-for-one  common stock
split. As a result of the split, the stockholders  received one additional share
of  common  stock  for each one they  held as of June 17,  1998.  The par  value
remained $.01 per share.  The  Consolidated  Financial  Statements and financial
information   contained   elsewhere  in  this  report  have  been   adjusted  to
retroactively  reflect  the  effects of the common  stock  split for all periods
presented.  At June 4, 1997,  6,800,000 shares,  adjusted  retroactively for the
stock  split,  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.  In
August 1999, the Plan  Administrator  elected to receive $7.00 per share in cash
for 140,660 of the remaining  undistributed shares in connection with the merger
transaction  with an affiliate of Three Cities.  The remaining  shares are being
held back by the plan administrator  until the final disputed claims are settled
before the  Bankruptcy  Court.  The old common stock was  extinguished  prior to
emergence  from  bankruptcy  on June 4,  1997  and the old  stockholders  of the
Company  did not  retain or  receive  any value for their  equity  interest.  In
addition,  500,000  shares of Preferred  Stock of the  reorganized  Company were
authorized  at June 4, 1997 with a par value of $.01.  None of these shares have
been issued.

         The  Company  acquired  for cash  817,100  shares of its  common  stock
outstanding  at a cost of  $4,623,000  during the third quarter ended October 3,
1998.

         On August 25, 1999,  following the approval of more than  two-thirds of
the stockholders of the Company, the Company completed a merger transaction with
an affiliate of Three Cities.  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 $7.00 in
cash per share for their shares.  Three Cities provided $7,783,762 in return for
1,111,966 shares of the Company while the remaining 1,000,000 shares were placed
in the  Company's  treasury.  The  $7,000,000 of cash required of the Company to
consummate the cash election was financed  through a $5,000,000  five-year note,
(see Note 7) 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.




                                      F-25
<PAGE>



         The Company may pay cash  dividends or  repurchase  its stock under the
CIT Credit  Agreement (see Note 7) 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 7. At the end of the  fiscal  year  ended
January 1, 2000 the Company may borrow up to $3,034,000 for stock  repurchase or
dividend  distribution.  The Company has no plans to pay cash  dividends  in the
foreseeable future.


11.      STOCK OPTION PLAN:

         Information  regarding  the  Company's  stock option plan is summarized
below. All shares and option prices have been retroactively  adjusted to reflect
the 2-1 stock split on July 1, 1998:

<TABLE>
<CAPTION>

                                                                          Weighted Average Option
                                                   Number of Shares           Price Per Share
                                                   ----------------           ---------------
<S>                                               <C>                       <C>
Granted (post-emergence)                                      1,020,236                  $3.34
                                                              ----------

Outstanding at January 3, 1998                                1,020,236                    3.34

Granted                                                          458,258                   3.76

Exercised or surrendered                                      ( 140,120)                   3.09
                                                             ----------
Outstanding at January 2, 1999                               1,338,374                     3.51
                                                            -----------
Granted                                                         38,500                     6.40
                                                            -----------
Outstanding at January 1, 2000                               1,376,874                     3.59
                                                            -----------
</TABLE>


         The Plan provided stock options to certain senior  management  equal to
seventeen and one-half  (17.5%) percent of the Company's  common stock issued at
the time of the grant (6.8 million shares adjusted for the 2-1 stock split).  Of
this amount,  824,236  options were  granted,  as of June 4, 1997.  One-third of
these options vest on each of the first three  anniversaries of the Consummation
Date. On January 4, 1998, the remaining  365,758 options were granted to replace
the options that were part of the Company's  exit from  bankruptcy,  twenty five
percent of these options were immediately  vested with an additional twenty five
percent  vesting on each of the first  three  anniversaries  of the grant  date.
Since June 4, 1997 thirty-seven managers were granted 167,000 options. One-third
of these  options  vest on each of the first  three  anniversaries  of the grant
dates.  These grants include 25,000 stock options to the two senior  managers of
the newly  acquired  Warren brands (see Note 4). In addition,  the five original
non-employee  directors of the Company have been  granted  20,000 stock  options
each.  These options vest one-third on each of the first three  anniversaries of
the Consummation  Date. The six non-employee  directors of the Company that were
elected since have been granted 10,000 stock options that vest one-third at each
anniversary of the date each director joined the Board of Directors. The options
may be exercised for between  $3.09 and $7.44 per share.  At January 1, 2000 and
January 2, 1999, 870,446 and 381,878 options, respectively, were exercisable.


