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                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

FOR THE FISCAL YEAR ENDED DECEMBER 30, 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 and will not contained, to the best of
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____

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
23, 2001 was approximately $17,752,000.

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports required to filed by Section 12, 13, or 15(d) of the Securities Exchange
Act of 1934 subsequent to the  distribution of securities under a plan confirmed
by a court.  Yes __X__ No ____

There  were  5,680,694  shares  of Common  Stock outstanding at March 23, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------
                                      None
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<PAGE>

                                     PART I

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

         The Leslie Fay  Company,  Inc.  and  subsidiaries  (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.

         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.

ACQUISITIONS

         On February 15, 2000, the Company entered into a license agreement with
the licensing subsidiary of Liz Claiborne, Inc. ("Liz Claiborne") 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  with the Holiday 2000
season that shipped in October 2000,  the Company  designed and arranged for 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 average annual royalty payments of up to
approximately  $2,000,000 per year throughout the five-year  initial term of the
agreement,  or, if sales exceed the minimum defined in the royalty agreement, 6%
of the net sales of Liz Claiborne and Elisabeth  dresses and suits.  The Company
also  reimbursed  Liz Claiborne for certain  operating  costs on a  transitional
basis.

         This transaction generated intangible assets of approximately $940,000,
which  the  Company  is  amortizing  over the  initial  five-year  period of the
agreement  ending  February 2005.  This  transaction has been accounted for as a
purchase,  and accordingly,  the operating results of Liz Claiborne Dresses have
been included in the Company's  consolidated financial statements since the date
of the acquisition.  Net sales from the date of acquisition through December 30,
2000 were approximately $24,823,000.

                                      -2-
<PAGE>

         On May 9, 2000, the Company  purchased  substantially all the assets of
Cynthia Steffe, Inc. Cynthia Steffe also licensed her trade names to the Company
in perpetuity (subject to certain rights of termination). Cynthia Steffe markets
to both  department  and  specialty  stores  in the  contemporary  and  designer
sportswear   categories.   This  transaction   generated  intangible  assets  of
approximately  $1,033,000,  which the Company is amortizing  over fifteen years.
Net  sales  from  the  date  of  acquisition  through  December  30,  2000  were
approximately $2,967,000.  The full year 1999 net sales for Cynthia Steffe, Inc.
were approximately $7,000,000. Cynthia Steffe and Richard Roberts, principals of
Cynthia Steffe, Inc., have entered into employment  agreements with the Company,
which will expire in 2005.

PRODUCTS

         During  2000,  1999,  and 1998,  respectively,  dresses  accounted  for
approximately  78%,  73% and  64% of the  Company's  net  sales  and  sportswear
accounted for approximately 22%, 27% and 36%, respectively. During 2001, dresses
are expected to account for approximately 74% of total sales and sportswear 26%.

         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
Petite" brands. The Company also sells moderate to bridge-priced  career, social
and  evening  occasion  dresses  under  the  "David  Warren",  "Warren  Petite",
"Rimini",  and "Leslie Fay Evening"  brands.  In conjunction  with the licensing
arrangement with Liz Claiborne,  the Company  manufactures and sells dresses and
suits under the "Liz  Claiborne" and  "Elisabeth"  brands.  All of the Company's
dress products are offered in petite,  misses and large sizes. The "Reggio" line
was discontinued during the year 2000.

         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
"Leslie  Fay  Haberdashery"  brands.  The  Company  consolidated  the Leslie Fay
Sportswear and Haberdashery  brands into Leslie Fay Haberdashery to better serve
the retail needs of its  customers  without  duplicate  product  offerings.  The
Company also offers  contemporary and designer sportswear under brands including
"Cynthia Cynthia Steffe",  "Cynthia Steffe",  "Francess & Rita", and also brands
owned by certain  customers.  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.

                                      -3-
<PAGE>

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.

TRADEMARKS AND LICENSES

         The brands  used by the  Company,  except  for  limited  private  label
programs with selected customers, are registered trademarks,  which are owned or
licensed  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 2000  included  women's  and  children's  sheer  hosiery,
handbags and small leather goods.

         On February 15, 2000, the Company  entered into a license  agreement to
produce and distribute the Liz Claiborne and Elisabeth dresses and suits.

         On May 9, 2000,  Cynthia Steffe licensed her trade names to the Company
to produce and distribute contemporary and designer sportswear.

         On November  14,  2000,  the Company  sold the "HUE"  trademark  to the
Kayser-Roth Corporation, the principal licensee of such trademark.

MARKETS AND DISTRIBUTION

         During 2000, the Company's products were sold principally to department
and specialty  stores located  throughout the United States.  During 2000, 1999,
and 1998 the Company's Dress and Sportswear  lines' products were sold to 1,330,
1,515, and 1,012 customers,  respectively.  Dillard's  Department  Stores,  Inc.
accounted for 34%, 31% and 30%, Federated  Department Stores, Inc. accounted for
10%, 10%, and 7%, May Department Stores, Inc. accounted for 11%, 10%, and 7%, JC
Penney accounted for 6%, 8% and 11%, and Marshalls\T.J.  Maxx accounted for 11%,
8%, and 9% 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 any of these  businesses  would  have a material  adverse  effect on its
operations.

                                      -4-
<PAGE>

         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.  For  further
discussion,  see  "Properties".  As of  February  28,  2001,  the Company had an
employee sales force  consisting of 3 people in Dallas and 28 in New York. 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.

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 2000,
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 2000,  three  operating  subsidiaries of Cambridge Corp. and Anthony
Fashion Corp., SA DE CV manufactured 37% and 14%, respectively, 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  2000,  one of  the  Company's  contracted
production  providers 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.

                                      -5-
<PAGE>

         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.

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,  the Peoples'  Republic of 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  that 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,  and
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.

                                      -6-
<PAGE>

         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 20)  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  continually  monitors
the status of its orders through its Far East service  bureaus.  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.

         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.

         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 23,  2001,  the Company had unfilled  orders of  approximately
$80,690,000.  The Company had approximately  $72,836,000 of unfilled orders at a
comparable  date in 2000. 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.



                                      -7-
<PAGE>

CREDIT AND COLLECTION

         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
December 30, 2000, accounts receivable included $11,015,000 relating to the sale
of the "HUE"  trademark.  As of March 23, 2001,  $10,015,000  of this amount had
been received.

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 greater resources than the Company.  Based upon its knowledge of
the industry,  the Company  believes  that it is among the leading  producers of
moderately-priced  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   2001,  the  Company   employed  467  persons,   of  whom
approximately 28% were in production, 29% in distribution,  16% in merchandising
and design,  7% in sales and 20% in  administrative  and  financial  operations.
Approximately 37% of the Company's  employees were members of unions,  primarily
the Union of Needletrades,  Industrial and Textile Employees ("UNITE").  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 and UNITE
are  engaged  in  preliminary  negotiations  for  a  new  collective  bargaining
agreement.  The Company  believes  that its  relationship  with its employees is
satisfactory.

                                      -8-
<PAGE>

REORGANIZATION UNDER CHAPTER 11

                  On April 5, 1993 (the  "Filing  Date") 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 a plan of reorganization
(the "Plan").

PROPOSAL TO ACQUIRE OUTSTANDING SHARES

         On March 26,  2001,  the  Company  signed a merger  agreement  with its
majority stockholders,  Three Cities Fund II, L.P. and Three Cities Offshore II,
C.V. (collectively, the "Three Cities Funds"). Such agreement provides in effect
for the Three  Cities  Funds to  acquire  approximately  32% of the  outstanding
shares of common stock of the Company,  or all of the common stock not currently
owned by the Three  Cities  Funds,  their  affiliates  and  certain  members  of
management of the Company for a cash price of $5.00 per share.  The  transaction
is subject to stockholder approval and other customary conditions.


                                      -9-
<PAGE>


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

         Executive and sales offices, as well as design facilities,  are located
in New York City under two leases expiring in 2008 (60,990 square feet) and 2004
(8,000  square  feet).  Additionally,  the  Company  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
administrative  center  (194,685  square feet) in Laflin,  Pennsylvania  under a
lease  expiring in July 2001.  The Company has given notice to the lessor of its
Laflin  distribution  and  administrative  center of its intent to exercise  the
first lease option through July 31, 2005.

         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.
-------  ------------------

         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.

                                      -10-
<PAGE>

         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.

         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.


                                      -11-
<PAGE>

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

         None.



                                      -12-
<PAGE>



                                     PART II
                                     -------

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

         The common  stock of the Company  trades on the Nasdaq Small Cap market
under the symbol  "LFAY".  The  following  table sets forth the high bid and low
asked prices for each quarter during 1999 and 2000 and through March 23, 2001:

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

         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
                  Second Quarter                            5.50          3.13
                  Third Quarter                             4.63          3.13
                  Fourth Quarter                            3.69          2.75

         2001     First Quarter
                  (through March 23, 2001)               $  3.63        $ 2.69

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

         On March 23,  2001,  the high bid price  was  $3.125  and the low asked
price was $3.125.  As of March 23, 2001,  there were 1,136  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 1999 or 2000.

         In February  and March 1999,  the Company  distributed  an aggregate of
1,250,000  shares of Common  Stock  (adjusted to reflect the  two-for-one  stock
split   referred   to  below)  to  its   creditors   pursuant  to  its  plan  of
reorganization.   No  sales   commissions  were  paid  in  connection  with  the
transaction.  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").

