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



                              EMPLOYMENT AGREEMENT
                               (John J. Pomerantz)


        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 J. Pomerantz, residing at 885 Park
Avenue, Apartment 15A, New York, New York 10021 (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   the    Chairman    and   Chief    Executive    Officer   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.      Definition. 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 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 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, 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 fail to be  reelected as a Director of
        the  Corporation  and as  Chairman  of the  Board  and  Chairman  of the
        Executive  Committee  of the Board (if any) or shall be removed from any
        such  positions or from the position of Chief  Executive  Officer of the
        Corporation  at any time during the Term  (other  than for  Cause),  any
        designee of the Executive  pursuant to Section 4(b) hereof shall fail to
        be reelected or shall be removed as a Director  during the Term,  or the
        size of the Board shall be expanded and the Executive shall not be given
        reasonable  opportunity  to designate one or more  additional  Directors
        such that the Executive  and all  Directors  designated by the Executive
        shall  comprise at least twenty eight percent (28%) of the membership of
        the Board;

                (ii) the  Executive  shall fail to be vested with the powers and
        authority of Chief Executive  Officer 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;



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<PAGE>



                (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  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  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.

        (a) Chief Executive Officer.  During the Term, the Executive shall serve
as Chief Executive Officer 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 chief executive  officer of a corporation,  and
shall 

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<PAGE>



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.

        (b) Board Membership.  Although it is understood that the right to elect
directors  of the  Corporation  is by law  vested  in  the  stockholders  of the
Corporation,  in  accordance  with the Plan,  the initial Board shall consist of
seven persons,  and,  during the Term, (i) the  stockholders  of the Corporation
will elect the Executive and a designee of the Executive to the Board,  and (ii)
the  Executive  shall  serve  as  Chairman  of the  Board  and of the  Executive
Committee of the Board (if any).

        5.      Base  Salary.  During the Term,  the  Corporation  shall pay the
Executive a base salary ("Base Salary") of Four Hundred Thirty Thousand  Dollars
($430,000.00),  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  eightyfive  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 provide (x) the Executive and
members of his immediate  family with (i) 

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<PAGE>



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) the  Executive  with the services of an automobile
selected by him and a driver for his use.

        (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 Chief Executive
Officer  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  


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<PAGE>



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 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 


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(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)
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 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 


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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  with
Cause or 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
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 service as a Director as contemplated hereby 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 


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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.

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<PAGE>

        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,  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 


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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 25,
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 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 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  


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<PAGE>


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.

                (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  


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<PAGE>

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.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.

        26.     Other Matters.

        (a) So long as the annual cost thereof does not exceed  Twenty  Thousand
Dollars ($20,000.00),  the Corporation shall continue in effect, for the rest of
the Executive's life, the health insurance  provided for the Executive by Leslie
Fay as of the Effective Date.

        (b) As of the Effective Date, the Executive  hereby releases Leslie Fay,
the  Corporation  and all other  Persons (as defined in the Plan) for all unpaid
amounts  under the  Executive's  employment  contract  with Leslie Fay. Upon the
request,  and at the expense,  of the Corporation or any such other Person,  the
Executive  shall  execute and deliver  any written  release or similar  document
reasonably necessary to give effect to this Section 26 (b).

        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 A. Ward
                                                 -------------------------
                                                    Name:  John A. Ward
                                                    Title:  President


                                                   /s/ John J. Pomerantz
                                                 -------------------------
                                                    Executive 


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