                                      F-26
<PAGE>


         Effective  as  of  the  Consummation  Date,  the  Company  adopted  the
provisions of SFAS No. 123,  "Accounting  for Stock-Based  Compensation."  Under
SFAS No.123 utilizing the fair value based method, compensation cost is measured
at the grant date based upon the value of the award and is  recognized  over the
service period. The fair value of the options granted during the fifty-two weeks
ended January 1, 2000 and January 2, 1999 and during the thirty-one  weeks ended
January 3, 1998 was estimated using the Black-Scholes option pricing model based
upon the  following  weighted-average  assumptions:  risk free  interest rate of
4.8%, 5.4% and 6.4%, respectively, expected life of 5 years for all periods, and
volatility  of 43%,  39% and 34%,  respectively.  Had SFAS No. 123 been  adopted
prior to the Consummation Date, there would have been no effect on the Company's
financial statements.



A summary of stock options  outstanding  and  exercisable as of January 1, 2000,
follows:

<TABLE>
<CAPTION>
                                                       OPTIONS OUTSTANDING                            OPTIONS EXERCISABLE
                                                       -------------------                            -------------------
                                              WEIGHTED AVERAGE
  RANGE OF EXERCISE          NUMBER            REMAINING LIFE           WEIGHED AVERAGE          NUMBER         WEIGHED AVERAGE
        PRICES            OUTSTANDING            (IN YEARS)              EXERCISE PRICE       EXERCISABLE        EXERCISE PRICE
        ------            -----------            ----------              --------------       -----------        --------------
<S>                      <C>                   <C>                      <C>                  <C>               <C>
        $3.09              1,149,874                7.61                     $3.09              700,396              $3.09
    $5.75 - $7.44            227,000               8.39                         6.14            170,050             $6.03
</TABLE>


12.  RETIREMENT PLANS:

(A)  DEFINED BENEFIT PLAN -

         In January 1992,  the Company  established a  non-contributory  defined
benefit  pension plan covering  certain  salaried,  hourly and  commission-based
employees.  Plan benefits are based upon the participants' salaries and years of
service.  The plan was amended to freeze benefit accruals effective December 31,
1994 and, in connection with the Company's reorganization, to terminate the plan
effective December 31, 1996.  Investments were made primarily in U.S. Government
obligations and common stock.
The following major assumptions were used in the actuarial valuations:

                                                                     1997
                                                                     ----

Discount rate                                                        7.5%
Long-term rate of return on assets                                   8.8%






                                      F-27
<PAGE>





         Net periodic  pension cost  recognized in the thirty-one and twenty-two
weeks ended January 3, 1998 and June 4, 1997 was as follows:



                                          THIRTY-ONE WEEKS      TWENTY-TWO
                                               ENDED            WEEKS ENDED
                                            JANUARY 3            JUNE 4,
                                                1998               1997
Service costs                                   $ --             $ --

Interest cost                                       47               38
Actual return on assets                           (74)              (98)
Recognition of partial settlement
   of pension obligations                             --              --
Net amortization and deferral                        27              60
                                            ------   ---         ------
     Net periodic pension cost                 $___--            $   --
                                               =======           =======



         All payments to participants were made during fiscal 1997.

(B)  DEFINED CONTRIBUTION PLAN -

         The Company also maintains a qualified  voluntary  contributory  profit
sharing plan covering certain salaried,  hourly and commission-based  employees.
Certain  Company  matching  contributions  to  the  plan  are  mandatory.  Other
contributions to the plan are discretionary. Total contributions to the plan may
not exceed the amount permitted as a deduction  pursuant to the Internal Revenue
Code. The  contributions  charged to operations  for the  fifty-two,  fifty-two,
thirty-one and twenty-two weeks ended January 1, 2000,  January 2, 1999, January
3, 1998 and June 4, 1997 amounted to $295,000,  $211,000,  $75,000 and $113,000,
respectively.

