MODIFICATION OF LEASE AGREEMENT


         MODIFICATION OF LEASE AGREEMENT (this  "Agreement")  made this 11th day
of  August,  1998  between  FASHION  GALLERY  OWNERS,  LLC,  a New York  limited
liability company,  having an office at 1412 Broadway,  New York, New York 10018
(hereinafter  referred  to  as  "Landlord")  and  LESLIE  FAY  MARKETING,   INC.
(successor-in-interest  to THE LESLIE FAY  COMPANIES,  INC.) having an office at
1412 Broadway, New York, New York 10018 (hereinafter referred to as "Tenant").

         WHEREAS, Tenant is currently the tenant of the entire Second and Fourth
floors and Storage Room #15 (which space is hereinafter collectively referred to
as the "Original  Demised  Premises") in the building  known as 1412 Broadway in
the  County and State of New York (the  "Building"),  pursuant  to that  certain
Agreement  of Lease  dated  April 29,  1997  between  1412  Broadway  Associates
(Landlord's predecessor-in-interest)  ("Associates"), as landlord and The Leslie
Fay  Companies,  Inc.   (predecessor-in-interest  to  Tenant),  as  tenant  (the
"Lease"),  which  Lease is to  terminate  on its  terms on April  30,  2002 (the
"Original Expiration Date");

         WHEREAS, the parties desire to modify the Lease to, among other things,
add the entire third floor, substantially as shown on the plan annexed hereto as
Exhibit  A-1  (which  space  is  hereinafter  referred  to  as  the  "Additional
Premises") in the Building and to extend the Term, upon the terms and conditions
hereinafter set forth (each  capitalized  term not  specifically  defined herein
shall have the same meaning given to it in the Lease).

         NOW, THEREFORE,  in consideration of the mutual premises and conditions
the parties agree as follows:

         1.  Modification  of Lease. On the later to occur of (i) the date first
set forth above as the date upon which this  Agreement was executed and (ii) the
"Approval Date" (as defined in Paragraph 15 of this Agreement), (such later date
being  hereinafter  referred  to as, the  "Effective  Date") the Lease  shall be
deemed modified as follows:

                  A. The  Term of the  Lease  shall be  extended  to  expire  at
midnight on the  expiration of Lease Year Ten, as defined  below (the  "Extended
Expiration  Date"),  or on such  earlier  date upon which the Term of this Lease
shall expire or be cancelled or terminated  pursuant to any of the conditions or
covenants of the Lease or pursuant to law and the Extended Expiration Date shall
be substituted for the Expiration Date, as applicable, in the Lease.

                  B. With respect to the Additional  Premises,  "Lease Year One"
shall be deemed to commence on the first day of the calendar month following the
Effective  Date and shall  end on the last day of the  successive  twelve  month
period. If the Effective Date shall be on the first day of the month, Lease Year
One shall commence on such date and shall end on the day  immediately  preceding
the first  anniversary of the Effective  Date. The term "Lease Year" shall refer
to each year of the Term including  Lease Year One. Each  succeeding  Lease Year
after Lease Year One shall run for the
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successive  twelve month period from the expiration of the preceding  Lease Year
and shall be consecutively numbered (i.e. the tenth Lease Year shall be known as
Lease Year Ten). From and after the Original  Expiration Date, the provisions of
this Paragraph B shall also apply to the Original Demised Premises.

                  C. The area of the "Demised Premises", as defined in the Lease
shall  consist  of all of the  Original  Demised  Premises  and  the  Additional
Premises (substantially as shown on the plan annexed hereto as Exhibit A-2), and
except as  specifically  provided  herein,  all  references  in the Lease to the
"Demised  Premises" shall mean the Original  Demised Premises and the Additional
Premises.

