EMPLOYMENT AGREEMENT
                              --------------------
                              (Dominick Felicetti)


           AGREEMENT,  dated as of June 4, 1997, between The Leslie Fay Company,
Inc., a Delaware  corporation,  with its principal office at 1412 Broadway,  New
York, New York (the "Corporation"), and Dominick Felicetti, residing at 221 Penn
Estates, East Stroudsburg, Pennsylvania 18301 (the "Executive").

RECITAL
-------

           A. On April 5, 1993,  The Leslie Fay Companies,  Inc.  ("Leslie Fay")
and certain of its subsidiaries each filed a voluntary petition for relief under
chapter 11 of title 11 of the United  States Code (the  "Code")  with the United
States Bankruptcy Court for the Southern District of New York (the "Court").

           B. By order,  dated April 21, 1997, the Court  confirmed that certain
Fourth Amended and Restated Joint Plan of Reorganization for Debtors Pursuant to
Chapter 11 of the United States Bankruptcy Code (the "Plan").

           C. Up to and including the Effective  Date,  the Executive has served
as a Senior Vice President of Leslie Fay.

           D. The  Corporation  desires to secure the continued  services of the
Executive,  and the  Executive  desires to continue  to furnish  services to the
Corporation, on the terms and conditions hereinafter set forth.

           NOW,  THEREFORE,  in  consideration  of the  premises  and the mutual
agreements hereinafter contained, the parties hereto hereby agree as follows:

           1. Definitions.  Unless otherwise defined herein, the following terms
shall have the respective  meanings specified below and be equally applicable to
the singular and plural of terms defined:

           (a) "Board" shall mean the Board of Directors of the Corporation.

           (b) "Cause"  shall mean (i)  conviction by the Executive of a felony,
(ii)  perpetration  by  the  Executive  of  (x)  an  illegal  act  which  causes
significant economic injury to the Corporation or (y) a common law fraud against
the  Corporation,  or (iii)  willful  violation  by the  Executive of a specific
written  direction  from the Board  concerning one or more matters of a material
nature for


<PAGE>



the Corporation or its business or operations (following a warning in writing in
respect thereto from the Board).

           (c) "Change of Control"  shall mean the  occurrence  of any person or
"group"  (within the meaning of Section  13(d)(3) of the Exchange Act) acquiring
"beneficial  ownership"  (as de fined in Rule  13d-3  under the  Exchange  Act),
directly or indirectly,  of fifty percent (50%) or more of the aggregate  voting
power of the  capital  stock of the  Corporation,  except for any such person or
group that has such beneficial ownership on the Effective Date.

           (d) "Corporation  Senior Managers" shall mean, to the extent that the
following persons are employees of the Corporation  during the applicable fiscal
year   of   the   Corporation,    John   Pomerantz,    John   Ward,    Catharine
Bandel-Wirtshafter, Dominick Felicetti and Warren Wishart.

           (e)  "Disabled"  shall mean,  with  respect to the  Executive,  being
physically or mentally  disabled,  whether  totally or partially,  so that he is
substantially  unable to perform his services hereunder for a consecutive period
of more than six (6) months or for shorter periods aggregating six months during
any twelve-month period.

           (f) "EBITDA" shall mean for any fiscal year of the  Corporation,  the
consolidated  earnings  (including  licensing  revenues  from the  businesses or
products of Hue, Inc.) before interest,  taxes, depreciation and amortization of
the Corporation and its  consolidated  subsidiaries,  as determined  pursuant to
generally  accepted  accounting  principles  in effect in the  United  States of
America  from time to time,  provided  that for purposes of  determining  EBITDA
hereunder, EBITDA shall (i) be calculated before determination of the Cash Bonus
Pool (as hereinafter  defined),  (ii) exclude allocations to the Castleberry and
Sassco  businesses  and Transco (as defined in the financial  reporting  package
periodically presented to the Creditors' Committee in the Chapter 11 case of The
Leslie Fay Companies, Inc.) and (iii) be increased by $300,000.

           (g) "Effective Date" shall mean June 4, 1997.