(C) OTHER -

         The Company  participates in a  multi-employer  pension plan. The plans
provide defined benefits to unionized employees.  The amount of contributions to
the pension fund for the continuing  operations in 1999,  1998 and 1997 amounted
to $457,000, $362,000 and $364,000 respectively.

         The  Company  does  not  provide   post-employment  or  post-retirement
benefits other than the plans described above.




                                      F-28
<PAGE>




13.  PRODUCT LINES SOLD OR DISPOSED OF:

         As  discussed in Note 2, in  connection  with the  consummation  of the
Plan,  the Company sold or  transferred  all the assets and  liabilities  of its
Sassco Fashions product line on June 4, 1997 for an estimated  exchange value of
$230,000,000.  This value was the estimated  reorganization  value of the Sassco
Fashions  product line which was calculated in a manner similar to the Company's
reorganization  value (see Note 2). The resulting  gain of  $89,810,000,  net of
taxes of $3,728,000,  recorded from these transactions is reflected as a Gain on
disposition  of the  Sassco  Fashions  line in the  consolidated  statements  of
operations.

         The assets and liabilities sold and transferred included cash, accounts
receivable,  inventory,  property, plant and equipment,  other assets (including
the trade name Albert  Nipon),  accounts  payable,  accrued  expenses  and other
liabilities  related to the Sassco  Fashions  line.  In  addition,  the  Company
transferred  to  Sassco  its  100%  equity  interest  in  several   subsidiaries
associated with the Sassco Fashions line. As provided in the Plan, the creditors
of the Company became the shareholders of Sassco.

         The gain on the disposition of the assets and liabilities of the Sassco
Fashions line is a taxable event and a substantial  portion of the net operating
loss carryforwards available to the Company was utilized to offset a significant
portion of the taxes recognized on this transaction.

         In 1996, the Company decided to sell its  Castleberry  product line and
recorded a  restructuring  charge of $2,004,000 for its  disposition,  including
$1,100,000  to  increase  the  reserve to cover the  write-off  of the Excess of
purchase price over net assets acquired and projected  additional  losses on the
sale of net assets. On May 26, 1997, the Company sold the assets and liabilities
of its  Castleberry  line for $600,000.  The resulting loss of $1,398,000 on the
sale was applied against Accrued  expenses and other current  liabilities at the
time of the sale.

         Unaudited pro forma  consolidated  statements for the twenty-two  weeks
ended June 4, 1997 are presented below and include adjustments to give effect to
the sales and the Plan (see Note 2) as if they  occurred as of the  beginning of
the period presented.  A pro forma consolidated balance sheet as of June 4, 1997
is not  presented  because  the  transactions  recording  the  Plan and the sale
transactions are already reflected in the balance sheet.

         The  unaudited  pro forma  financial  statements  have been prepared in
accordance   with   guidelines   established  by  the  Securities  and  Exchange
Commission. The historical balances were derived from the consolidated statement
of  operations  for the  twenty-two  weeks ended June 4, 1997 . All  significant
intercompany transactions have been eliminated.




                                      F-29
<PAGE>




         The unaudited pro forma  adjustments  presented in the statement are as
follows:

<TABLE>
<CAPTION>

                                 Column Heading                                   Explanation
                                 --------------                                   -----------
<S>                       <C>                         <C>
Column 1                   Historical Operations       The Consolidated Statement of Operations as it existed prior to
                                                       the adjustments.

Column 2                   Disposition of Sassco       The operating results of the Sassco Fashions line have been
                                                       eliminated to give effect to the disposition as of the beginning
                                                       of the period presented, including depreciation expense on its
                                                       property, plant and equipment, an allocated corporate charge
                                                       based on workload by department related to the Sassco Fashions
                                                       line and direct charges associated with financing fees on its
                                                       factoring agreement and fees incurred on letters of credit
                                                       issued on its behalf. For periods including June 4, 1997, the
                                                       gain recorded on the disposition of the Sassco Fashions line has
                                                       been reversed.