                  D.  1.  Notwithstanding  anything  to the  contrary  contained
herein,  Base  Annual Rent on account of the  Original  Demised  Premises  shall
continue to be due and payable as set forth in the Lease, except that during the
period from the Original  Expiration Date through the Extended  Expiration Date,
Base Annual Rent payable on account of the Original Demised Premises shall be as
follows: (a) during the period 5/l/02 through the expiration of Lease Year Four,
$1,260,646.00  per annum;  (b) for each Lease  Year  during the period  from the
commencement  of Lease Year Five  through  the  expiration  of Lease Year Seven,
$1,341,978.00  per annum; and (c) for each Lease Year during the period from the
commencement  of  Lease  Year  Eight  through  the  Extended   Expiration  Date,
$1,504,642.00 per annum.  Notwithstanding the foregoing,  there shall be no Base
Annual Rent, solely on account of the Original Demised Premises, payable for the
two (2) week period immediately prior to the Original Expiration Date; provided,
however, that in the event Tenant is dispossessed or this Lease is terminated by
reason of  Tenant's  default,  the Base  Annual  Rent for such  period  shall be
immediately due and payable.

                      2.  This   Base  Annual  Rent  solely  on account  of  the
Additional  Premises  and in addition  to the Base Annual Rent for the  Original
Demised Premises shall be as follows:  (a) for Lease Year One through Lease Year
Two,  $589,657.00  per annum;  (b) for Lease Year Three through Lease Year Four,
$630,323.00  per  annum;  (c) for Lease  Year Five  through  Lease  Year  Seven,
$670,989.00  per annum;  and (d) for Lease Year  Eight  through  Lease Year Ten,
$752,321.00  per annum.  Notwithstanding  the foregoing,  there shall be no Base
Annual  Rent,  solely on  account of the  Additional  Premises  (except  for the
increase to Base Annual Rent  attributable  to  electricity  pursuant to Section
66.01 of this Lease),  payable for the period  commencing on the Effective  Date
and  terminating  on September 30, 1998;  provided,  however,  that in the event
Tenant is  dispossessed  or this  Lease is  terminated  by  reason  of  Tenant's
default,  the Base  Annual  Rent for such period  shall be  immediately  due and
payable. Simultaneously with the execution of this Agreement, Tenant has paid to
Landlord, if by check subject to collection,  one full month of Base Annual Rent
for the Additional Premises,  which amount shall be credited on a per diem basis
toward the payment of the installments of Base Annual Rent first due and payable
hereunder.

         E. For purposes of  calculating  Additional  Rent and other  applicable
payments  for the  Additional  Premises,  the  following  terms  shall  have the
following  meanings  (for  purposes  of  calculating  Additional  Rent and other
applicable payments for the Original Demised Premises, such terms shall have the
meanings ascribed to them in the Lease):
                                       -2-

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                  (i)      "Base Tax Year"  shall  mean the Taxes for the twelve
                           month fiscal year commencing on July 1, 1998.
                  (ii)     "Tenant's  Proportionate  Share"  shall mean five and
                           ninety hundredths of one percent (5.90%).

         F. The  following  provisions  shall be added to and made a part of the
Lease:

                           "ARTICLE 66 - Cost of Electricity for Additional
                           Premises

         66.01  Landlord  agrees to supply the  Additional  Premises,  as of the
Effective Date, with such electric  current as Tenant shall  reasonably  require
(consistent with the existing  electrical  capacity  contained in the Additional
Premises) for Tenant's  wiring  facilities  and equipment  within the Additional
Premises and in consideration  thereof,  Tenant agrees that the Base Annual Rent
reserved in this Lease shall be  increased  by the sum of Fifty  Thousand  Eight
Hundred  Thirty-Two  and  50/100ths  Dollars  ($50,832.50)  per annum subject to
survey as provided in Section 66.02 hereof (the "Base Charge").  The Base Charge
increase to Base Annual Rent shall in no event be subject to reduction  pursuant
to the  provisions  of this  Article,  but  shall  be  subject  to  increase  as
hereinafter provided.  Landlord shall not be liable in any way to Tenant for any
failure or defect in the supply or character of electric energy furnished to the
Additional  Premises not due to the gross  negligence  or willful  misconduct of
Landlord or if the same is changed or is no longer  available  or  suitable  for
Tenant's   requirements  or  is  interrupted  as  a  result  of  any  cause  not
attributable to Landlord.