           (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

           (i) "Good Reason" shall mean the continuation of any of the following
events  for more than ten (10) days  after the  Corporation's  receipt  from the
Executive of written notice thereof:

                     (i) the  Executive  shall be removed  from the  position of
                     Senior  Vice  President-Manufacturing  and  Sourcing of the
                     Corporation  at any time  during the Term  (other  than for
                     Cause);

                     (ii) the Executive  shall fail to be vested with the powers
                     and  authority of Senior Vice  President-Manufacturing  and
                     Sourcing of the Corporation as


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<PAGE>



                     described  in  Section  4(a)  hereof,  or  the  powers  and
                     authority  of such  position or his  responsibilities  with
                     respect   thereto  shall  be  diminished  in  any  material
                     respect;

                     (iii) the Executive  shall have assigned to him without his
                     express written consent any duties, functions, authority or
                     responsibilities that are inconsistent with the Executive's
                     position described in Section 4 hereof;

                     (iv)  the  Executive's  principal  place of  employment  is
                     changed to a location more than twenty-five (25) miles from
                     the prior location  without the  Executive's  prior written
                     consent;

                     (v) any material  failure by the Corporation to fulfill any
                     of its obligations under this Agreement, including, without
                     limitation,  the  failure  to  make  any  material  payment
                     required to be made by the Corporation pursuant to Sections
                     5 and 6 hereof  within  five ( 5)  business  days after the
                     date such payment is required to be made;

                     (vi) any purported  termination  by the  Corporation of the
                     Executive's   employment   otherwise   than  as   expressly
                     permitted by, and in  compliance  with all  conditions  and
                     procedures of, this Agreement;

                     (vii)  the  Corporation  shall  fail  to  comply  with  the
                     provisions of Section 14 or 19(a) hereof; or

                     (viii) there shall occur a Change of Control,  other than a
                     Change of Control in connection with, or resulting in whole
                     or part  from,  the  acquisition  by the Ex  ecutive or any
                     Affiliate of the Executive of  "beneficial  ownership"  (as
                     defined in Rule 13d-3 of the  Exchange  Act),  directly  or
                     indirectly, of shares of capital stock of the Corporation.

           (j)  "Target  EBITDA"  shall  mean (a) for 1997,  Five  Million  Four
Hundred  FortyThree  Thousand  Dollars  ($5,443,000.00)  and (b)  for all  years
thereafter,  the targeted EBITDA for the  Corporation as a whole  established by
the Board in good faith.

           2. Employment.  The Corporation  shall employ the Executive,  and the
Executive shall serve the Corporation, upon the terms and conditions hereinafter
set forth.

           3. Term.  Subject to the terms and conditions  hereinafter set forth,
the term of the Executive's employment hereunder shall commence on the Effective
Date and shall continue until the first (1st) anniversary of the Effective Date,
unless  earlier  terminated  pursuant  to the  provisions  of Section 8, 9 or 10
hereof (the "Term") .



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<PAGE>



           4.  Duties and Extent of  Services.  During the Term,  the  Executive
shall  serve  as  Senior  Vice   President-Manufacturing  and  Sourcing  of  the
Corporation  faithfully  and to  the  best  of his  ability,  and  shall  devote
substantially all of his business time, energy and skill to such employment,  it
being  understood  and  agreed  that the  Executive  may serve on the  boards of
directors or equivalent governing bodies of other business corporations or other
business organizations;  provided,  however, that (i) such other corporations or
other  organizations are not in direct  competition with the Corporation  and/or
its  subsidiaries  and (ii) such service does not materially  interfere with the
performance  by the Executive of his duties  hereunder.  The Executive  shall be
invested  with the duties and  authority  that are  customarily  delegated  to a
Senior Vice  President-Manufacturing  and Sourcing of a  corporation,  and shall
report to and be  subject  to the  direction  of the Board of  Directors  of the
Corporation.  The Executive shall also perform such specific duties and services
of a senior executive nature as the Board of Directors of the Corporation  shall
request,  including,  without  limitation,  serving as a senior  officer  and/or
director of any of the Corporation's subsidiaries.

           5. Base  Salary.  During  the  Term,  the  Corporation  shall pay the
Executive a base salary ("Base  Salary") of Three  Hundred  Twenty Five Thousand
Dollars  ($325,000),  or such  higher  amount as the Board may from time to time
determine, payable in equal weekly installments.