Column 3                   Sale of Castleberry         The operating results of the Castleberry line have been
                                                       eliminated to give effect to the disposition as of the beginning
                                                       of the period presented, including depreciation expense on its
                                                       property, plant and equipment and an allocated corporate charge
                                                       based on workload by department related to the Castleberry line.


Column 4                   Fresh Start Reporting       To record the estimated effect of the Plan as if it had been
                                                       effective as of the beginning of period presented. This includes
                                                       adjustments for the following items:

                                                       a) The elimination of the historical depreciation and
                                                       amortization for the remaining product lines, including the
                                                       amounts in cost of sales, on the beginning of period asset
                                                       balances and the recording of the amortization credit for the
                                                       "Excess of revalued net assets acquired over equity under
                                                       fresh-start reporting" (assuming a three-year amortization
                                                       period).

                                                        b)  The  elimination  of  historical   reorganization
                                                        expense that will not be incurred  subsequent  to the
                                                        Consummation Date.


                                                        c)  The   elimination  of  the   fresh-start
                                                        revaluation  charge and the  reversal of the
                                                        gain on debt discharge pursuant to the Plan.

</TABLE>



                                      F-30
<PAGE>




                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                 PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   TWENTY-TWO WEEKS ENDED JUNE 4, 1997
                                         -----------------------------------------------------------------------------------------

                                          HISTORICAL     DISPOSITION OF       SALE OF        FRESH START      PRO FORMA ADJUSTED
                                          OPERATIONS         SASSCO         CASTLEBERRY       REPORTING            BALANCE
                                         --------------  ----------------  --------------  ---------------------------------------
<S>                                      <C>              <C>             <C>             <C>                  <C>
Net Sales.............................        $197,984        ($136,107)        ($2,808)              $ --                $59,069

Cost of  Sales........................         147,276         (101,573)         (2,262)              (32)                 43,409
                                         --------------  ----------------  --------------  ----------------  ---------------------

    Gross profit......................          50,708          (34,534)           (546)                32                 15,660
                                         --------------  ----------------  --------------  ----------------  ---------------------

Operating Expenses:
    Selling, warehouse, general and
      administrative expenses..........         35,459          (23,666)         (1,000)               250                 11,043

    Depreciation and amortization                2,090           (1,078)            (41)             (971)                     --
expense...............................
                                         --------------  ----------------  --------------  ----------------  ---------------------

      Total operating expenses........          37,549          (24,744)         (1,041)             (721)                 11,043
                                         --------------  ----------------  --------------  ----------------  ---------------------

    Other (income) expense...........          (1,196)               260              --                --                  (936)

    Amortization in excess of revalued
net           assets acquired over                  --                --              --           (1,905)                (1,905)
equity................................
                                         --------------  ----------------  --------------  ----------------  ---------------------

Total operating expenses, net.........          36,353          (24,484)         (1,041)           (2,626)                  8,202
                                         --------------  ----------------  --------------  ----------------  ---------------------

Operating income......................          14,355          (10,050)             495             2,658                  7,458

Interest and Financing Costs (excludes                             (595)              --                --                    777
      Contractual interest)...........           1,372
                                         --------------  ----------------  --------------  ----------------  ---------------------

Income (loss) before reorganization             12,983           (9,455)             495             2,658                  6,681
costs,
      taxes, gain on sale, fresh start
      revaluation and extraordinary item

Reorganization Costs..................           3,379                --              14           (3,393)                     --
                                         --------------  ----------------  --------------  ----------------  ---------------------

    Income (loss) before taxes, gain on
sale,                                            9,604           (9,455)             481             6,051                  6,681
      fresh start revaluation
and
extraordinary item....................

Taxes.................................             451             (342)              --             1,898                  2,007
                                         --------------  ----------------  --------------  ----------------  ---------------------

    Net Income (loss) before gain on
sale,                                            9,153           (9,113)             481             4,153                  4,674
      fresh start revaluation
and
extraordinary item....................

Gain on disposition of Sassco
Fashions           line, loss on
revaluation of assets
pursuant to  adoption of                       136,341          (89,810)              --          (46,531)                     --
fresh-start             reporting and
extraordinary gain on           debt
discharge.............................
                                         --------------  ================  ==============  ================  =====================

    Net Income (loss).................        $145,494         ($98,923)            $481         ($42,378)                 $4,674
                                         ==============  ================  ==============  ================  =====================
    Net Income (loss)  per Share
                              -  Basic         *                                                                            $0.69
and Diluted...........................