         66.02 (a)  Landlord,  from time to time  during the Term of this Lease,
shall have the right to select a reputable  independent  electrical  engineer or
consultant (the  "Consultant") to prepare surveys of the electrical  consumption
within the Additional Premises in order to determine whether the Base Charge for
electricity  (as the  same may have  been  increased  by  previous  surveys  and
determinations)  is less than the Electrical  Consumption  Charge (as defined in
Section 66.03 below) which should be charged to Tenant. If the Base Charge shall
be less than the Electrical  Consumption Charge, which the Consultant determines
to be  applicable to Tenant then,  effective as of the date of the  Consultant's
determination,  the Base Charge (as the same may have been previously  increased
pursuant to the provisions hereof) shall be further increased by an amount equal
to the excess of (i) the then  Electrical  Consumption  Charge  determined to be
applicable  by the  Consultant  over (ii) the Base  Charge  (plus  any  previous
increases to the Base Charge pursuant to the provisions hereof). Notwithstanding
the  foregoing,  the first survey shall not be made during Lease Year One unless
Tenant's proposed  alterations in the Additional Premises involve an increase in
the existing  electrical  capacity of the Additional  Premises of more than 110%
above the  electrical  capacity of the  Additional  Premises  existing as of the
Effective  Date (of  which  fact  Landlord  shall be the  sole  judge),  and any
increase to the Base Charge  resulting  from such survey shall be retroactive to
the Commencement Date.

                  (b) Surveys made by the Consultant shall be based upon the use
of such electric  current on Business  Days,  and such other days and hours when
Tenant uses electricity for lighting
                                       -3-

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and for the operation of the machinery,  appliances and equipment used by Tenant
in the Additional Premises.

                  (c) The cost of the first  survey  shall be borne by Landlord.
Tenant  shall pay the fees of the  Consultant  making all other  surveys if such
survey  results in an  increase  in the  Electrical  Consumption  Charge,  which
increase is not caused by an increase in the Electric  Rate. The findings of the
Consultant  shall be binding and  conclusive  on Landlord and Tenant;  provided,
however,  that Tenant may dispute the findings of the  Consultant  in accordance
with Section 66.08, below.

         66.03 The "Electrical  Consumption Charge" for electricity  consumed by
Tenant within the Additional Premises, as determined by the Consultant, shall be
computed  by  multiplying  the  Electric  Rate (as  defined  below) by  Tenant's
consumption  of  electricity  as  determined  by the  Consultant.  In no  event,
however,  shall the Electrical Consumption Charge be less than Landlord's actual
cost of acquiring and  distributing  electricity  to Tenant.  The term "Electric
Rate"  shall  mean,  at the time in  question,  the actual  cost to  Landlord of
acquiring  electricity for the Premises,  including all surcharges,  taxes, fuel
adjustments,  taxes regularly passed on to customers by the public utility,  and
other sums  payable in respect  thereof for the supply of  electrical  energy to
Landlord for the entire Building.