         On each of June 3, 1998,  August 23, 1999 and September  21, 2000,  the
Company  issued an aggregate of 26,000  shares of Common  Stock,  consisting  of
2,000 shares to each of its three  non-employee  directors for the year 1998, to
each of its six non-employee directors for the year 1999 and to each of its four
non-employee  directors for the year 2000,  in accordance  with the

                                      -13-
<PAGE>

terms of the  Company's  1997  Non-Employee  Director  Stock  Option  and  Stock
Incentive  Plan (the  shares  issued in 1998 have been  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 in  reliance  upon the
exemption from registration afforded by Section 4(2) of 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.


                                      -14-
<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                                        Predecessor Company
                                 -------------------                                        -------------------
                                                            For The Periods Ended
-----------------------------------------------------------------------------------------------------------------------------------
                                                           Pro Forma
                        Fifty-Two   Fifty-Two   Fifty-Two  Fifty-Three  Thirty-One                  Twenty-Two
                       Weeks Ended Weeks Ended Weeks Ended Weeks Ended  Weeks Ended                Weeks Ended
                      December 30 January 1,  January 2,   January 3,  January 3,    Pro Forma      June 4,
                          2000        2000        1999       1998 (a)    1998 (b)      1996(a)       1997 (c)       1996
                          ----        ----        ----       ----        ----          ----          ----           ----
                        (Audited)   (Audited)   (Audited)  (Unaudited)   (Audited)   (Unaudited)                  (Audited)
<S>                       <C>         <C>         <C>          <C>         <C>           <C>       <C>            <C>
Net  Sales                $212,714    $197,446    $152,867     $132,160    $ 73,091      $110,053  $197,984       $429,676

Operating Income             4,000      14,439     13,020        11,782       4,322         4,079    14,355         17,965

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

Interest Expense and
  Financing Costs            2,958       2,258         950        1,113         336         2,298     1,372          3,932 (e)

Tax Provision                4,147       2,654       3,212        2,684         677           130       451           (839)(f)

Other Non-Recurring
    Items                  (10,800)(g)     911(h)       --           --          --            --   136,341 (i)         --

Net Income                  $7,695      $8,316      $8,858       $7,985      $3,309        $1,651  $145,494         $9,728

Net Income  per
  Share - Basic              $1.47       $1.46       $1.35      $1.17(j)    $0.49 (j)     $0.24 (j)    --(j)        $0.52 (j)
        - Diluted            $1.44       $1.39       $1.31      $1.16(j)    $0.48 (j)     $0.24 (j)    --(j)        $0.52 (j)

                          As of       As of       As of       As of                                   As of        As of
                       12/30/2000  01/01/2000   01/02/99     01/03/98                               06/04/97      12/28/96
                       ----------  ----------   --------     --------                               --------      --------

Total Assets               $87,359     $69,000     $67,804      $61,051                                 $77,789     $237,661

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

Long-Term Debt
 (Including Capital
  Lease)                     3,126       4,052          17           49                                     108         --
</TABLE>

                                      -15-
<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.

                                      -16-
<PAGE>


(c)      Financial  information  for the  twenty-two  weeks  ended  June 4, 1997
         represents  the audited  consolidated  results  prior to the  Company's
         consummation of the Plan. The income statement information includes the
         results of Castleberry and Sassco Fashions lines prior to their sale or
         spin-off in connection with the consummation of the Plan.

(d)      The  Company  incurred  reorganization  costs in 1997  and  1996  while
         operating  as a debtor in  possession.  Included  in 1997 and 1996 is a
         provision  of $0 and  $652,000,  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,  the
         Company had direct  borrowings  under a credit agreement with The First
         National  Bank of Boston on 102 days in the second and third  quarters,
         the  highest  amount  of which  was  $28,672,000.  Interest  on  direct
         borrowings was incurred at a rate of prime plus 1.5%.

(f)      The  Company  recognized  an income tax credit of  $1,103,000  in 1996,
         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.

(g)      Amount reflects the gain recorded in the sale of the "HUE" trademark to
         the Kayser-Roth Corporation.

(h)      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.

(i)      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.

(j)      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 1996,  was  canceled  under the Plan and the new stock was
         not issued until June 4, 1997.

                                      -17-
<PAGE>


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


(A)      RESULTS OF OPERATIONS

FIFTY-TWO  WEEKS ENDED  DECEMBER 30, 2000 AS COMPARED TO  FIFTY-TWO  WEEKS ENDED
--------------------------------------------------------------------------------
JANUARY 1, 2000
---------------

         The Company  recorded net sales of $212,714,000 for the fifty-two weeks
ended  December 30, 2000,  compared with  $197,446,000  for the fifty-two  weeks
ended January 1, 2000, a net increase of  $15,268,000 or 7.7%. The Dress product
lines' net sales,  excluding  $24,823,000  generated by the Liz Claiborne  dress
brands that were newly licensed this year,  decreased  $1,385,000 or 1.0%.  This
was a result of a 4.1% decrease in the Leslie Fay dress brands partially off-set
by an  increase  of 5.7% in the  Warren  brands.  Net sales  for the  Sportswear
product lines,  excluding  $2,967,000 generated by the Cynthia Steffe sportswear
brands acquired this year,  decreased by $11,137,000 or 20.6% mostly as a result
of the reorganization of the Leslie Fay Sportswear brands.  This  reorganization
reduced sales but improved profitability.

         Gross  profit  was  $47,342,000  and 22.3% of net sales  compared  with
$48,756,000  and 24.7% of net sales for the fifty-two  weeks ended  December 30,
2000 and January 1, 2000,  respectively.  The gross profit from the Dress lines,
excluding  $4,392,000  generated  by the licensed Liz  Claiborne  dress  brands,
declined  $6,704,000  and the  percentage  of net sales  decreased to 22.1% from
26.6%.  The gross  profit  generated  by the  Leslie  Fay Dress  lines  declined
$2,336,000,  and the  percent of net sales  declined  to 22.7% from 24.2% of net
sales for the  comparable  period  ended  January 1, 2000.  The decline in gross
profit was due to both  increased  allowances  and  markdowns.  The gross profit
contributed by the Warren brands  declined  $4,368,000 and the percentage of net
sales  decreased to 21.0% from 31.8% for the comparable  period ended January 1,
2000.  The decline in gross  profit was due to  increased  markdowns,  which was
generated  by an increase  in price  concessions  and a greater  level of end of
season close outs. The gross profit produced by the Sportswear lines,  excluding
$486,000  generated by the recently acquired Cynthia Steffe  sportswear  brands,
for the  fifty-two  weeks ended  January 1, 2000,  increased by $559,000 and the
percentage of net sales increased to 26.0% from 19.6% for the comparable  period
ended  January 1, 2000.  The improved  gross profit as a percentage of net sales
resulted from the  reorganization  of the Leslie Fay  Sportswear  brand that was
implemented in the fourth quarter of 1999.


                                      -18-
<PAGE>


         Selling,   warehouse,   general  and   administrative   expenses   were
$43,370,000 or 20.4% of net sales and  $37,940,000 or 19.2% of net sales for the
fifty-two weeks ended December 30, 2000 and January 1, 2000,  respectively.  The
expense  increase of  $5,430,000  was caused  mainly by $4,000,000 of additional
operating  expenses  related to the Liz  Claiborne  dress brands and the Cynthia
Steffe brands partially  offset by  approximately  $1,100,000 of expense savings
caused by the reorganization of the Leslie Fay sportswear brands.  Additionally,
there were non-recurring charges of $3,500,000 relative to  stockholder-approved
employment  contracts,  internet strategy costs, and severance  payments.  These
costs were partially offset by a $1,000,000 reduction in bonuses, which were not
paid as a result of lower EBITDA.

         Depreciation  and  amortization  expense for the fifty-two  weeks ended
December  30,  2000  and  January  1,  2000  was  $2,152,000   and   $1,367,000,
respectively,  an increase of $785,000. Of this increase, $475,000 resulted from
capital  expenditures  made  during the year of  approximately  $1,600,000.  The
remaining  $310,000  increase  resulted from the  amortization  of the excess of
purchase price over net assets acquired for the Liz Claiborne and Cynthia Steffe
brands.  The  Company  recognized  income  of  $1,898,000  and  $4,572,000  from
amortization  of the excess  revalued  net assets  acquired  over equity for the
fifty-two weeks ended December 30, 2000 and January 1, 2000, respectively.  This
amortization has been completed as of the second quarter of 2000.

         The Company's  adoption of Statement of Financial  Accounting  Standard
("SFAS") No. 123,  "Accounting for Stock-Based  Compensation," was made to value
the issuance of stock  options as well as the issuance of shares of common stock
under the Company's Stock Option and Director compensation plans. This generated
non-cash  stock based  compensation  expense of $963,000 and  $1,380,000 for the
fifty-two weeks ended December 30, 2000 and January 1, 2000,  respectively.  The
prior year's expense  included a one-time charge related to the early vesting of
middle  management  stock options as a result of the merger  transaction with an
affiliate of Three Cities Research, Inc. ("Three Cities").

         Other income was  $1,245,000  and  $1,498,000  for the fifty-two  weeks
ended  December  30, 2000 and  January 1, 2000,  respectively.  The  decrease of
$253,000 was primarily due to the reduced licensing revenues of $208,000 because
of the sale of the "HUE" trademark during the fourth quarter of the year.

         Interest  expense and  financing  costs,  net of interest  income,  was
$2,958,000 and  $2,258,000  for the fifty-two  weeks ended December 30, 2000 and
January 1, 2000,  respectively.  Included in interest and  financing  costs were
$507,000  and  $184,000  for the  current and prior year  respectively,  for the
interest  on the  $5,000,000  term note  entered  into on August 25,  1999.  The
additional  interest  expense was generated as a result of rising interest rates
and higher  borrowings,  which were  utilized for the Liz  Claiborne and Cynthia
Steffe transactions.  The financing fees under the new CIT Credit Agreement were
partially  offset by income earned on the cash invested for the fifty-two  weeks
ended December 30, 2000 and January 1, 2000.