    Weighted Average  Common                   *
         Shares  Outstanding  - Basic                                                                                  6,800,000
and Diluted...........................
</TABLE>

*Earnings per share for the twenty-two  weeks ended June 4, 1997 on a historical
basis is based on the old stock  outstanding.  The old stock was canceled  under
the plan of reorganization and new stock was issued. Earnings per share on a pro
forma basis is calculated on the new stock outstanding.



                                      F-31
<PAGE>


14.      REORGANIZATION COSTS:

         The  Predecessor  Company  recognized  reorganization  costs during the
twenty-two weeks ended June 4, 1997 as follows:

                                          (In thousands)

                                           Twenty-Two
                                        Weeks Ended June
                                               4,
                                              1997


Professional fees and other
  costs                                           $2,951
Plan administration costs                          1,000
Interest income                                    ( 572)
                                                  ------
 Total reorganization costs                       $3,379
                                                  ======



15.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

         The components of accrued expenses and other current liabilities are as
follows:

<TABLE>
<CAPTION>
                                                                     (In thousands)
                                                             January 1,       January 2,
                                                                2000             1999
                                                                ----             ----
 <S>                                                        <C>              <C>
  Bonus and Profit Sharing                                        $ 2,261          $ 1,274
  Accrued Acquisition Costs (see Note 4)                              251            1,175
  Duty                                                              1,510              806
  Vacation                                                            724              635
  Professional Fees                                                   321              389
  Other                                                            3,054            3,207
                                                                   -----            -----
        Total                                                    $ 8,121          $ 7,486
                                                                  =======          =======
</TABLE>

                                      F-32
<PAGE>




<PAGE>



16.  SUPPLEMENTAL CASH FLOW INFORMATION:

         Net  cash  paid  (received)  for  interest  and  income  taxes  for the
fifty-two,  fifty-two,  thirty-one and  twenty-two  weeks ended January 1, 2000,
January 2, 1999, January 3, 1998 and June 4, 1997 were as follows:
<TABLE>
<CAPTION>

                                                                                             (In thousands)
                                               Fifty-Two            Fifty-Two           Thirty-One              Twenty-Two
                                              Weeks Ended          Weeks Ended          Weeks Ended              Weeks Ended
                                            January 1, 2000      January 2, 1999      January 3, 1998           June 4, 1997
                                            ---------------      ---------------      ---------------           ------------
<S>                                        <C>                  <C>                 <C>                       <C>
Interest                                        $ 2,213               $ 953                $ 367                 $ 1,412
Income taxes                                      4,224                2,892                  928                  (2,694)
</TABLE>


         During  December  1999,  the Company  entered into a capital  lease for
approximately $75,000 for the purchase of computer equipment.

17. OTHER MATTERS:

         In June 1998, SFAS No. 133, "Accounting for Derivative  Instruments and
Hedging Activities" was issued,  establishing accounting and reporting standards
requiring  that  every  derivative   instrument  (including  certain  derivative
instruments  embedded in other  contracts)  be recorded in the balance  sheet as
either an asset or liability  measured at its fair value. The Statement requires
that changes in the derivative's fair value be recognized  currently in earnings
unless  specific  hedge  accounting  criteria are met.  Special  accounting  for
qualifying  hedges  allows a  derivative's  gains and  losses to offset  related
results on the hedged item in the income statement,  and requires that a company
must formally  document,  designate and assess the effectiveness of transactions
that receive hedge accounting.

         The Company is currently analyzing the impact of this new pronouncement
on its financial position and results of operations.