         66.04 Tenant's use of electric energy in the Additional  Premises shall
not at any time exceed the  capacity  of any of the  electrical  conductors  and
equipment in, or otherwise serving, the Additional Premises.  In order to insure
that such capacity is not exceeded and to avert possible adverse effect upon the
Building's electric service,  Tenant shall not, without Landlord's prior written
consent in each instance (which shall not be unreasonably  delayed or withheld),
connect  any  fixtures,  appliances  or  equipment  to the  Building's  electric
distribution  system other than ordinary office and showroom equipment exclusive
of major computers,  or make any material alteration or addition to the electric
system of the  Additional  Premises  existing on the  Effective  Date.  Landlord
agrees not to unreasonably  withhold or delay its consent to the installation of
additional risers to the Premises,  provided that all additional risers or other
equipment  required  therefor shall be provided by Landlord and the cost thereof
shall be paid by Tenant to Landlord  within ten (10) days of demand and provided
further, that Landlord shall have the right to cause a survey of the Premises to
be made by the Consultant,  at Tenant's sole cost and expense,  to determine the
amount of the increase in the Base Annual Rent to reflect the value to Tenant of
the potential  additional  electric energy to be made available to Tenant by the
estimated additional capacity of such additional risers of the connected load of
such fixtures, appliances or equipment (measured, in respect of risers, at their
lowest point in the  Building).  The amount of such increase shall be determined
by the Consultant.  Such determination  shall be binding and conclusive upon the
parties  unless  disputed by Tenant  within  thirty (30) days of receipt of such
Consultant's  report.  Landlord,  its  agents  and  Consultants  may  survey the
electrical  fixtures,  appliances and equipment in the  Additional  Premises and
Tenant's  use of  electric  energy  therein  from time to time after the initial
survey  described  above to  ascertain  whether  Tenant  is  complying  with its
obligations under this Section.
                                       -4-

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         66.05  Tenant  shall not  place a load  upon any floor of the  Premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law, which floor load is 120 lbs/sq. ft. live load.

         66.06 Tenant,  at its sole cost and expense,  shall furnish and install
all  replacement  lighting,  tubes,  lamps and bulbs  required in the Additional
Premises.  Tenant,  at its sole cost and expense,  shall install all replacement
ballasts in the Additional  Premises  using  Landlord's  designated  contractor,
provided that the cost is thereof is at commercially competitive rates.

         66.07 Landlord  reserves the right to discontinue  furnishing  electric
energy  to  Tenant  in the  Additional  Premises  at any time upon not less than
thirty  (30) days'  notice to Tenant so long as: (i) the  discontinuance  is not
discriminatory to Tenant; and (ii) electric service is available from the public
utility or otherwise. If Landlord exercises such right this Lease shall continue
in full force and effect and shall be unaffected  thereby,  except that from and
after the effective date of such termination (a) Landlord shall not be obligated
to  furnish  electric  energy to Tenant  and (b) the Base  Annual  Rent shall be
reduced  by the  Base  Charge  then  in  effect.  If  Landlord  so  discontinues
furnishing  electric energy to Tenant,  such electric energy may be furnished to
Tenant by means of the then existing Building system feeders,  risers and wiring
to the extent that the same are  available,  suitable and safe for such purpose.
All meters and additional panel boards, feeders, wiring and other conductors and
equipment  which may be required to obtain  electric  energy  directly from such
public  utility  company  shall  be  furnished  and  installed  by  Landlord  at
Landlord's  expense,  unless  such  discontinuance  is as a  result  of a  Legal
Requirement or Force Majeure, in which event the cost thereof shall be amortized
on a  straight-line  basis over the useful  life  thereof  utilized  for federal
income tax  purposes  and Tenant  shall be  responsible  for the  payment of the
annual  amortization  amount(s)  occurring  during the balance of the Term.  The
change  at any time of the  character  of  electric  service  in the  Additional
Premises not due to the gross negligence or willful misconduct of Landlord shall
not make  Landlord  liable or  responsible  to Tenant  for any loss,  damages or
expenses which Tenant may sustain as a result thereof.

         66.08  In  instances  wherein  Tenant  has the  right  to  dispute  the
determinations made by the Consultant, Tenant shall only dispute such reports by
submitting,  within thirty (30) days after receipt of the Consultant's report, a
written  report by an  electrical  consultant  retained  by  Tenant at  Tenant's
expense.  In the event that the  Consultant and Tenant's  electrical  consultant
cannot  mutually  agree within thirty (30) days after the submission of Tenant's
electrical  consultant's  report, the matter shall be referred to arbitration in
accordance  with  the  rules  and   regulations  of  the  American   Arbitration
Association.  Until the  determination  of the  consultants or the  arbitrators,
Tenant  shall  pay  the  Electric  Charge  determined  in  accordance  with  the
Consultant's report and following such determination,  an appropriate adjustment
and/or refund shall be made.