           6. Incentive Compensation. If the Corporation's EBITDA for the fiscal
year is  greater  than or equal  to  eighty-five  percent  (85%)  (the  "Minimum
Percentage") of Target EBITDA,  the  Corporation  shall pay a bonus ("Cash Bonus
Pool") to the Corporation Senior Managers no later than one hundred twenty (120)
days after the end of the fiscal year, in an amount equal to the sum of (x) nine
and six-tenths  percent (9.6%) of the  Corporation's  EBITDA plus (y) two-tenths
percent (0.2%) of the Corporation's EBITDA for each percentage point, if any, of
Target EBITDA by which the Corporation's  EBITDA exceeds the Minimum Percentage;
provided,  however, that in no event shall the Cash Bonus Pool exceed twelve and
one-half percent (12.5%) of the Corporation's  EBITDA.  Upon payment of the Cash
Bonus Pool,  the  Executive  shall be  entitled to receive a portion  thereof in
accordance with the terms and provisions of the  understanding  by and among the
Corporation Senior Managers.

           7.        Employee Benefits.

           (a) During the Term,  the  Executive  shall receive  coverage  and/or
benefits  under  any  and  all  medical  insurance,  life  insurance,  long-term
disability  insurance and pension plans and other employee  benefit plans of the
Corporation  generally  made available to senior  executives of the  Corporation
from time to time.

           (b) During the Term, the Corporation  shall (x) make available to the
Executive  and  members  of his  immediate  family (i)  supplemental  disability
coverage and (ii) medical  insurance for all medical costs and services incurred
by the foregoing,  including costs of dental, vision and custodial care, and (y)
provide the Executive with an automobile allowance of $900 per month.


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<PAGE>



           (c)  The  Executive  shall  be  entitled  to  paid  vacations  (taken
consecutively or in segments),  in accordance with the standard  vacation policy
of the  Corporation  for senior ex ecutives,  but in no event less than four (4)
weeks each calendar year during the Term. Such vacations shall be taken at times
consistent with the effective discharge of the Executive's duties.

           (d)  During  the  Term,  the  Executive   shall  be  accorded  office
facilities and secretarial  assistance  commensurate with his position as Senior
Vice  President-Manufacturing  and Sourcing of the  Corporation and adequate for
the performance of his duties hereunder.

           8.        Termination -- Death or Disability.

           (a) In the event of the  termination  of the  Executive's  employment
because of the death of the Executive during the Term, the Corporation shall pay
to any one or more beneficiaries  designated by the Executive pursuant to notice
to the Corporation, or, failing such designation, to the Executive's estate, (i)
the unpaid Base Salary owing to the Employee through the end of the month of his
death,  in a lump sum within five (5) business days after his death,  and (ii) a
bonus for the year in which such termination occurs, equal to the bonus (if any)
that would  have been paid for such year if no such  termination  had  occurred,
times a fraction,  the  numerator  of which is the number of months in such year
through  the  end of the  month  in  which  such  termination  occurs,  and  the
denominator  of which is twelve (12) (such bonus to be computed  and paid at the
time and in the manner specified in Section 6 hereof).

           (b) In the  event  that the  Executive  shall  become  Disabled,  the
Corporation  shall  have  the  right to  terminate  the  Executive's  employment
hereunder by giving him written notice of such termination. Upon receipt of such
notice, the Executive's  employment  hereunder shall terminate.  In the event of
such termination, the Corporation shall pay to the Executive (i) the unpaid Base
Salary owing to the Executive  through the end of the month of such termination,
in a lump sum within  five (5)  business  days of such  termination,  and (ii) a
bonus for the year in which such termination occurs, equal to the bonus (if any)
that would  have been paid for such year if no such  termination  had  occurred,
times a fraction,  the  numerator  of which is the number of months in such year
through  the  end of the  month  in  which  such  termination  occurs,  and  the
denominator  of which is twelve (12) (such bonus to be computed  and paid at the
time and in the manner specified in Section 6 hereof).

           9.        Termination for Cause by Corporation

           (a) The  Executive's  employment  hereunder  may be terminated by the
Corporation  for Cause upon  compliance  with the  provisions  of  Section  9(b)
hereof.  In the event that  Executive's  employment  hereunder  shall validly be
terminated  by the  Corporation  for Cause  pursuant to this Section  9(a),  the
Corporation  shall  promptly pay accrued but unpaid Base Salary and reimburse or
pay any other accrued but unpaid  amounts due under  Sections 6 and 13 hereof as
of the date of  termination,  and thereafter  shall have no further  obligations
under this Agreement. Upon


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<PAGE>



termination of the  Executive's  employment  hereunder for Cause,  the Executive
shall  nonetheless  remain bound by the obligations  provided for in Sections 11
and 12 hereof.