                                      F-33
<PAGE>



18.  UNAUDITED QUARTERLY RESULTS:

Unaudited  quarterly  financial  information  for 1999 and 1998 is set  forth as
follows:

<TABLE>
<CAPTION>

                                                               (In thousands, except per share data)
                1999                           March               June            September               December
                ----                           -----               ----            ---------               --------
<S>                                      <C>               <C>               <C>                    <C>
Net sales                                  $61,144                $38,450           $58,622                     $39,230
Gross profit                                 16,684                  9,843            14,766                      7,463
Net income (loss)                              4,281                   968              3,142                      (75)
Net income (loss) per share
 - Basic                                      $0.71                  $0.16             $0.56                   ($0.01)
 - Diluted                                    $0.70                  $0.15             $0.52                   ($0.01)


                1998                           March               June            September               December
                ----                           -----               ----            ---------               --------
Net sales                                  $45,258                $28,676           $48,789                     $30,144
Gross profit                                 11,998                  7,489            12,149                      5,684
Net income (loss)                              3,769                 1,378              3,769                      (58)
Net income (loss) per share
 - Basic                                      $0.55                  $0.20             $0.58                   ($0.01)
 - Diluted                                    $0.54                  $0.19             $0.55                   ($0.01)
</TABLE>




                                      F-34
<PAGE>




19.  SUBSEQUENT EVENTS:

         On February 15, 2000, the Company entered into a license agreement with
the licensing subsidiary of Liz Claiborne, Inc. to manufacture dresses and suits
under the Liz Claiborne and Elisabeth trademarks. The Company also purchased the
dress finished goods and raw materials  inventory of Liz Claiborne and agreed to
honor related  manufacturing  commitments that had been made by Liz Claiborne as
of February 15, 2000.  Beginning for the Fall 2000 season that begins to ship in
June 2000, the Company will design and arrange the  manufacture of Liz Claiborne
and  Elisabeth  dresses.  Liz  Claiborne  and  Elisabeth  dresses  are  sold  in
department  and  specialty  stores  throughout  the United States and, to a much
lesser extent, in Canada, Mexico and other parts of the world.

         The  agreements  with Liz  Claiborne  provide that the Company will pay
royalties  including  guaranteed minimum royalty payments of up to approximately
$2,000,000  throughout the five year initial term of the agreement against 6% of
the net sales of Liz Claiborne and Elisabeth dresses and suits. The Company also
will  reimburse  Liz  Claiborne for certain  operating  costs on a  transitional
basis.





                                      F-35
<PAGE>



<TABLE>
<CAPTION>


                                                                                                             SCHEDULE II
                                           THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                                                 VALUATION AND QUALIFYING ACCOUNTS
                                                           (IN THOUSANDS)


                                                   RESERVES      BEGINNING
                                                  RELATED TO      BALANCE
                                     BALANCE AT      SOLD       RELATED TO        COSTS                       BALANCE AT
           DESCRIPTION               BEGINNING      PRODUCT     CONTINUING      CHARGED TO    DEDUCTIONS         END
                                     OF PERIOD       LINES      OPERATIONS       EXPENSE                       OF PERIOD
<S>                                <C>           <C>            <C>            <C>            <C>              <C>
FIFTY-TWO WEEKS ENDED
 JANUARY 1,  2000

Reserve for Allowances                                 --
                                          $6,600                      $6,600         $24,220    ($25,578)          $5,242
Other Receivable Reserves                     24       --                 24             --                            24
                                                                                                  --
Reserve for Doubtful Accounts                 70       --                 70             --                            70
                                                                                                  --
Reserve for Returns                         131                         131           1,216      (1,215)             132

          Total Receivable Reserves       $6,825      $               $6,825         $25,436    ($26,793)          $5,468
                                          ======      =========     ========         =======    ========           ======

FIFTY-TWO WEEKS ENDED
 JANUARY 2,  1999

Reserve for Allowances                    $3,098                      $3,098         $13,879    ($10,377)          $6,600
Other Receivable Reserves                     24         --               24             --                            24
Reserve for Doubtful Accounts                 48         --               48              22                           70
                                                                                                       --
Reserve for Returns                           66         --               66          1,394      (1,329)             131

          Total Receivable Reserves       $3,236      $  --           $3,236         $15,295    ($11,706)          $6,825

                                          ======      =========     ========         =======    ========           ======



                                      F-36
<PAGE>


                                                        SCHEDULE II (continued)
                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)