                           ARTICLE 67 -     Security

         67.01 A. Tenant has deposited  with Landlord the sum of  $294,828.50 as
security for the faithful  performance  and  observance  by Tenant of the terms,
provisions, covenants and conditions
                                       -5-

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of this Lease (the "Security Deposit"). The amount of the Security Deposit shall
be increased by Tenant coincident with every increase in Base Annual Rent. It is
agreed that in the event Tenant defaults beyond the expiration of any applicable
notice and grace periods  (provided  that Tenant shall have  commenced such cure
within  the  applicable   grace  period  and  shall   thereafter  be  diligently
prosecuting  such cure to  completion  within the  applicable  grace  period) in
respect of any of the terms, provisions,  covenants and conditions of this Lease
including,  but not limited to, the payment of Rent,  Landlord may use, apply or
retain the whole or any part of the Security  Deposit to the extent required for
the payment of any Rent or any other sum as to which Tenant is in default or for
any sum which  Landlord  may  expend or may be  required  to expend by reason of
Tenant's  default in respect of any of the  terms,  provisions,  covenants,  and
conditions  of this  Lease,  including  but  not  limited  to,  any  damages  or
deficiency  accrued  before or after summary  proceedings  or other  re-entry by
Landlord. In the event that Tenant shall fully and faithfully comply with all of
the terms,  provisions,  covenants,  and conditions of this Lease,  the Security
Deposit  shall be  returned  to Tenant  after the date  fixed as the end of this
Lease and after  delivery of possession  of the Demised  Premises to Landlord in
the condition  required by, and in accordance  with, the terms of this Lease. In
the event of a sale of the Building or leasing of the Building,  Landlord  shall
transfer  the  Security  Deposit  to the  vendee or lessee  and  Landlord  shall
thereupon  be  released  by Tenant  from all  liability  for the  return of such
Security  Deposit;  and Tenant agrees to look solely to the new landlord for the
return of said Security  Deposit;  and it is agreed that the  provisions  hereof
shall apply to every  transfer or assignment  made of the Security  Deposit to a
new landlord.  Tenant  further  covenants that it will not assign or encumber or
attempt to assign or encumber the Security Deposit and that neither Landlord nor
its  successors or assigns shall be bound by any such  assignment,  encumbrance,
attempted assignment or attempted encumbrance.  In the event Landlord applies or
retains any  portion or all of the  Security  Deposit,  Tenant  shall  forthwith
restore  the  amount  so  applied  or  retained  so that at all time the  amount
deposited  shall be as set forth  above.  Provided  Tenant  shall not then be in
default in the  payment  of rent or  otherwise  be in  default  under this Lease
beyond any applicable  notice and grace period  (provided that Tenant shall have
commenced such cure within the applicable  grace period and shall  thereafter be
diligently  prosecuting  such cure to  completion  within the  applicable  grace
period), and provided that Landlord shall not have applied all or any portion of
the  security  as  provided  for under this  paragraph,  then on the first (1st)
anniversary  of the Effective  Date,  the security shall be reduced by an amount
equal to $98,276.16 (the "Reduction Amount") and Landlord shall return to Tenant
the Reduction  Amount,  together with interest earned thereon,  if any. From and
after  the  first  (1st)  anniversary  of  the  Effective  Date  and  continuing
throughout  the balance of the Term,  Landlord  shall  retain an amount equal to
four (4) full months of Base  Annual  Rent then in effect  under this Lease with
respect to the Additional  Premises as the security  deposit in accordance  with
the terms of this Lease.