           (b)  Termination  for  Cause  shall be  effected  only by action of a
majority of the Board then in office (excluding the Executive) at a meeting duly
called  and held  upon at least  ten (10)  days'  prior  written  notice  to the
Executive  specifying  the  particulars  of the  action or  inaction  alleged to
constitute  "Cause"  (and at which  meeting the  Executive  and his counsel were
entitled to be present and given reasonable opportunity to be heard).

           10. Termination for Good Reason by the Executive; Severance Payment.

           (a) The  Executive's  employment  hereunder  may be terminated by the
Executive for Good Reason by providing written notice to the Corporation to such
effect (such  termination  to be effective on the date specified in such notice,
which date shall not be more than sixty (60) days nor less than thirty (30) days
after date of such notice).

           (b) If at any time (i) the Executive  terminates  his  employment for
Good Reason (other than on the grounds of Section 1(i)(viii) hereof) or (ii) the
Corporation  terminates  the  Executive's  employment  (or fails or  declines to
extend the Term) without Cause, then the Corporation shall pay to the Executive,
in lieu of any other amounts that might  otherwise  have been payable  hereunder
(other than  pursuant to Sections 6 and 13 hereof),  an amount  ("Compensation")
equal to the greater of (i) the sum of (x) the aggregate amount which would have
been payable to the Executive had he continued to be employed by the Corporation
as Base Salary through the end of the Term (at the rate in effect as of the date
of termination),  (y) the bonus (if any) through the end of the Term, such bonus
to be  calculated  and paid in the  manner  described  in  Section  6 (it  being
understood  and agreed that,  if the end of the Term occurs  before the end of a
fiscal year, such bonus will be prorated  through the end of such Term), and (z)
the automobile  allowance  provided for hereunder and (ii) the aggregate  amount
(the "Minimum  Severance Amount") which would have been payable to the Executive
had he continued to be employed by the Corporation as  Compensation  for six (6)
months  following the date of termination  (at the rate in effect as of the date
of termination,  in the case of Base Salary),  which  Compensation  shall in the
case of Base Salary be payable within ten (10) days following such  termination;
provided,  however , that, if the Executive  terminates  his employment for Good
Reason solely on the grounds of Section  1(i)(viii),  then the Corporation shall
pay to the Executive within ten (10) days following such termination, in lieu of
any other amounts that might otherwise have been payable  hereunder  (other than
pursuant to Sections 6 and 13) the greater of (i) the Minimum  Severance  Amount
and (ii) the excess,  if any, of (x) the aggregate  amount which would have been
payable to the Executive had he continued to be employed by the  Corporation  as
Compensation  for one (1) year  following  the  date of  termination  (it  being
understood and agreed that the bonus portion of Compensation,  in this instance,
will be deemed  earned,  based on Target EBITDA for the fiscal year in which the
Change of  Control  occurs,  if, and only if, the Change of Control is a merger,
consolidation  or  sale  of  all or  substantially  all  of  the  assets  of the
Corporation)  over  (y) the  profit  (if  any)  realized  by the  Executive,  in
connection with the Change of Control giving rise to such termination, on (aa)


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<PAGE>



options  for  capital  stock of the  Corporation  or (bb)  capital  stock of the
Corporation issued upon exercise of such options.

           11.   Confidential   Information.    In   addition   to   any   other
confidentiality  obligation the Executive may have to the Corporation,  from and
after the date hereof,  and until the end of the original  Term,  the  Executive
shall keep secret and retain in strictest confidence,  and shall not use for his
benefit or the benefit of others, any and all confidential  information relating
to the Corporation and its subsidiaries, including, without limitation, customer
lists,  financial plans or  projections,  pricing  policies,  marketing plans or
strategies, business acquisition or divestiture plans, new personnel acquisition
plans,  designs,  and,  except in connection  with the performance of his duties
hereunder,  the  Executive  shall not  disclose any such  information  to anyone
outside the Corporation and any of its  subsidiaries,  except as required by law
(provided  prior  written  notice  thereof  is  given  by the  Executive  to the
Corporation)  or  except  with the  Corporation's  prior  consent,  unless  such
information is known  generally to the public or the trade through sources other
than the Executive's unauthorized disclosure.