                                                   RESERVES      BEGINNING
                                                  RELATED TO      BALANCE
                                     BALANCE AT      SOLD       RELATED TO                                    BALANCE AT
           DESCRIPTION               BEGINNING      PRODUCT     CONTINUING        COSTS       DEDUCTIONS         END
                                     OF PERIOD       LINES      OPERATIONS      CHARGED TO                     OF PERIOD
                                                                                 EXPENSE
<S>                                  <C>         <C>            <C>            <C>           <C>             <C>
THIRTY-ONE WEEKS ENDED
 JANUARY 3, 1998

Reserve for Allowances                                 --
                                          $2,534                      $2,534          $5,505     ($4,941)          $3,098

Other Receivable Reserves                     88       --                 88            (64)           --              24

Reserves for Discounts (1)                   934       --                934              --        (934)              --

Reserve for Doubtful Accounts                230       --                230           (172)         (10)              48

Reserve for Returns                           29                          29            992         (955)              66
                                    ------------  --------     -------------  -------------- ------------    ------------


Total Receivable Reserves                 $3,815      $               $3,815          $6,261     ($6,840)          $3,236
                                    ============  =========     ----------==   --------=====  ==========     ============

TWENTY-TWO WEEKS ENDED
 JUNE 4, 1997

Reserve for Allowances                    $8,619     ($6,074)         $2,545          $2,952     ($2,963)          $2,534

Other Receivable Reserves                  4,881      (4,212)            669           (581)           --              88

Reserves for Discounts                       588           --            588           3,498      (3,152)             934

Reserve for Doubtful Accounts                895        (349)            546           (360)           44             230


Reserve for Returns                           98        (69)              29             488        (488)              29
                                     ------------  --------     -------------  --------- ---- ------------    ------------

          Total Receivable Reserves      $15,081    ($10,704)         $4,377          $5,997     ($6,559)          $3,815
                                    ============  =========     ----------==   --------=====  ==========     ============


</TABLE>



(1) On June 2, 1997,  the Company  entered into a factoring  agreement with CIT,
 whereby CIT provides a guarantee of  collection  of all  shipments  approved by
 CIT. Discounts given are no longer a risk/reserve of the Company as receivables
 are sold to CIT net of discounts.

(2) On January 23, 1996,  the Company  entered into a factoring  agreement  with
 Heller Financial for its Sassco Fashions product line,  whereby Heller provides
 a guarantee of collection for all shipments approved by Heller. Discounts given
 by the Company for its Sassco  products  subsequent to January 23, 1996 were no
 longer a risk/reserve  of the Company as receivables  are sold to Heller net of
 discounts.


                                      F-37
<PAGE>

                                    EXHIBITS
                                       TO
                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 1, 2000            COMMISSION FILE NO. 1-9196

                          THE LESLIE FAY COMPANY, INC.


                DELAWARE                                  13-3197085
    (STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NO.)

              1412 BROADWAY
            NEW YORK, NEW YORK                               10018
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000



<PAGE>




                          THE LESLIE FAY COMPANY, INC.
                          ----------------------------
                                INDEX TO EXHIBITS
                                -----------------
<TABLE>
<CAPTION>

EXHIBIT
NUMBER              DESCRIPTION
------              -----------
<S>                <C>
2.1                 Amended Joint Plan of Reorganization.(2)

3.1*                Amended and Restated Certificate of Incorporation of the registrant.


3.2(a)              Amended and Restated By-laws of the registrant.(2)

3.2(b)              Amendment to Amended and Restated By-laws of the registrant.(10)

4.1                 Specimen Copy of Stock Certificate for shares of Common Stock of the registrant.(11)

4.2                 Revolving Credit Agreement dated June 2, 1997 between Leslie Fay Marketing, Inc. ("LFM") and
                    the CIT Group/Commercial Services, Inc. ("CIT").(2)

4.3                 First Amendment dated February 23, 1998 to the Revolving Credit Agreement between LFM and
                    CIT.(4)

4.4                 Second Amendment dated March 31, 1998 to the Revolving Credit Agreement between LFM and CIT.(4)

4.5                 Third Amendment dated October 28, 1998 to the Revolving Credit Agreement between LFM and
                    CIT.(8)