                  B.  Tenant  shall  have the option to  provide  such  Security
Deposit in the form of an  irrevocable  letter of credit from a commercial  bank
(the  "Issuer")  of  substantial  financial  standing and  otherwise  reasonably
acceptable to Landlord from which  Landlord may draw in the event of any default
by Tenant  under the terms of this Lease which  continues  after  notice and the
expiration  of any  applicable  grace  period.  Such letter of credit must be in
writing, be in form and content reasonably acceptable to Landlord, signed by the
Issuer, made payable to the order of Landlord, be assignable
                                       -6-

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by the  beneficiary  thereunder.  Any fees payable in connection with Landlord's
assignment  of the  letter of  credit  to any  successor  landlord  or  superior
mortgagee  shall be paid by Tenant.  The form of letter of credit annexed hereto
as Exhibit B is  acceptable  to Landlord.  Such letter of credit  shall,  by its
terms,  be fully  effective  during a one (1) year period  following the date of
issuance.  Tenant  shall  arrange for such  letter of credit to be  renewed,  or
replaced by an  equivalent  letter of credit,  to provide  continuing  identical
security to Landlord  during each  subsequent one (1) year period and during any
remaining  period  under the Lease term (the last such  extension to provide for
the  continuance  of such letter of credit for at least three months  beyond the
Expiration Date).  Subject to the penultimate  sentence of this paragraph,  each
such renewal or  replacement  of the letter of credit shall be for the full face
amount  equivalent  to six (6) full months' Base Annual Rent for the  Additional
Premises then in effect under this Lease  regardless  of previous  draws against
any prior letter of credit.  The letter of credit  shall either  provide that it
shall be  automatically  renewed by its terms  throughout  the  duration of this
Lease or contain a provision that requires the Issuer to notify the  beneficiary
at least thirty (30) days prior to the  expiration  date of the letter of credit
that the letter of credit has not been renewed or replaced. No later than twenty
(20) days prior to the expiration  date of each letter of credit,  or renewal or
replacement  thereof,  Tenant  shall  provide  written  notice  (and  supporting
documentary  evidence  signed by the Issuer) to Landlord that the then effective
letter of credit has been so  renewed or so  replaced  for the  succeeding  time
period.  The  failure  of  Tenant  to  maintain  the  letter of credit as herein
specified  (including  the  failure  to  deliver  evidence  of  the  renewal  or
replacement  of the  letter  of  credit as herein  provided  or the  failure  to
increase the undrawn balance of the letter of credit as herein  provided) or the
Issuer's  refusal or failure to permit  Landlord  to draw  against the letter of
credit shall,  unless Landlord  receives a cash Security  Deposit or replacement
letter of credit from another Issuer as herein provided,  be a default under the
terms of this Lease with the same  effect as a default  for failure to pay rent.
In addition to all other remedies  available to Landlord in the event of default
by Tenant under the terms of this Lease beyond the  expiration of any applicable
notice and grace periods  (provided  that Tenant shall have  commenced such cure
within  the  applicable   grace  period  and  shall   thereafter  be  diligently
prosecuting  such  cure to  completion  within  the  applicable  grace  period),
Landlord  shall have the  specific  remedy of  immediately  drawing  against the
letter of credit in any amount up to and  including the full face amount of such
letter of credit for payment of any Rent or other sum  Landlord  may be required
to expend by reason of Tenant's  default,  except that  Landlord  shall have the
right to draw the full face  amount of the letter of credit in the event  Tenant
fails to renew or  replace  the  letter of credit as herein  provided,  in which
event Landlord  shall hold such amount as a cash Security  Deposit in accordance
with the provisions of the first  paragraph of this Section 67.01.  In the event
that  Landlord  draws  against the letter of credit as  provided  for under this
paragraph,  other than as a result of Landlord's draw of the full face amount of
the letter of credit as a result of  Tenant's  failure  to renew or replace  the
letter of credit as herein provided, then Tenant shall, upon demand by Landlord,
increase the then undrawn balance of the letter of credit to the amount provided
for herein.  In the event that  Tenant  fails to so  increase  the then  undrawn
balance  of the  letter of credit as herein  provided,  then  Landlord  shall be
entitled  to  draw  the  remaining  balance  of  the  letter  of  credit.  It is
specifically  agreed and  understood  that,  in the event that  Landlord has not
received from Tenant either a cash  Security  Deposit or a letter of credit,  in
the form and substance  required  pursuant to the provisions of this  paragraph,
within ten (10) days following  Tenant's execution of this Modification of Lease
Agreement ("Amendment"), then this
                                       -7-