                                      -19-
<PAGE>




         Other income/expense includes a gain on the sale of the "HUE" trademark
to the Kayser-Roth Corporation, the principal licensee of such trademarks for an
amount of $10,800,000 net of legal and professional fees. Last year, 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 $4,147,000 and $2,654,000 for the fifty-two
weeks ended December 30, 2000 and January 1, 2000,  respectively.  The change in
the  effective  tax rate is  primarily  due to the excess of revalued net assets
acquired over equity under fresh-start reporting that was fully amortized in the
second quarter of fiscal year 2000.

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 of 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.

                                      -20-
<PAGE>

         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 were 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-operative  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.

         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 issuance of stock options,  which are accounted for under
SFAS No. 123,  "Accounting  for Stock Based  Compensation,"  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.

                                      -21-
<PAGE>

         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.

(B) LIQUIDITY AND CAPITAL RESOURCES

         In  June  1997,   the   Company   obtained   financing   from  the  CIT
Group/Commercial  Services,  Inc.  ("CIT  Credit  Agreement").  The  CIT  Credit
Agreement as amended,  currently provides a working capital facility  commitment
of  $52,000,000,  including a  $30,000,000  sublimit  on letters of credit.  The
Company had $9,630,000  committed for letters of credit,  no direct  borrowings,
and a net borrowing  availability  under its Credit  Agreement of $25,701,000 on
December 30, 2000. The peak credit line utilization during the fiscal year ended
December  30,  2000  was   $30,190,000.   As  of  March  23,  2001,  there  were
approximately $3,598,000 in direct borrowings under the revolving line of credit
and the  Company  was  utilizing  approximately  $10,880,000  of the CIT  Credit
Agreement for letters of credit.

         At December 30, 2000, there were no direct borrowings outstanding under
the CIT Credit Agreement and cash and cash  equivalents  amounted to $8,942,000.
Of this amount,  $3,450,000 will be used to pay remaining  administrative claims
as defined in the Plan. Working capital increased $6,900,000,  to $44,199,000 at
December  30, 2000 from  January 1, 2000,  primarily  related to the sale of the
"HUE" trademark discussed previously, the proceeds of which were utilized to pay
down borrowings under the Company's credit facility.  The primary changes in the
components of working capital were: an increase in cash and cash  equivalents of
$3,476,000;  an increase in accounts  receivable of $10,925,000;  an increase in
inventories of $1,592,000;  a decrease of $927,000 in prepaid expenses and other
current  assets  and an  increase  in current  liabilities  of  $8,166,000.  The
increase  in cash and  cash  equivalents  resulted  mostly  from  the  increased
accounts  receivable  from  new  business  coupled  with the  lower  comparative
investment  in  inventory  at  December  30, 2000  versus  January 1, 2000.  The
decrease in prepaid  expenses  resulted  mostly  from  excess  federal and state
income taxes paid during the prior year. The increase in current  liabilities is
predominantly  a result of higher accounts  payable due to the higher  inventory
levels at year end.

         At  June  4,  1997,  approximately  $50  million  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
limited to $1,500,000 per year plus the amount of the built in gains  recognized
during the year that  existed at June 4, 1997.  As of  December  30,  2000,  the
Company  estimates  it will have  available  approximately  $16,500,000  of loss
carryforwards,  after taking into account the  limitation  discussed  above,  to
utilize through fiscal 2011. A full valuation  reserve has been  established for
the deferred tax asset associated with the net operating loss carryforwards.

                                      -22-
<PAGE>

         The CIT  Credit  Agreement  is  scheduled  to  expire on June 2, 2004 .
Direct borrowings bear interest at prime minus .25% (9.25% at December 30, 2000)
and the CIT  Credit  Agreement  requires  a fee,  payable  monthly,  on  average
outstanding letters of credit at a rate of 2% annually. The CIT Credit Agreement
currently provides the following:

o    The limit on inventory based collateral is $22,000,000 and will increase by
     $1,000,000 automatically each fiscal year.

o    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  Company's  net  income  in  excess  of
     $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.  As of March
     23,  2001,  approximately  $6,381,000  is  available  to pay  dividends  or
     repurchase stock.

o    The Company was  entitled  to issue a  five-year  term note  payable in the
     amount of $5,000,000 at an interest of prime plus 200 basis points.

         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.

         Capital  expenditures  were  $1,631,000  for the fifty-two  weeks ended
December 30, 2000,  of which  $205,000  relates to capital  leases  entered into
during fiscal 2000. The anticipated  capital  expenditures of $2,000,000 for the
2001 fiscal year include: approximately $250,000 for the capital requirements of
the distribution  center;  $1,525,000 to improve and up-date various  management
information systems; and approximately  $225,000 for 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 2001.

         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

                                      -23-
<PAGE>

in the applicable statements. These risks and uncertainties include, but are not
limited  to,  the  uncertainty  of  potential  manufacturing  difficulties,  the
dependence on key personnel,  the possible  impact of  competitive  products and
pricing,  the Company's  continued  ability to finance its  operations,  general
economic conditions and the achievement and maintenance of profitable operations
and positive cash flow.

ITEM 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.

                                      -24-
<PAGE>


                                    PART III
                                    --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------  --------------------------------------------------
<TABLE>
<CAPTION>

DIRECTORS OF THE COMPANY

                                        Principal Occupation and                                           Director
Name and Age                            Offices with the Company                                          Since
------------                            ------------------------                                          ---------
<S>               <C>                                                                                     <C>
John J. Pomerantz (67)                  Chairman of the Board of the Company                              1984

John A. Ward (47)                       President and Chief Executive Officer                             1997
                                        of the Company

Vishal K. Mahadevia (28)                Principal of Three Cities Research, Inc.                          2000

Bernard Olsoff  (72)                    Former Chief Executive Officer and President of                   1998
                                        Frederick Atkins, Inc. (1)

Robert L. Sind (67)                     President of Recovery Management                                  1997
                                        Corporation (1)

Thomas G. Weld (38)                     Managing Director of Three Cities Research, Inc.                  1999
                                        (1)
</TABLE>

--------------------------------------------------------------------------------
(1)  Member  of  Compensation,  Finance  and  Audit  Committees  of the Board of
     Directors.



                                      -25-
<PAGE>



EXECUTIVE OFFICERS OF THE COMPANY

Name                      Positions with the Company                       Age
----                      --------------------------                       ---

John J. Pomerantz         Chairman of the Board                            67

John A. Ward              President and                                    47
                          Chief Executive Officer

Warren T. Wishart         Senior Vice President-Administration             48
                          and Finance, Secretary and
                          Chief Financial Officer


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. In April 2000 he relinquished the position of Chief
Executive Officer but remains Chairman of the Board of Directors.

         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,  President  of the  Company in June 1997 and Chief
Executive  Officer in May 2000.  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.

         Vishal K. Mahadevia is a Principal of Three Cities Research, Inc. which
he  joined  in 1996.  Prior to  joining  TCR,  Mr.  Mahadevia  was a  management
consultant for two years in the New York offices of McKinsey & Company, where he
worked  with  a  range  of  consumer/industrial  companies.  He  holds  a BS  in
Engineering and a BS in Economics from the University of  Pennsylvania.  He also
serves on the Board of  Directors of Morning  Sun,  Inc. and National  Directory
Company, an independent publisher of yellow page directories.

                                      -26-
<PAGE>

         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 subsidiary 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.

         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.

         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  December  30, 2000,  that the
following  persons  did not file an Annual  Statement  of Changes in  Beneficial
Ownership on a timely basis: John J. Pomerantz  (exercise of an option),  Thomas
G. Weld, Bernard Olsoff, H.Whitney Wagner and John Ward (receipt of an option by
each).

                                      -27-
<PAGE>



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

         Summary of Cash and Certain  Other  Information.  The  following  table
shows, for 2000, 1999 and 1998, 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  2000  (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               Long Term Compensation
                                                -------------------               ----------------------
                                                                          Other         Securities
Name and Principal Position                                              Annual         Underlying    LTIP            All Other
---------------------------      Year      Salary (1)     Bonus       Compensation     Options (#)    Payouts        Compensation
                                 ----      ----------     -----       ------------     -------------  -----------    ------------
<S>                              <C>     <C>           <C>             <C>     <C>                                <C>        <C>
                                 2000    $500,000      $190,000        $76,822 (2)          --            --      $   1,683,387 (3)
John J. Pomerantz                ----
   Chief Executive Officer       1999    $500,000      $440,000            (4)              --            --      $       3,450 (5)
   (through April 2000) and      ----
   Chairman of the Board of      1998    $498,654      $350,000            (4)           117,042          --      $       2,650 (5)
   Directors                     ----
-------------------------------- -------- ------------- -------------- -------------- ------------- ------- ------- ---------------
                                  2000    $479,808      $190,000            (4)          100,000              --    $      3,650 (5)
John A. Ward                      ----
   Chief Executive Officer        1999    $450,000      $350,000            (4)             --                --    $      3,450 (5)
   (from May 2000) and            ----
   President                      1998    $449,039      $280,000            (4)           91,440              --    $      2,650 (5)
                                  ----
-------------------------------- -------- ------------- -------------- -------------- ------------- ------- ------- ---------------
                                  2000    $374,423      $140,000            (4)            --                 --    $  628,438 (7)
Dominick Felicetti                ----
  Senior Vice President           1999    $350,000      $285,000            (4)            --                 --    $      3,450 (5)
  Manufacturing and               ----
  Sourcing(6)                     1998    $349,519      $230,000            (4)          78,638               --    $      2,650 (5)
                                  ----
-------------------------------- -------- ------------- -------------- -------------- ------------- ------- ------- ---------------
                                  2000    $249,423      $125,000        $41,174 (8)        --                 --    $  106,904 (9)
Warren T. Wishart                 ----
  Senior Vice President-          1999    $225,000      $250,000            (4)            --                 --    $      3,450 (5)
  Administration and              ----
  Finance, Chief                  1998    $224,519      $200,000            (4)          78,638               --    $      2,650 (5)
  Financial Officer and           ----
  Treasurer
-------------------------------- -------- ------------- -------------- -------------- ------------- ------- ------- ---------------
</TABLE>

(1)      2000, 1999 and 1998 were 52 week years. Amounts represent salaries paid
         during the above calendar years.