           12.  Competitive  Activity.  The Executive hereby agrees that, during
his employment  hereunder,  and, following a termination of his employment other
than termination by the Executive for Good Reason or by the Corporation  without
Cause,  for the balance of the original Term (if any), the Executive  shall not,
without the prior consent of the Board (i) directly or indirectly,  engage or be
interested in (as owner,  partner,  shareholder,  employee,  director,  officer,
agent,  consultant or  otherwise),  with or without  compensation,  any business
wherever located in the world engaged in the manufacture,  distribution, design,
marketing or sale of women's apparel,  if such business is a material competitor
of the  Corporation,  or (ii) induce or attempt to persuade  any employee of the
Corporation  or of any  subsidiary  of the  Corporation,  or any  person who was
employed by the  Corporation  or any  subsidiary of the  Corporation  within the
preceding six months,  to leave the employ of the  Corporation or any subsidiary
of the Corporation. Nothing in this Section 12 shall prohibit the Executive from
acquiring  or holding not more than five  percent  (5%) of any class of publicly
traded securities of any business.

           13. Expenses.  The Corporation  shall reimburse the Executive for all
reasonable,  ordinary and  necessary  expenses  incurred by the Executive in the
performance of the Executive's  duties hereunder;  provided,  however,  that, in
connection  with  such  reimbursement,   the  Executive  shall  account  to  the
Corporation  for such  expenses  in the  manner  customarily  prescribed  by the
Corporation for its senior executives.

           14.  Directors'  and  Officers'  Insurance;  Indemnification.  Within
thirty (30) days after the execution and delivery hereof, the Executive shall be
provided  with  directors'  and  officers'  insurance  in  connection  with  his
employment  hereunder (and, to the extent contemplated  hereby, his service as a
Director) with such coverage  (including  with respect to unpaid wages and taxes
not remitted when done) as shall be reasonably satisfactory to the Executive and
with aggregate limits of liability for all covered officers and directors of not
less than  Twenty-Five  Million  Dollars  ($25,000,000.00),  and the Corporation
shall maintain such insurance in effect for the period of the


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Executive's   employment  hereunder  and  for  not  less  than  five  (5)  years
thereafter; provided, however, that, in the event that the Corporation shall not
obtain such  insurance,  it shall  provide or cause the Executive to be provided
with  indemnity (or a  combination  of indemnity  and  directors'  and officers'
insurance)  in  connection  with his  employment  hereunder  with  substantially
equivalent  coverage  and  amounts,  and the  Corporation  shall  maintain  such
indemnity (or  combination of indemnity and directors' and officers'  insurance)
or cause such indemnity (or such combination) to be maintained for the period of
the  Executive's  employment  hereunder  and for not less  than  five (5)  years
thereafter.

           15. No Duty to Mitigate. The Executive shall have no duty to mitigate
the severance  amounts or any other amounts  payable to the Executive  hereunder
and such amounts shall not be subject to reduction for any compensation received
by the Executive from  employment in any capacity or other source  following the
termination of Executive's employment with the Corporation and its subsidiaries.

           16. Prior Agreements;  Amendments; No Waiver. This Agreement contains
the entire understanding  between the parties hereto with respect to the subject
matter  hereof.  This  Agree  ment  may not be  changed  orally,  but only by an
instrument  in  writing  signed by the party  against  whom  enforcement  of any
waiver,  change,  modification,  extension or discharge is sought. No failure on
the part of either  party to  exercise,  and no delay in  exercising,  any right
hereunder shall operate as a waiver thereof,  nor shall any partial  exercise of
any right hereunder preclude any further exercise thereof.

           17. Survival of Provisions.  The provisions of Sections 11, 12 and 25
shall  survive the  termination  or  expiration  of this  Agreement  as provided
therein.  Such provisions are unique and extraordinary,  which give them a value
peculiar to the Corporation,  and cannot be reasonably or adequately compensated
in damages for its loss and any breach by the Executive of such  provisions will
cause the Corporation irreparable injury and damage. Therefore, the Corporation,
in  addition  to all  other  remedies  available  to it,  shall be  entitled  to
injunctive  and other  available  equitable  relief  in any  court of  competent
jurisdiction  to prevent or otherwise  restrain a breach of such  provisions for
the purposes of enforcing such provisions.