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Amendment  shall be, at the sole  option  of  Landlord,  null and void and of no
further force and effect.  Notwithstanding the foregoing,  provided Tenant shall
not then be in default in the payment of rent or otherwise  be in default  under
this Lease beyond any applicable  notice and grace period  (provided that Tenant
shall have  commenced  such cure within the  applicable  grace  period and shall
thereafter  be  diligently  prosecuting  such  cure  to  completion  within  the
applicable  grace period),  and provided that Landlord shall not have drawn down
any amount under the letter of credit as provided for under this paragraph, then
Tenant shall have the right,  on the first (1st)  anniversary  of the  Effective
Date, to reduce the face amount of the letter of credit by the Reduction Amount.
From and after the first (1st)  anniversary of the Effective Date and continuing
throughout  the balance of the Term,  the letter of credit shall be for the full
face  amount  equivalent  to four (4) full  months of Base  Annual  Rent then in
effect under this Lease for the Additional Premises.

         67.02 If the Security  Deposit held by Landlord  shall be in cash,  the
same shall be held in an interest-bearing  account and any interest earned shall
be for the account of Tenant and shall be held by Landlord as an addition to the
Security Deposit for the entire Term of the Lease. Landlord shall be entitled to
an administrative fee of 1% per annum, or such greater  percentage  permitted by
law, on the amount of the Security Deposit held by Landlord.  The administrative
fee shall be paid to  Landlord  at the end of the Term of this  Lease or at such
other time or times as Landlord shall elect.

         67.03 In the event  that  during  the Term of this  Lease the  Security
Deposit  held by Landlord  (not  including  interest)  is less than four monthly
installments  of the Base Annual Rent  payable  with  respect to the  Additional
Premises under Article 3, Tenant shall,  on written demand by Landlord,  deposit
with Landlord on account of the security  herein  provided  for, the  difference
between the  Security  Deposit then held by Landlord and a sum equal to four (4)
months' installments of Base Annual Rent.

         67.04 If Tenant  fails to pay any Base  Annual  Rent or any  Additional
Rent  payable  under this Lease  within ten (10) days after such  payment is due
twice in any twelve-month period, Tenant shall furnish Landlord, within ten days
after  demand  by  Landlord,   with  additional  monies  equal  to  one  month's
installment  of Base Annual Rent at the rate payable  during the last Lease Year
which shall be added to and included in the Security Deposit."

         G. In  lieu of a  porters  wage  increase  payable  on  account  of the
Additional  Premises,  Tenant shall pay to Landlord,  as Additional Rent, during
each  Lease  Year  following  Lease  Year  One of the  Term  for the  Additional
Premises,  an amount  equal to three  percent  (3%) of the Base  Annual Rent (as
increased from time to time by the escalation  described in this subparagraph G)
payable for the prior  Lease Year on account of the  Additional  Premises.  Such
payments shall be made, in equal monthly installments,  in advance, on the first
day of each and every calendar month  throughout the Term of the Lease.  Section
38.02 of the Lease shall not be applicable to the Additional Premises.

         H. Section 39.02 of the Lease is hereby deleted in its entirety.
                                       -8-

<PAGE>



         I. Section 41.01(c)(ii) of the Lease is hereby amended by  deleting the
second sentence thereof in its entirety.

         J. Section 41.01(d) of the Lease is hereby deleted in its entirety.

         K. Article  45 of  the Lease is  hereby deleted in its entirety and the
following is inserted in lieu thereof:

                           "ARTICLE 45 -    Use of Demised Premises

         45.01  Tenant shall use and occupy the Demised  Premises for  showrooms
for the display and sale of women's moderate priced,  better or designer apparel
and related  women's  accessories  and related  women's  apparel items,  and for
design and sample making related  thereto and executive and general  offices for
clothing  and  accessory  lines  of  Tenant  and its  affiliated  companies  and
businesses."