4.6                 Fourth Amendment dated March 29, 1999 to the Revolving Credit Agreement between LFM and CIT.(9)

4.7                 Fifth Amendment dated August 25, 1999 to the Revolving Credit Agreement between LFM and CIT.(9)

10.1                Employment Agreement dated as of January 4, 1998 between the registrant and John J.
                    Pomerantz.(7)(12)

10.1(a)             Amendment No. 1 dated as of January 1999 to Employment Agreement dated
                    as of January 4, 1998 between the registrant and John J. Pomerantz. (9) (12)

10.2                Employment Agreement dated as of January 4, 1998 between the registrant and John Ward.(7) (12)

10.2(a)             Amendment No. 1 dated as of January 1999 to Employment Agreement dated as of January 4, 1998
                    between the registrant and John Ward. (9) (12)

10.3                Employment Agreement dated as of January 4, 1998 between the registrant and Dominick
                    Felicetti.(7) (12)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

<S>                <C>
10.3(a)             Amendment No. 1 dated as of January 1999 to Employment Agreement dated as of January 4, 1998
                    between the registrant and Dominick Felicetti. (9) (12)

10.4                Employment Agreement dated as of January 4, 1998 between the registrant and Warren T.
                    Wishart.(7) (12)

10.4(a)             Amendment No. 1 dated as of January 1999 to Employment Agreement dated as of January 4, 1998
                    between the registrant and Warren T. Wishart.(9) (12)

10.5                1997 Management Stock Option Plan.(5) (12)

10.6                1997 Non-Employee Director Stock Option and Stock Incentive Plan.(6) (12)

10.7                Factoring Agreement dated June 4, 1997 between LFM and CIT.(2)

10.8                Lease Agreement dated December 13, 1989 between 1412 Broadway Associates and the Company,
                    modified as of July 31, 1990 and August 1, 1990, for certain premises located at 141 Broadway,
                    New York, New York.(1)

10.9                Modification of Lease Agreement dated August 11, 1998 between Fashion Gallery Owners (formerly
                    1412 Broadway Associates) and the Company for certain premises located at 1412 Broadway, New
                    York, New York.(7)

10.10               Lease  Agreement dated August 1, 1997 between John J. Passan
                    and the  registrant  for  certain  premises  located  at One
                    Passan   Drive,   Borough   of   Laflin,   Luzerne   County,
                    Pennsylvania.(3)

 21.1               List of Subsidiaries.(4)

23.1*               Consent of Arthur Andersen LLP.

27*                 Financial Data Schedule


--------------------------------------------------------------------------------
</TABLE>

*filed herewith

(1)      Incorporated  by  reference  to the Annual  Report on Form 10-K for the
         fiscal year ended December 28, 1996.

(2)      Incorporated  by reference  to Current  Report on Form 8-K for an event
         dated June 4, 1997.

(3)      Incorporated  by  reference  to  Quarterly  Report on Form 10-Q for the
         fiscal quarter ended July 5, 1997.

(4)      Incorporated  by  reference  to the Annual  Report on Form 10-K for the
         fiscal year ended January 3, 1998.

(5)      Incorporated by reference to the registrant's Registration Statement on
         Form S-8  relating to shares  under the 1997  Management  Stock  Option
         Plan.

<PAGE>

(6)      Incorporated by reference to the registrant's Registration Statement on
         Form S-8 relating to shares under the 1997 Non-Employee  Director Stock
         Option and Stock Incentive Plan.

(7)      Incorporated by reference to the Quarterly  Report on Form 10-Q for the
         fiscal quarter ended July 4, 1998.

(8)      Incorporated by reference to the Quarterly  Report on Form 10-Q for the
         fiscal quarter ended October 3, 1998.

(9)      Incorporated by reference to the Quarterly  Report on Form 10-Q for the
         fiscal quarter ended October 2, 1999.

(10)     Incorporated  by  reference  to the Annual  Report on Form 10-K for the
         fiscal year ended December 28, 1996.

(11)     Incorporated  by reference  to  Post-Effective  Amendment  No. 1 to the
         registrant's Registration Statement on Form S-1.

(12)     Management contract or compensation plan or arrangement  required to be
         noted as provided in Item 14 (a) (3).