(2)      For 2000,  consists of $32,536 for a Company provided  vehicle,  $6,786
         for group life insurance, and a special bonus payment of $37,500.

(3)      For  2000,   consists  of  $3,650   contributed  as  Company   matching
         contribution under the Company's 401(k) saving plan and a signing bonus
         of $1,679,737.

                                      -28-
<PAGE>

(4)      Perquisites  and other  personal  benefits did not exceed the lesser or
         $50,000 or 10% of  reported  annual  salary and  bonuses  for the Named
         Officer.

(5)      Consists of amounts  contributed as Company  matching  contribution for
         such Named  Officer under the  Company's  401(k)  savings plan for such
         year.

(6)      Mr. Felicetti ceased to be an employee of the Company effective January
         4, 2001.

(7)      For  2000,   consists  of  $3,650   contributed  as  Company   matching
         contribution  under the  Company's  401(k)  saving plan and a severance
         payment of $624,788.

(8)      For 2000,  consists  of $19,924  for a Company  provided  vehicle and a
         special bonus payment of $21,250.

(9)      For  2000,   consists  of  $3,650   contributed  as  Company   matching
         contribution under the Company's 401(k) saving plan and a signing bonus
         of $103,254.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

         The  following  table  sets  forth  information  with  respect to stock
options granted to the Named Officers during fiscal 2000:
<TABLE>
<CAPTION>
                     Individual Grants
--------------------------------------------------------------------------------------------------------------------
                                       % of Total
                        Number of        Options                             Potential Realizable Value at Assumed
                        Securities     Granted to                                 Annual Rates of Stock Price
                        Underlying      Employees                                Appreciation for Option Term
                         Options     In Fiscal       Exercise   Expiration   ----------------------------------------
        Name             Granted         Year        Price (1)   Date (2)     0%         5%           10%
---------------------------------------------------------------------------------------------------------------------
<S>                    <C>           <C>            <C>        <C>   <C>    <C>        <C>          <C>
John A. Ward           100,000       65.4%          $2.75      12/29/2010   $0.00      $152,000     $373,000
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      The market price per share as of the grant date was $2.75

(2)      Immediately exercisable in full.

         No other Named Officer received stock options during fiscal 2000.


                                      -29-
<PAGE>


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

                  The following table sets forth information with respect to the
Named Officers  concerning  the exercise of options during 2000 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  29,
2000 (the last trade day prior to December 30, 2000) was $2.75.
<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> <C>
John J. Pomerantz                 380,798          $179,737     0/0                           $ 0/0
--------------------------------- ---------------- ------------ ----------------------------- ---------------------------------

John A. Ward                      None             None          331,560/0                    $ 0/0
--------------------------------- ---------------- ------------ ----------------------------- ---------------------------------

Dominick Felicetti                None             None          218,758/0                    $ 0/0
--------------------------------- ---------------- ------------ ----------------------------- ---------------------------------

Warren T. Wishart                 218,758          $103,254      0/0                          $ 0/0
--------------------------------- ---------------- ------------ ----------------------------- ---------------------------------
</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 AND SEVERANCE AGREEMENTS

         The Company has an employment agreement with John J. Pomerantz expiring
on December 31, 2005,  pursuant to which he is employed as Chairman of the Board
at a base  salary of $500,000  per annum plus a bonus of $150,000  per annum for
the years  2001 and 2002 and  $410,000  per annum for the years  2003,  2004 and
2005.

         The Company also has an employment agreement with John A. Ward expiring
on December  31, 2005,  pursuant to which he is employed as President  and Chief
Executive Officer of the Company at a base salary of $500,000 per annum.

                                      -30-
<PAGE>

         The Company  also has an  employment  agreement  with Warren T. Wishart
expiring on December 31,  2005,  pursuant to which he is employed as Senior Vice
President--Administration  and Finance, Chief Financial Officer and Treasurer at
a base  salary of  $250,000  per annum plus a bonus of $85,000 per annum for the
years 2001 and 2002 and $235,000 per annum for the years 2003, 2004 and 2005.

         In addition,  these  employment  agreements  provide for a shared bonus
pool payable to the senior  managers of the Company in the amount of EBITAB less
20% of the average  monthly RONA Net Assets times 25%. The terms EBITAB and RONA
Net Assets are defined in the employment agreements.

         The employment  agreements also provide for certain benefits  including
an automobile  allowance  and severance  payments of up to one year's salary and
bonus (up to two years in the case of Mr.  Pomerantz)  upon  termination of such
agreements under certain circumstances.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The  Compensation  Committee  of the Board of Directors is charged with
determining  the  compensation  of  officers.   During  2000,  the  Compensation
Committee consisted of H. Whitney Wagner (from June 29, 1999 through November 9,
2000), Robert L. Sind (from June 29, 1999), Bernard Olsoff (from June 29, 1999),
and Thomas Weld (from September 21, 2000).

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 23, 2001. 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>                        <C>
Three Cities Research, Inc.                                     3,660,764 (1)                        64.4%
650 Madison Avenue
New York, New York 10022

John J. Pomerantz                                               3,660,764 (2)                        64.4%
c/o The Leslie Fay Company, Inc.
1412 Broadway
New York, New York   10018

                                      -31-
<PAGE>

Constable Asset Management, Ltd.                                   441,407 (3)                          7.8%
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 3,660,764  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  Offshore  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  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 390,798 shares of Common Stock beneficially owned by John J. Pomerantz,
as described in note (2) below.

(2) Includes 3,269,966 shares  beneficially owned by The Three Cities Funds. 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.

                                      -32-
<PAGE>


(b) The following table sets forth certain information as of March 23, 2001 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                                              3,660,764(1)                     64.4%

John A. Ward                                                     331,560(2)                      5.5%

Dominick Felicetti                                               220,758(3)                      3.7%

Warren T. Wishart                                                218,758                         3.9%

Robert L. Sind                                                    26,000(4)                        (7)

Bernard Olsoff                                                    16,000(5)                        (7)

Vishal Mahadevia                                                  10,000(5)                        (7)

Thomas G. Weld                                                    14,000(5)                        (7)

Officers and Directors as a group                              4,277,082(6)                      70.6%

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

(1)      Includes 3,269,966 shares beneficially owned by The Three Cities Funds.
         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.

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

(3)      Includes  218,758  shares of Common  Stock  issuable  upon  exercise of
         presently exercisable stock options.

                                      -33-
<PAGE>

(4)      Includes  20,000  shares of Common  Stock  issuable  upon  exercise  of
         presently exercisable stock options.

(5)      Includes  10,000  shares of Common  Stock  issuable  upon  exercise  of
         presently exercisable stock options.

(6)      Includes  381,560  shares of Common  Stock  issuable  upon  exercise of
         presently  exercisable stock options and 3,269,966 shares  beneficially
         owned by Three Cities as to which Mr.  Pomerantz  shares certain voting
         rights as to the election of directors.

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

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

         Reference  is made to "Proposal  to Acquire  Outstanding  Shares" for a
discussion of the transaction with The Three Cities Funds.

         On  September  22,  2000,  John J.  Pomerantz  and  Warren  T.  Wishart
respectively  borrowed  $1,176,665.22  and $675,962.22  from the Company,  which
amounts they utilized to exercise  stock options for 380,798  shares and 218,758
shares of Common  Stock,  respectively.  The loans bear  interest at the rate of
6.22% per annum,  and are  payable in 2007.  The Company  has  recourse  against
Messrs.  Pomerantz and Wishart for 33-1/3% of the original  principal  amount of
their  loans;  payment of the balance of the loans is secured by, with  recourse
solely to, the shares acquired on exercise of such stock options.

                                      -34-
<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 2000,  the  Company has
                  not filed any Current Reports on Form 8-K.


                                      -35-
<PAGE>



                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                        Page No.
                                                                                        --------

<S>                                                                                         <C>
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-23
</TABLE>

                                      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  subsidiaries  as of
December 30, 2000 and January 1, 2000, and the related  consolidated  statements
of operations, stockholders' equity and cash flows for the fifty-two weeks ended
December  30, 2000,  January 1, 2000,  and January 2, 1999.  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.

         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 December 30, 2000 and January 1, 2000, and
the results of their  operations  and their cash flows for each of the fifty-two
weeks  ended  December  30,  2000,  January 1,  2000,  and  January 2, 1999,  in
conformity with accounting principles generally accepted in the United States.

     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.