           18.  Withholding.  The Corporation shall be entitled to withhold from
any and all amounts payable to the Executive  hereunder such amounts as may from
time to time be  required to be withheld  pursuant  to  applicable  tax laws and
regulations.

           19.       Succession, Assignability and Binding Effect.

           (a) The Corporation will require any successor or successors (whether
direct or indirect, by purchase,  merger,  consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation  expressly to
assume and agree to perform  this  Agreement  in the same manner and to the same
extent  that  the  Corporation  would  be  required  to  perform  it if no  such
succession had taken place.  Failure of the Corporation to obtain such agreement
prior to the


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<PAGE>



effectiveness   of  any  such  succession   shall  constitute  Good  Reason  for
resignation by the Executive.

           (b) This Agreement shall inure to the benefit of and shall be binding
upon the  Corporation  and its  successors  and  permitted  assigns and upon the
Executive  and his  heirs,  executors,  legal  representatives,  successors  and
permitted assigns;  provided,  however,  that without prejudice to the rights of
the Corporation under Section 19(a) hereof, neither party may assign,  transfer,
pledge,  encumber,  hypothecate or otherwise dispose of this Agreement or any of
its or his  rights  hereunder  without  the prior  written  consent of the other
party,  and  any  such  attempted  assignment,  transfer,  pledge,  encumbrance,
hypothecation or other  disposition  without such consent shall be null and void
and without effect.

           20. Headings.  The paragraph  headings  contained herein are included
solely for  convenience of reference and shall not control or affect the meaning
or interpretation of any of the provisions of this Agreement.

           21. Notices. Any notices or other communications  hereunder by either
party  shall be in  writing  and shall be  deemed  to have  been  duly  given if
delivered  personally  to the other party or, if sent by registered or certified
mail,  upon  receipt,  to the other party at his or its address set forth at the
beginning  of this  Agreement  or at such other  address as such other party may
designate in conformity with the foregoing.

           22. Governing Law. This Agreement shall be governed by, and construed
and  enforced in  accordance  with,  the laws of the State of New York,  without
giving effect to the principles thereof relating to the conflict of laws.

           23.  Legal Fees and  Expenses.  In order to induce the  Executive  to
enter into this Agreement and to provide the Executive with reasonable assurance
that the purposes of this  Agreement  will not be  frustrated by the cost of its
enforcement,  the  Corporation  shall  pay  and be  solely  responsible  for any
attorneys'  fees and  expenses  and court costs  incurred by the  Executive as a
result of the  failure by the  Corporation  to  perform  this  Agreement  or any
provision  hereof to be performed by it or in  connection  with any action which
may be brought,  by or in the name or for the benefit of the  Corporation or any
subsidiary  contesting the validity or  enforceability  of this Agreement or any
provision  hereof to be  performed by the  Corporation,  which action shall have
been dismissed by a final, nonappealable court order.

           24.  Opportunity to Review.  The Executive  acknowledges  that he has
been given the opportunity to discuss this Agreement, including this Section 24,
with his private legal counsel and has availed  himself of that  opportunity  to
the extent he wishes to do so.



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<PAGE>



           25.       Arbitration.

           (a)  Disputes   Subject  to  Arbitration.   In  the  event  that  the
Corporation  terminates the  Executive's  employment on the grounds set forth in
clause (iii) of the  definition of "Cause",  the  Corporation  and the Executive
mutually  consent to the resolution by  arbitration  of any dispute  between the
Corporation  and  the  Executive  as to  whether  such  Cause  has  occurred  (a
"Dispute").  Unless the Corporation and the Executive  otherwise agree, no other
disputes,  issues,  claims  or  controversies  arising  out of  the  Executive's
employment  (or its  termination),  or any  other  matter  whatsoever,  shall be
submitted to or resolved by arbitration.

           (b)  Arbitration  Procedures.  (i) The  Corporation and the Executive
agree that,  except as provided in this Agreement,  any arbitration  shall be in
accordance with the then current Model Employment  Arbitration Procedures of the
American Arbitration Association ("AAA") before an arbitrator who is licensed to
practice  law  in  the  state  in  which  the   arbitration   is  convened  (the
"Arbitrator"). The arbitration shall take place in or near the city in which.the
Executive is or was last employed by the Corporation.

