Execution Copy
                                                                  --------------


                              EMPLOYMENT AGREEMENT


                AGREEMENT,  dated as of June 2,  1997,  between  The  Leslie Fay
Company,  Inc.,  a  Delaware  corporation,  with its  principal  office  at 1412
Broadway, New York, New York (the "Corporation"),  and John A. Ward, residing at
80 Glenville Road, Greenwich, CT 06831 (the "Executive").

RECITALS
--------

        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   the   Chairman,    Leslie   Fay    Sportswear    Group   of   Leslie   Fay,
predecessor-in-interest to the Corporation.

        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.

        E.      In accordance with the Plan and the designations  filed with the
Court in connection therewith,  the Executive has been appointed to serve on the
Board from and after the Effective Date.

                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.



<PAGE>




        (b)     "Cause" shall mean (i)  conviction by the Executive of a felony,
(ii)  perpetration  by the  Executive  of (X) an in  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 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  defined in Rule  13d-3  under the  Exchange  Act),
directly or indirectly,  of fifty percent (50%) or more of the aggregate  voting
power of the  capital  stock of the  Corporation,  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,  Cate  Bandel,  Dominic
Fellicetti 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 2, 1997.


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<PAGE>


        (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
        President 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 President of the  Corporation  as 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  positions
        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 condi tions 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), 


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<PAGE>


        directly or indirectly, of shares of capital stock of the Corporation.

        (j)     "Target  EBITDA"  shall  mean (a) for 1997,  Five  Million  Four
Hundred  Forty-Three  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").

        4.      Duties and Extent of Services.  During the Term,  the  Executive
shall serve as President 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 President 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 $400,000,  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 


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<PAGE>



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 provide (x) the Executive and
members of his immediate  family with (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) an
automobile  allowance  of $1,140  per month and a clothing  allowance  of $0 per
month.

        (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 President 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 benefi ciaries designated by the Executive pursuant to notice
to the Corporation, or, failing such designation, to the Executive's 

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<PAGE>



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 Agree ment. Upon 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 


                                      -6-
<PAGE>



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 pro rated through the end of such Term) and (z)
the automobile  and clothing  allowances  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 EBIDTA
for the 

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<PAGE>



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)  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 written 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  (but the  foregoing  shall  not be deemed  to  prevent  the
Executive in his capacity as Chief  Executive  Officer of the  Corporation  from
hiring or dismissing  any employee of the  Corporation or any subsidiary for the
benefit of the  Corporation).  Nothing in this  Section  12 shall  

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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  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  Agreement  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. 

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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  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,  execu tors,  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.


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<PAGE>



        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  acknowledged  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.

        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 



                                      -11-

<PAGE>

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 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 deems 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  


                                      -12-

<PAGE>



pre-hearing  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.

        (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 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 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  acknowledged 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.  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.



                                      -13-
<PAGE>



        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 & Chief Executive Officer



                                      /s/ John A. Ward
                                      -------------------------------
                                      Executive

                                      -14-