                                                          /s/Arthur Andersen LLP
                                                             Arthur Andersen LLP

New York, New York
February 26, 2001 (except with respect
to matter discussed in Note 15 as to which the date is
March 26, 2001)

                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                              DECEMBER 30,            JANUARY 1,
                                ASSETS                                            2000                   2000
Current Assets:
<S>                                                                                   <C>                   <C>
    Cash and cash equivalents.......................................                  $5,492                $ 2,034
    Restricted cash and cash equivalents............................                   3,450                  3,432
    Accounts receivable- net of allowances for possible losses of
       $7,585 and $5,468, respectively..............................                  27,877                 16,952
    Inventories.....................................................                  35,818                 34,226
    Prepaid expenses and other current assets.......................                   1,775                  2,702
                                                                           -----------------      -----------------
       Total Current Assets.........................................                  74,412                 59,346
    Property, plant and equipment, at cost, net of accumulated
       depreciation of $3,126 and $1,535, respectively..............                   3,625                  3,695
    Excess of purchase price over net assets acquired, net of
       accumulated amortization of $980 and $357, respectively......                   5,680                  4,330
    Deferred charges and other assets...............................                   3,985                  1,629
                                                                           -----------------      -----------------
    Total Assets....................................................                 $87,702                $69,000
                                                                           =================      =================

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
    Short term debt.................................................                 $ 1,000                $ 1,000
    Accounts payable................................................                  15,648                  9,454
    Accrued expenses and other current liabilities..................                  10,024                  8,121
    Accrued expenses and other current confirmation liabilities.....                   3,450                  3,432
    Current portion of capitalized leases...........................                      91                     40
                                                                           -----------------      -----------------
       Total Current Liabilities....................................                  30,213                 22,047

    Long term note payable..........................................                   3,000                  4,000

    Excess of  revalued  net assets  acquired  over  equity  under fresh -
       start reporting, net of accumulated amortization of $13,708
       and $11,811, respectively....................................                       -                  1,897
    Long-term debt-capitalized leases...............................                     126                     52
    Deferred liabilities............................................                   1,135                    863
                                                                           -----------------      -----------------
    Total Liabilities...............................................                  34,474                 28,859
                                                                           -----------------      -----------------

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,
     7,498 and 6,870 shares issued, respectively.....................                     75                     69
 Capital in excess of par value.....................................                  38,451                 31,212
 Notes receivable from stock sale...................................                 (1,853)                      -
  Retained earnings.................................................                  28,178                 20,483
                                                                           -----------------      -----------------
    Subtotal........................................................                  64,851                 51,764
 Treasury stock, at cost; 1,817 shares..............................                (11,623)               (11,623)
                                                                           -----------------      -----------------
    Total Stockholders' Equity......................................                  53,228                 40,141
                                                                           -----------------      -----------------
 Total Liabilities and Stockholders' Equity.........................                 $87,702                $69,000
                                                                           =================      =================
</TABLE>
           The accompanying Notes to Consolidated Financial Statements
           are an integral part of these consolidated balance sheets.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                                                   FIFTY-TWO            FIFTY-TWO            FIFTY-TWO
                                                                  WEEKS ENDED          WEEKS ENDED          WEEKS ENDED
                                                                 DECEMBER  30,          JANUARY 1,           JANUARY 2,
                                                                      2000                 2000                 1999
<S>                                                                  <C>                 <C>                   <C>
Net Sales..............................................              $212,714            $197,446              $152,867

Cost of Sales..........................................               165,372             148,690               115,547
                                                                  -----------         -----------           -----------
   Gross profit........................................                47,342              48,756                37,320
                                                                  -----------         -----------           -----------
Operating Expenses:

      Selling, warehouse, general and
         Administrative expenses.......................                43,370              37,940                28,076

   Non-cash stock based compensation...................                   963               1,380                 1,724

   Depreciation and amortization expense...............                 2,152               1,367                   406
                                                                  -----------         -----------           -----------
       Total operating expenses........................                46,485              40,687                30,206

   Other (income)......................................               (1,245)             (1,498)               (1,334)

   Amortization of excess revalued net assets acquired
       over equity.....................................               (1,898)             (4,572)               (4,572)

   Total operating expenses, net.......................                43,342              34,617                24,300

                                                                        4,000              14,139                13,020
   Operating income....................................

Interest and Financing Costs...........................                 2,958               2,258                   950

 Other (Income) Expenses...............................               (10,800)                911                    --
                                                                  -----------         -----------           -----------

   Income before provision for income taxes............                11,842              10,970                12,070

Provision  for taxes...................................                 4,147               2,654                 3,212
                                                                  -----------         -----------           -----------

   Net Income .........................................                $7,695              $8,316                $8,858
                                                                  ===========         ===========           ============

   Net Income  per Share - Basic.......................                 $1.47               $1.46                 $1.35
                                                                  ===========         ===========           ============
                         - Diluted.............                         $1.44               $1.39                 $1.31
                                                                  ===========         ===========           ============
Weighted Average Shares Outstanding -Basic.............             5,238,236           5,688,347             6,553,637
                                                                  ===========         ===========           ============
                                    -Diluted...........             5,362,298           5,967,711             6,777,614
                                                                  ===========         ===========           ============
</TABLE>

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

                                      F-4
<PAGE>

                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                 (IN THOUSANDS)

                                                                        CAPITAL IN        NOTES
                                                     COMMON STOCK        EXCESS OF      RECEIVABLE     RETAINED
                                                  SHARES   PAR VALUE     PAR VALUE    FROM STOCK SALE  EARNINGS

BALANCE AT JANUARY 3, 1998                          6,800     $68        $25,837                        $3,309

<S>                                                                                                      <C>
   Net Income                                          --      --             --                         8,858

   New Stock Issuance                                  58       1            231                            --

   Treasury Stock Repurchase                           --      --             --                            --

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

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

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

BALANCE AT JANUARY 2,1999                           6,858     $69        $28,824                       $12,167

   Net Income                                          --      --             --                         8,316

   New Stock Issuance                                  12      --            82                            --

   Treasury Stock Repurchase                           --      --            --                            --

   Use of Pre-Consummation Deferred Taxes              --      --           997                            --

   SFAS No. 123 - Stock Option Compensation            --      --         1,309                            --
                                               --------   ----------  --------- -----------  ------------------

BALANCE AT JANUARY 1, 2000                          6,870     $69      $31,212                         $20,483
                                               ========   ==========  ========= ===========  ========= ========


   Net Income                                          --      --           --                  --       7,695

   New Stock Issuance                                 628       6        1,938               (1,853)        --

   Use of Pre-Consummation Deferred Taxes              --      --        4,367                   --         --

   SFAS No. 123 - Stock Option Compensation            --      --          934                   --         --
                                               --------   ----------  --------- -----------  ------------------
BALANCE AT DECEMBER 30, 2000                        7,498      $75     $38,451               (1,853)   $28,178
                                               ========   ==========  ========= =========== ========== ========
</TABLE>
<TABLE>
<CAPTION>

                                                                                       ACCUMULATED
                                                                                          OTHER          TOTAL          TOTAL
                                                                     TREASURY STOCK    COMPREHENSIVE  STOCKHOLDERS'  COMPREHENSIVE
                                                                   SHARES      AMOUNT    INCOME          EQUITY         INCOME
                                                                 ------------------------------------------------------------------
BALANCE AT JANUARY 3, 1998
<S>                                                                              <C>             <C>        <C>
                                                                       --        $ --            $ --       $29,214
   Net Income
                                                                       --          --              --         8,858         $8,858
   New Stock Issuance
                                                                       --          --              --           232
   Treasury Stock Repurchase
                                                                      817     (4,623)              --       (4,623)
   Use of Pre-Consummation Deferred Taxes
                                                                       --          --              --         1,084
   SFAS No. 123 - Stock Option Compensation
                                                                       --          --              --         1,672

BALANCE AT JANUARY 2,1999                                             817    ($4,623)            $ --       $36,437

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

   New Stock Issuance                                                  --          --              --            82

   Treasury Stock Repurchase                                        1,000     (7,000)              --       (7,000)

   Use of Pre-Consummation Deferred Taxes                              --          --              --           997

   SFAS No. 123 - Stock Option Compensation                            --          --              --         1,309

BALANCE AT JANUARY 1, 2000                                          1,817    ($11,623            $ --       $40,141
                                                                 =======================================================
   Net Income                                                          --          --              --         7,695          $7,695
                                                                                                                                   =
   New Stock Issuance                                                  --          --              --            91

   Use of Pre-Consummation Deferred Taxes                              --          --              --         4,367

   SFAS No. 123 - Stock Option Compensation                            --          --              --           934

BALANCE AT DECEMBER 30, 2000                                     -------------------- -----------

                                                                    1,817    ($11,623            $ --       $50,594                -

</TABLE>

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


                                      F-5
<PAGE>
                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                    FIFTY-TWO            FIFTY-TWO          FIFTY-TWO
                                                                    WEEKS ENDE          WEEKS ENDED        WEEKS ENDED
                                                                    DECEMBER 30,         JANUARY 1,         JANUARY 2,
                                                                       2000                2000               1999
                                                                --------------        --------------     -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                    <C>                   <C>                <C>
   Net income .............................................            $7,695                $8,316             $8,858
   Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
     Depreciation and amortization.........................             2,324                 1,433                445
     Amortization of excess net assets acquired over equity            (1,898)               (4,572)            (4,572)
     Provision for possible losses on accounts receivable..                (2)                   --                (22)
     Provision for stock based compensation and stock
     option  grants........................................               963                 1,380              1,724
     Changes in assets and liabilities, net of impact of
     acquisition:
       Restricted short-term investments...................                --                    --              2,989
       Accounts receivable.................................           (10,437)                 (780)            (8,155)
       Inventories.........................................               946                 4,401           (10,354)
       Prepaid expenses and other current assets...........               934                (1,769)             (148)
       Deferred charges and other assets...................            (2,324)               (1,078)              (402)
       Accounts payable, accrued expenses and other current
          liabilities......................................             7,120                (1,480)               705