                      (ii) Upon  designation  as a  Dispute,  the AAA shall give
each party a list of eleven (11)  arbitrators  drawn from its panel of labor and
employment  arbitrators.  The Corporation and the Executive may strike all names
on the list which it or he deem unacceptable. If only one common name remains on
the lists of all parties, said individual shall be designated as the Arbitrator.
If more than one common name  remains on the lists of all  parties,  the parties
shall  strike  names  alternatively  until only one  remains.  If no common name
remains on the lists of all parties,  the AAA shall furnish an  additional  list
and the  parties  shall  alternate  striking  names on such second list until an
arbitrator is selected.

                      (iii) The  Arbitrator  shall apply the law of the State of
New York  applicable to contracts made and to be performed  wholly in that state
(without giving effect to the principles  thereof relating to conflicts of law).
The Federal Rules of Evidence shall apply. The Arbitrator,  and not any federal,
state or local court or agency,  shall have  exclusive  authority to resolve any
dispute relating to the  interpretation,  applicability or formation of the term
"Cause".  The Arbitrator  shall render a decision within thirty (30) days of the
date upon which the Arbitrator is selected pursuant to Section 25(b)(ii),  which
decision  shall be final and  binding  upon the  parties.  In the event that the
Arbitrator  decides that Material  Insubordination  has (x)  occurred,  then the
Executive's  employment  shall be  deemed  to have  been  terminated  for  Cause
pursuant  to  Section  9(a)  hereof or (y) not  occurred,  then the  Executive's
employment  shall be deemed to have been  terminated  without Cause  pursuant to
Section 10(b) hereof.

                      (iv) The Arbitrator  shall have  jurisdiction  to hear and
rule on pre-hearing disputes and is authorized to hold prehearing conferences by
telephone or in person as the Arbitrator deems  necessary.  The Arbitrator shall
have the authority to entertain a motion to dismiss  and/or a motion for summary
judgment by any party and shall apply the standards governing such motions under
the Federal Rules of Civil Procedure.



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<PAGE>


                      (v) Either party, at its expense,  may arrange for and pay
the costs of a court reporter to provide a stenographic report of proceedings.

                      (vi) Either  party,  upon request at the close of hearing,
shall be given leave to file a  post-hearing  brief.  The time for filing such a
brief shall be set by the Arbitrator.

                      (vii)  Either  party  may  bring an action in any court of
competent  jurisdiction to compel  arbitration  under this Section 25. Except as
otherwise  provided in this Section 25, both the  Corporation  and the Executive
agree that  neither  such party  shall  initiate  or  prosecute  any  lawsuit or
administrative  action in any way related to any Dispute covered by this Section
25.

                      (viii) The arbitrator  shall render an opinion in the form
typically rendered in labor arbitrations.

           (c)  Arbitration  Fees and Costs.  The  Corporation and the Executive
shall  equally  share  the fees and costs of the  Arbitrator.  Each  party  will
deposit  funds or post other  appropriate  security  for its or his share of the
Arbitrator's fee, in an amount and manner determined by the Arbitrator, ten (10)
days  before the first day of  hearing.  Each party shall pay for its or his own
costs and attorneys' fees. if any. However, if any party prevails on a statutory
claim that affords the  prevailing  party  attorneys'  fees,  the Arbitrator may
award reasonable fees to the prevailing party.

           (d)  Opportunity to Review.  The Executive  acknowledges  that he has
been given the opportunity to discuss this Agreement, including this Section 25,
with his private legal counsel and has availed  himself of that  opportunity  to
the extent he wishes to do so.

           (e) Law Governing.  The parties agree that the arbitration provisions
set forth in this Section 25 will be governed by the Federal  Arbitration Act, 9
U.S.C.ss.ss.  1-16 ("FAA"). The parties further agree that all Disputes, whether
arising under state or federal law, will be subject to the FAA,  notwithstanding
any state or local laws to the contrary.


           IN WITNESS  WHEREOF,  the  parties  hereto  have duly  executed  this
Agreement on the day and year first above written.

                                        THE LESLIE FAY COMPANY, INC.


                                        By:  /s/  John J. Pomerantz
                                            ---------------------------
                                            Name:  John J. Pomerantz
                                            Title: Chairman of the Board

                                             /s/ Dominick Felicetti
                                            ---------------------------
                                            Executive


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