       Deferred liabilities................................               272                   386                334
       Use of pre-consummation deferred taxes..............             4,367                   997              1,084
                                                               --------------        --------------     -------------
         Total adjustments.................................             2,265                (1,082)           (16,372)
                                                               --------------        --------------     -------------
         Net cash provided by used in operating activities.             9,960                 7,234             (7,514)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures....................................           (1,426)                (1,965)            (2,331)
   Net cash paid for acquisitions..........................           (4,064)                   (97)            (1,250)
   Merger costs............................................                --                  (874)                --
                                                               --------------        --------------     -------------
         Net cash used in investing activities.............           (5,490)                (2,936)            (3,581)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from borrowings ...............................           100,478                65,851              1,162
   Repayment of borrowings ................................         (100,478)               (66,179)                --
   Proceeds from notes payable ............................                --                 5,000                 --
   Repayment of  notes payable ............................           (1,000)                  (834)                --
   Treasury stock repurchase...............................                --                (7,000)            (4,623)
   Proceeds from new stock issuance and options exercised..                68                    --                180
   Repayment of  capital lease obligations ................              (80)                   (48)              (144)
   Proceeds (payments) of obligations under Plan
   of Reorganization, net.................................               18                    165              (1,080)
                                                               --------------        --------------     -------------
             Net cash used in financing activities.........             (994)                (3,045)            (4,505)
                                                               --------------        --------------     -------------
   Net  increase (decrease) in cash and cash equivalents...             3,476                 1,253            (15,600)

   Cash and cash equivalents, at beginning of period.......             5,466                 4,213             19,813
                                                               ==============        ==============     =============

   Cash and cash equivalents, at end of period.............            $8,942                $5,466             $4,213
                                                               ==============        ==============     =============
</TABLE>
        The accompanying Notes to Consolidated Financial Statements are
          an integral part of these consolidated financial statements.

                                      F-6
<PAGE>

                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION AND ORGANIZATION:

         The  consolidated   financial  statements  included  herein  have  been
prepared by The Leslie Fay Company,  Inc. and subsidiaries  (the "Company"),  in
accordance with accounting  principles  generally accepted in the United States.
The Company's  fiscal year ends on the Saturday  closest to December  31st.  The
fiscal years ended  December 30, 2000,  January 1, 2000 and January 2, 1999 each
included 52 weeks.

         In April 1993, the Company filed a voluntary  petition under Chapter 11
of the  Bankruptcy  Code.  In October 1995, a Joint Plan of  Reorganization  (as
subsequently  amended,  the  "Plan") was filed by the  Company,  which was later
confirmed by the  Bankruptcy  Court in April 1997. On June 4, 1997, the Plan was
consummated by the Company by 1)  transferring  the equity  interest in both the
Company and Sassco  Fashions,  Ltd. to its creditors for relief from claims,  2)
assigning  to  certain   creditors  the  ownership   rights  to  notes,  and  3)
transferring  the assets and liabilities of the Company's Sassco Fashion product
line of Sassco Fashions, Ltd. The Company retained approximately  $41,080,000 in
cash, of which a cumulative amount of approximately $37,630,000 has been used to
pay administrative claims as detailed in the Plan.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(A)  BUSINESS -

         The Company is  principally  engaged in the design,  arranging  for the
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.  The  majority of the  business is domestic in nature with
minimal sales in Canada and the United Kingdom.

(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 December 30,
2000,  $3,450,000 of restricted  cash,  included within cash  equivalents on

                                      F-7
<PAGE>

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) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED -

         At  December  30,  2000 the  excess of  purchase  price over net assets
acquired net of accumulated  amortization  amounted to $5,680,000.  The asset is
being  amortized  on a  straight-line  basis over  periods  ranging from five to
fifteen years. The Company incorporated these assets acquired into the Dress and
Sportswear Product Lines.

         The  Company  reviews  its  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.  The  Company  does not believe  that any  impairment  exists in the
recoverability of its net assets as of the fiscal year end.

(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 fresh-start  accounting.  The revalued net assets
under  fresh-start  accounting  exceeded  the  equity  value of the  Company  by
$13,708,000.  This  negative  goodwill  amount was  amortized  over a three-year
period, which ended 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 7).  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.

 (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.  Basic earnings per share  represents net income
divided by the weighted average shares  outstanding.  Diluted

                                      F-8
<PAGE>

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  December 30, 2000,  January 1, 2000 and January 2,
1999,  the basic  weighted  average  common shares  outstanding  was  5,238,236,
5,688,347 and 6,553,637,  respectively.  The weighted average shares outstanding
assuming  dilution was  5,362,298,  5,967,711  and  6,777,614 as of December 30,
2000,  January 1, 2000 and January 2, 1999,  respectively.  The  differences  of
124,062,  279,364  and  223,977,  respectively,  relate  to  incremental  shares
issuable relating to dilutive stock options  calculated using the treasury stock
method.

(J) PRIOR YEARS' RECLASSIFICATION -

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

(K) USE OF ESTIMATES -

         The  preparation of financial  statements in conformity with accounting
principles  generally accepted in the United States 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.

3.       ACQUISITIONS AND LICENSE AGREEMENTS:

         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 is being  amortized  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 was  comprised of payments of  $1,587,000;  assumed
liabilities of $2,192,000;  acquisition and integration costs of $1,880,000 less
the value of assets acquired of $972,000.

         On February 15, 2000, the Company entered into a license agreement with
the licensing subsidiary of Liz Claiborne, Inc. ("Liz Claiborne") 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

                                      F-9
<PAGE>

had been made by Liz  Claiborne  as of February  15,  2000.  Beginning  with the
Holiday  2000 season that  shipped in October  2000,  the Company  designed  and
arranged  for 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 average annual royalty payments of up to
approximately  $2,000,000 per year throughout the five-year  initial term of the
agreement,  or, if sales exceed the minimum defined in the royalty agreement, 6%
of the net sales of Liz Claiborne and Elisabeth  dresses and suits.  The Company
also  reimbursed  Liz Claiborne for certain  operating  costs on a  transitional
basis.

         This transaction generated intangible assets of approximately $940,000,
consisting primarily of pre-transaction  customer claims and settlements assumed
from Liz  Claiborne,  amounting  to $900,000 and  transaction  costs of $40,000,
which  the  Company  is  amortizing  over the  initial  five-year  period of the
agreement ending February 2005. The operating  results of Liz Claiborne  dresses
have been included in the Company's  consolidated financial statements since the
date of the  acquisition.  Net Sales  from the date of the  transaction  through
December 30, 2000 were approximately $24,823,000.

         On May 9, 2000, the Company  purchased  substantially all the assets of
Cynthia Steffe, Inc. Cynthia Steffe also licensed her trade names to the Company
in perpetuity (subject to certain rights of termination). Cynthia Cynthia Steffe
and private  label  contemporary  and  designer  sportswear  is marketed to both
department  and  specialty  stores.  These brands were merged into the Company's
Sportswear  Product  Line.  This  transaction  generated  intangible  assets  of
$1,033,000, which the Company is amortizing over fifteen years.

         The  Cynthia  Steffe,  Inc.  acquisition  has been  accounted  for as a
purchase,  and,  accordingly,  the operating results of Cynthia Steffe have been
included in the Company's  consolidated  financial  statements since the date of
acquisition.  Net sales from the date of acquisition  through  December 30, 2000
were approximately $2,967,000.

The purchase price allocation as of December 30, 2000 is as follows:

                                                                (In thousands)

Payment for purchase of the Cynthia Steffe, Inc. assets:

     Net cash paid for acquisition                                 1,611
     Acquisition, integration and other costs                        126
     Fair value of assets acquired, primarily accounts
     receivable and inventory                                       (704)
                                                                   -----

     Excess of Purchase Price over Assets acquired                $1,033

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

                                      F-10
<PAGE>

4.   INVENTORIES:
<TABLE>
<CAPTION>
         Inventories consist of the following:
                                                                  December 30,            January 1,
                                                                      2000                   2000
                                                                  ------------            ----------
  (In thousands)
<S>                                                                  <C>                    <C>
  Raw materials                                                      $15,032                $14,338
  Work in process                                                      1,561                  3,654
  Finished goods                                                      19,225                 16,234
                                                                     -------                -------
     Total inventories                                               $35,818                $34,226
                                                                     =======                =======

5.   PROPERTY, PLANT AND EQUIPMENT:
</TABLE>

         Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
                                                           December 30,         January 1,           Estimated
                                                               2000                2000             Useful Life
                                                           ------------        -----------        --------------
  (In thousands)
<S>                                                                <C>               <C>           <C> <C>
  Machinery, equipment and fixtures                                $5,316            $4,287        5 - 10 years
  Building and leasehold improvements                               1,428               682          Various
  Construction in progress                                              7               261          N/A
                                                                 --------          --------
     Property, plant and equipment, at cost                         6,751             5,230
  Less: Accumulated depreciation
     and amortization                                              (3,126)           (1,535)
                                                                 --------          --------
   Total property, plant and equipment, net                      $  3,625          $  3,695
                                                                 ========          ========
</TABLE>

6.   DEBT:

(A) CIT CREDIT AGREEMENT -

         The Company has a financing agreement (the "CIT Credit Agreement") with
CIT,  which  expires 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%  (9.25% at  December  30,  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 borrowing availability under the CIT Credit
Agreement  of  $25,701,000  on  December  30,  2000  and the  peak  credit  line
utilization  during the fifty-two weeks ended December 30, 2000 was $30,190,000,
which  consisted of direct  borrowings of $22,125,000  and unexpired  letters of
credit of $8,065,000.  There were no direct borrowings outstanding under the CIT
Credit  Agreement and  approximately  $9,630,000 was committed  under  unexpired
letters of credit as of December 30, 2000.

                                      F-11
<PAGE>

         The CIT Credit Agreement has been modified six times through August 14,
2000, 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, allowing the Warren and Cynthia Steffe acquisitions 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  $52,000,000   from
     $42,000,000.  The sub-limit on letters of credit has also been increased to
     $30,000,000 from $25,000,000.

|X|  The requirement that in order to pay dividends or to repurchase stock there
     remain  unused  credit  available  of no  less  than  $5,000,000  has  been
     eliminated.

|X|  The  covenant  related to the maximum  capital  expenditures  was raised to
     $4,000,000  for the year ended  December  30, 2000 and  $2,500,000  for the
     fiscal years thereafter.

|X|  The  Company  is  permitted  to  grant  stock  acquisition  loans  to  four
     designated  senior  officers in the amount of  approximately  $3,645,000 to
     fund the acquisition of shares of capital stock of the Company.

|X|  The  Company  is  authorized  to make a loan to the  principals  of Cynthia
     Steffe,  Inc. not to exceed  $1,000,000 with principal and interest due May
     10, 2010. The loan balance on December 30, 2000 was $983,000.

|X|  Letters of credit may be issued in support of product  which  bears the Liz
     Claiborne  licensed mark for up to 180 days to an aggregate  maximum amount
     not to exceed $5,000,000.

         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.

 (B) LONG-TERM NOTES PAYABLE -

         The Company  borrowed  $5,000,000 and issued a term note payable to CIT
(to partially  fund the Company's  common stock  repurchase on August 25, 1999).
The note bears  interest at prime plus 200 basis  points  (11.50% as of December
30, 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-12
<PAGE>

7.   INCOME TAXES:

         For the fifty-two  weeks ended  December 30, 2000,  January 1, 2000 and
January 2, 1999 the Company recognized the following tax provision (benefit):
<TABLE>
<CAPTION>
      (In thousands)                        Fifty-Two            Fifty-Two             Fifty-Two
                                           Weeks Ended          Weeks Ended        Weeks Ended
                                          December 30,           January 1,        January 2,
                                              2000                  2000               1999
                                        ----------------      ----------------     ----------
Current:
<S>                                          <C>                   <C>                 <C>
             Federal                         $ 1,690               $ 3,046             $ 1,851
             State                               746                   216                 733
                                            --------               -------              -------
                                               2,436                 3,262               2,584
                                            --------               -------              -------
Deferred:
             Federal                          (2,296)              ( 1,469)              ( 334)
             State                              (360)                ( 136)              ( 122)
                                            --------               -------              -------
                                              (2,656)              ( 1,605)              ( 456)
                                            --------               -------              -------
Deferred Non-Cash
Pre-Emergence Tax Provision:

             Federal                          3,583                    374                 675
             State                              784                    623                 409
                                            --------               -------              -------
                                              4,367                    997               1,084
                                            --------               -------              -------

Income tax provision                        $ 4,147                $ 2,654             $ 3,212
                                            ========               =======             =======
</TABLE>

         As a consequence of the adoption of fresh-start  reporting and SFAS No.
109,  "Accounting  for  Income  Taxes"  any  tax  benefits  realized  after  the
consummation  date  of  the  Plan  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.

         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             Fifty-Two
                                           Weeks Ended          Weeks Ended           Weeks Ended
                                          December 30,           January 1,           January 2,
                                               2000                 2000                 1999
                                         ---------------      ---------------      ----------
<S>                                            <C>                   <C>                  <C>
Effective Tax Rate                             35.0%                 24.2%                26.6%

Net state tax                                 ( 6.5%)               ( 4.2%)              ( 5.6%)
Intangibles                                     5.5 %                14.2%                12.9%
Other                                         (  __ %               ( 0.2%)                0.1%
                                             -------               -------               ------

Federal statutory rate                         34.0%                 34.0%                34.0%
                                             =======               =======               ======
</TABLE>

         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:

                                      F-13
<PAGE>
<TABLE>
<CAPTION>
                                                 December 30,         January 1,
                                                       2000               2000
                                               ------------------ ------------------
           (In thousands)
<S>                                                     <C>                  <C>
Customer reserves and allowances                        $ 12,580             $ 7,881
Depreciation                                              14,239              14,699
Inventory                                                  5,535               5,417
Worker's compensation
   insurance                                                 159                 133
Vacation pay accrual                                         864                 724
Other                                                      6,708               4,892
                                                         -------             -------
Total temporary differences                              $40,085             $33,746
                                                         =======             =======

Tax effect of temporary differences                     $ 16,154            $ 13,498

Valuation allowance                                      (13,629)            (12,314)
                                                         -------             -------
Deferred tax assets recognized                          $  2,525            $  1,184
                                                         =======             =======
</TABLE>
         At  June  4,  1997,  approximately  $50  million  of  consolidated  net
operating  losses ("NOL") 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  limited  to  $1,500,000  per year  plus  the  amount  of the  built in gains
recognized  during the year that  existed at June 4, 1997.  As of  December  30,
2000,  the  NOL  available  to  the  Company,  after  taking  into  account  the
aforementioned  limitation,  is $16.5  million and these  losses are  utilizable
through 2011, subject to the annual limitations.  A full valuation allowance has
been  established  for the deferred tax asset  associated with the net operating
loss carryforwards, and pre-emergence temporary differences which is in addition
to the valuation allowance disclosed in the above table.

8.   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 weeks ended December 30, 2000,  January 1, 2000 and
January  2,  1999,   amounted  to  $3,456,000,   $3,292,000,   and   $2,540,000,
respectively.

                                      F-14
<PAGE>

         Minimum  annual rental  commitments  under  operating  and  capitalized
leases in effect at December 30, 2000 are summarized as follows:
<TABLE>
<CAPTION>
                                                                                     Capitalized
      Fiscal                             Real             Equipment              Equipment
      Years                              Estate           & Other            (including interest)
      -----                              ------           --------           --------------------
                                                          (In thousands)
<S>   <C>                                <C>                <C>                   <C>
      2001                               $ 2,241            $246                  $105
      2002                                 2,010              97                   105
      2003                                 2,209              61                    26
      2004                                 2,029              --                    --
      2005                                 2,013
      Thereafter                           6,128              --                    --
                                         -------          -------               ------
      Total minimum lease payments       $16,630            $404                   236
                                         =======          =======               ======
      Less:  Amounts attributable
            to interest                                                            (19)
                                                                                ------
                                                                                  $217
                                                                                ======
</TABLE>

(B)  LEGAL PROCEEDINGS -

         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

                                      F-15
<PAGE>

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.

         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  $2,977,000,  $2,498,000
$2,295,000,  $2,295,000  and $2,041,000 for fiscal 2001,  2002,  2003,  2004 and
2005, respectively.

(D)  CONCENTRATIONS OF CREDIT RISK -

         Financial   instruments,   which  potentially  expose  the  Company  to
concentrations of credit risk,  consist primarily of trade accounts  receivable.
The Company's  customers are not concentrated in any specific  geographic region
of the United States,  but are concentrated in the retail apparel business.  For
the fifty-two weeks ended December 30, 2000,  five customers  accounted for 34%,
11%,  11%, 10% and 6% of the  Company's  sales.  For the  fifty-two  weeks ended
January 1, 2000,  five  customers  accounted for 31%, 10%, 10%, 8% and 8% of the
Company's  sales.  For the fifty-two weeks ended January 2, 1999, five customers
accounted for 30%, 11%, 9%, 7% and 7% of the  Company's  sales.  The Company has
established an allowance for possible losses based upon factors  surrounding the
credit risk of specific customers, historical trends and other information.

         CIT provides a guarantee of collection  for all  shipments  approved by
CIT. Under the factoring  agreement,  these receivables are purchased by CIT. On
December 30, 2000 and January 1, 2000, the Company' accounts receivable included
$23,602,000  and  $16,297,000,  respectively,  factored by CIT, net of reserves.
Amounts not covered under the CIT agreement are not significant.

                                      F-16
<PAGE>

9.       STOCKHOLDERS' EQUITY

         The  authorized  common  stock of the Company  consists  of  20,000,000
shares of common  stock  with a par value of $.01 per  share.  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 then  outstanding
common stock at a cost of $4,623,000 during 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 this  transaction was financed  through a $5,000,000  five-year note,
and through additional borrowings under the Company's credit line.

         The merger  transaction also affected a modification of the Certificate
of  Incorporation of the Company that changed certain  provisions  regarding the
approval of certain business combination transactions.

                                      F-17
<PAGE>

10.      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>                         <C>
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
Exercised or surrendered                            ( 27,000)                  6.13
                                                   ---------
Outstanding at January 1, 2000                     1,349,874                  $3.54
                                                  ==========

Granted                                              163,500                   3.80
Exercised or surrendered                            (659,056)                  3.19
                                                   ---------
Outstanding at December 30, 2000                     854,318                  $3.87
                                                  ==========
</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 such 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,  25% of these  options  were
immediately  vested  with an  additional  25% vesting on each of the first three
anniversaries  of the grant date.  During fiscal year 2000,  certain  members of
senior management exercised these options with loans from the Company.

         Since June 4, 1997  forty-three  managers were granted 220,500 options.
One-third of these options  vested on each of the first three  anniversaries  of
the grant dates.  These grants  include  37,500 stock  options to the two senior
managers of the Cynthia Steffe brands acquired this year. In addition,  the five
original  non-employee  directors of the Company have been granted  20,000 stock
options each.  These options  vested  proportionally  on each of the first three
anniversaries of the grant date, and are now fully vested.  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  December  30,  2000 and  January 1, 2000,  854,318  and  381,878
options, respectively, were outstanding.

         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 December 30, 2000, January 1, 2000 and January 2, 1999 was estimated using
the Black-Scholes option pricing model based upon the following weighted-average
assumptions:  risk

                                      F-18
<PAGE>

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.

A summary of stock options  outstanding and exercisable as of December 30, 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>                <C>                  <C>
    $2.75 - $3.50           620,318                 7.22                     $3.04              610,318              $3.03
    $4.00 - $5.00             53,500                9.34                       $4.30                   -               -
    $5.75 - $7.44           180,500                 5.27                       $6.12            166,499              $4.75
</TABLE>

11.  EMPLOYEE BENEFIT PLANS:

(A)  DEFINED CONTRIBUTION PLAN -

         The Company 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  weeks ended December 30,
2000,  January 1, 2000 and January 2, 1999  amounted to  $340,000,  $295,000 and
$211,000, respectively.

(B) 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 in 2000,  1999 and 1998  amounted to  $541,000,  $457,000  and
$362,000, respectively.

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

                                      F-19
<PAGE>

12.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

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

  (In thousands)                        December 30,        January 1,
                                           2000                2000
                                        ------------        ----------

  Bonus and Profit Sharing                 $ 2,934           $ 2,261
  Accrued Acquisition Costs                    269               251
  Duty                                       1,619             1,510
  Vacation                                     710               724
  Professional Fees                            400               321
  Other                                     4,092             3,054
                                            -----             -----
        Total                              $10,024           $ 8,121
                                           =======           =======

                                      F-20
<PAGE>


13.  SUPPLEMENTAL CASH FLOW INFORMATION:

         Net cash paid for  interest and income  taxes for the  fifty-two  weeks
ended December 30, 2000, January 1, 2000 and January 2, 1999 were as follows:

                                                           (In thousands)
                          Fifty-Two            Fifty-Two            Fifty-Two
                         Weeks Ended          Weeks Ended          Weeks Ended
                         December 30,          January 1,           January 2,
                             2000                2000                  1999
                             ----                ----                  ----

Interest                   $ 2,958              $ 2,213               $ 953
Income taxes                    20                4,224               2,892

     During  December  2000,  the  Company  entered  into a  capital  lease  for
approximately $205,000 for the purchase of computer equipment.

14. NEW ACCOUNTING PRONOUNCEMENT:

         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.  In June 2000,  the Financial  Accounting  Board
("FASB") issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain  Hedging  Activities,  an amendment of SFAS No. 133. The Company adopted
SFAS No. 133 and the  corresponding  amendments  under  SFAS No.  138  effective
prospectively for the Company's financial statements beginning in 2001.

         The  Company  believes  that the impact of  adopting  SFAS No.  133, as
amended by SFAS No. 138 is not significant to the Company's  reported  financial
position or results from operations.

15. SUBSEQUENT EVENT:

                  On March 26, 2001, the Company signed a merger  agreement with
its majority stockholders,  Three Cities Fund II, L.P. and Three Cities Offshore
II, C.V.  (collectively,  the "Three Cities Funds").  Such agreement provides in
effect  for  the  Three  Cities  Funds  to  acquire  approximately  32%  of  the
outstanding  shares of common stock of the  Company,  or all of the common stock
not currently  owned by the Three Cities  Funds,  their  affiliates  and certain
members of  management  of the Company for a cash price of $5.00 per share.  The
transaction is subject to stockholder approval and other customary conditions.

                                      F-21
<PAGE>

16.  UNAUDITED QUARTERLY RESULTS:

Unaudited  quarterly  financial  information  for 2000 and 1999 is set  forth as
follows:
<TABLE>
<CAPTION>

(In thousands, except per share data)

                2000                           March               June            September             December
                                            -----------        -------------    --------------         ------------
<S>                                         <C>                   <C>               <C>                  <C>
Net sales                                   $66,936               $45,297           $61,047              $39,434
Gross profit                                 15,640                 9,581            14,342                7,779
Net income                                    3,302                    59               760                3,574
Net income  per share
 - Basic                                      $0.65                 $0.01             $0.15                $0.63
 - Diluted                                    $0.60                 $0.01             $0.15                $0.63


                                                               (In thousands, except per share data)
                1999                           March               June            September               December
                                            -----------        -------------    --------------         ------------

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)
</TABLE>


                                      F-22
<PAGE>

                                                                     SCHEDULE II

                  THE LESLIE FAY COMPANY, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                    BALANCE AT                                     BALANCE AT
                                    BEGINNING           COSTS                          END
           DESCRIPTION               OF PERID        CHARGED TO    DEDUCTIONS       OF PERIOD
------------------------------------------------------------------------------------------------
FIFTY-TWO WEEKS ENDED
 DECEMBER 30, 2000
<S>                                       <C>             <C>        <C>                 <C>
Reserve for Allowances                    $5,242          $36,102    ($34,010)           $7,334

Other Receivable Reserves                     24                4         --                 28

Reserve for Doubtful Accounts                 70                2         --                 72

Reserve for Returns                          132            1,701      (1,682)              151
                                        --------          -------    ---------         --------
          Total Receivable Reserves       $5,468          $37,809    ($35,692)           $7,585
                                        ========          =======    =========         ========

FIFTY-TWO WEEKS ENDED
 JANUARY 1,  2000

Reserve for Allowances                    $6,600          $24,220    ($25,578)           $5,242

Other Receivable Reserves                     24               --          --                24

Reserve for Doubtful Accounts                 70               --                            70
                                                                           --
Reserve for Returns                          131            1,216      (1,215)              132
                                        --------          -------    ---------         --------
          Total Receivable Reserves       $6,825          $25,436    ($26,793)           $5,468
                                        ========          =======    =========         ========

FIFTY-TWO WEEKS ENDED
 JANUARY 2,  1999

Reserve for Allowances                    $3,098          $13,879    ($10,377)           $6,600

Other Receivable Reserves                     24               --          --                24

Reserve for Doubtful Accounts                 48               22          --                70

Reserve for Returns                           66            1,394      (1,329)              131
                                        --------          -------    ---------         --------
          Total Receivable Reserves       $3,236          $15,295    ($11,706)           $6,825
                                        ========          =======    =========         ========
</TABLE>

                                      F-23
<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 30st day of March, 2001.

                                        THE LESLIE FAY COMPANY, INC.

                                        By: /s/ John A. Ward
                                           -------------------------------------
                                           John A. Ward
                                           President and Chief Executive Officer

         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                               Chairman of the Board of                  March 30, 2001
------------------------------------------             Directors
       John J. Pomerantz

    /s/Warren T. Wishart                               Chief Financial and Accounting            March 30, 2001
------------------------------------------             Officer
       Warren T. Wishart

    /s/John A. Ward                                    Chief Executive Officer and Director      March 30, 2001
------------------------------------------
       John A. Ward

    /s/Bernard Olsoff                                  Director                                  March 30, 2001
------------------------------------------
       Bernard Olsoff

    /s/Robert L.Sind                                   Director                                  March 30, 2001
------------------------------------------
       Robert L. Sind

    /s/Vishal K. Mahadevia                             Director                                  March 30, 2001
------------------------------------------
       Vishal K. Mahadevia

    /s/Thomas G. Weld                                  Director                                  March 30, 2001
------------------------------------------
       Thomas G. Weld
</TABLE>

                                      -36-
<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 DECEMBER 30, 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
                                -----------------

EXHIBIT
-------
NUMBER              DESCRIPTION
------              -----------

2.1                Amended Joint Plan of Reorganization.(1)


3.1                Amended and  Restated  Certificate  of  Incorporation  of the
                   registrant.(2)


3.2(a)             Amended and Restated By-laws of the registrant.(1)

3.2(b)             Amendment   to   Amended   and   Restated   By-laws   of  the
                   registrant.(3)

4.1                Specimen Copy of Stock Certificate for shares of Common Stock
                   of the registrant.(4)

4.2                Revolving  Credit Agreement dated June 2, 1997 between Leslie
                   Fay  Marketing,  Inc.  ("LFM")  and the CIT  Group/Commercial
                   Services, Inc. ("CIT").(1)

4.3                First  Amendment  dated  February  23, 1998 to the  Revolving
                   Credit Agreement between LFM and CIT.(5)

4.4                Second Amendment dated March 31, 1998 to the Revolving Credit
                   Agreement between LFM and CIT.(5)

4.5                Third  Amendment  dated  October  28,  1998 to the  Revolving
                   Credit Agreement between LFM and CIT.(6)

4.6                Fourth Amendment dated March 29, 1999 to the Revolving Credit
                   Agreement between LFM and CIT.(7)

4.7                Fifth Amendment dated August 25, 1999 to the Revolving Credit
                   Agreement between LFM and CIT.(7)

4.8                Sixth  Amendment  dated July 1, 2000 to the Revolving  Credit
                   Agreement between LFM and CIT.(13)

10.1*              Employment  Agreement  dated as of December  31, 2000 between
                   the registrant and John J. Pomerantz.(13)

10.2*              Employment  Agreement  dated as of December  31, 2000 between
                   the registrant and John Ward.(13)

10.3*              Employment  Agreement  dated as of December  31, 2000 between
                   the registrant and Warren T. Wishart.(13)

10.4*              1997 Management Stock Option Plan.(8)

<PAGE>

10.5*              1997  Non-Employee  Director Stock Option and Stock Incentive
                   Plan.(9)

10.6               Factoring  Agreement  dated  June  4,  1997  between  LFM and
                   CIT.(1)

10.7               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.(10)

10.8               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.(11)

10.9               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.(12)

21.1               List of Subsidiaries.(5)

23.1               Consent of Arthur Andersen LLP.(13)

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


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

(2)      Incorporated  by  reference  to the Annual  Report on Form 10-K for the
         fiscal year ended January 1, 2000.

(3)      Incorporated  by  reference  to the Annual  Report on Form 10-K for the
         fiscal year ended January 2, 1999.

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

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

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

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

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

(9)      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.
<PAGE>

(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 the Quarterly  Report on Form 10-Q for the
         fiscal quarter ended July 4, 1998.

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

(13)     Filed herewith.

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