         L. 47.01 of the Lease is hereby  amended by deleting  the word "two" in
the fourth line thereof and substituting in lieu thereof the word "three".

         2. Further  Modification of Lease. On the Original Expiration Date, the
Lease shall be deemed further modified as follows:

                  A. Sections  42.01 and 42.04 of the Lease shall be deleted and
thereafter  electricity  shall be  supplied  to the  Original  Demised  Premises
pursuant  to Article 66 of the Lease  except that the "Base  Charge"  applicable
solely to the  Original  Demised  Premises  (and in  addition to the Base Charge
applicable to the Additional  Premises)  shall be $101,665.00 and all references
in Article 66 to the Additional Premises shall be deemed to include the Original
Demised Premises as the context may require.

                  B. "Base Tax Year" solely on account of the  Original  Demised
Premises  (and in addition  to the Base Tax Year  applicable  to the  Additional
Premises)  shall be modified to mean the Taxes for the twelve  month fiscal year
commencing on July 1, 1998.

                  C. Sections 37.07,  38.02,  38.03 and 38.04 regarding  porters
wage increase  payments shall be deleted and, in lieu thereof,  Tenant shall pay
to Landlord, as Additional Rent on account of the Original Demised Premises (and
in addition to such similar  payments  applicable to the  Additional  Premises),
during each annual period set forth in paragraphs  1(D)(1)(a)  through (c) above
an amount  equal to three  percent  (3%) of the Base Annual Rent payable for the
prior annual period on account of the Original  Demised  Premises.  Such payment
shall be made, in equal monthly  installments,  in advance,  on the first day of
each and every calendar month throughout the balance of the Term of the Lease.

         3.  Delivery  of  Additional  Premises  and  Landlord's   Contribution.
Landlord is delivering and Tenant shall accept the Additional  Premises "AS IS",
together with all fixtures, equipment and
                                       -9-

<PAGE>



improvements  existing  in the  Additional  Premises  as of  the  date  of  this
Agreement and Landlord makes no  representation  as to the repair,  condition or
working order of the Additional Premises.

         4. Tenant's  Continuing  Obligations.  Notwithstanding  anything to the
contrary  contained herein,  all of Tenant's existing and future  obligations to
pay items of Base Annual Rent and  Additional  Rent under the Lease,  as amended
hereby,  with regard to the Original Demised Premises shall continue and nothing
in this Agreement shall affect Tenant's  obligations  under the Lease including,
but not limited to, the obligation to make all payments due under the Lease,  as
hereby amended, prior to demand and without any set-off or deduction whatsoever.

         5.  Broker.  Each party  represents  to the other that  notwithstanding
anything to the contrary  contained in the Lease,  no broker  participated in or
brought about this Agreement other than Newmark & Company Real Estate, Inc., and
Bruce S. Brickman & Associates, Inc. (collectively, the "Broker") and no broker,
other than the Broker,  with which either party has dealt is or will be entitled
to a commission as a result of the execution or delivery of this Agreement. Each
party agrees to indemnify and save the other harmless  against any claim or cost
or expense due any other  broker  with which such party has dealt in  connection
with this  Agreement.  Landlord shall be responsible  for any commission due the
Broker.

         6.  Lease in Full  Force.  Except  as  modified  hereby,  the terms and
provisions of the Lease, as heretofore amended, shall continue in full force and
effect and, as amended and modified  hereby,  all of the terms and conditions of
the Lease are hereby ratified and confirmed in all respects.

         7. Governing  Law. This Agreement  shall be governed by the laws of the
State of New York without giving effect to the principles of conflict of laws.

         8.  Entire  Agreement.   This  Agreement,   together  with  the  Lease,
constitutes  the sole  agreement  and  contains  the  entire  understanding  and
agreement of the  parties.  There are no  understandings  or  agreements  of the
parties relating to the subject matter of this Agreement other than as expressly
set forth herein.

         9. No Oral  Modifications.  This  Agreement and the  provisions  hereof
cannot be waived,  changed,  or  terminated  except by an  agreement  in writing
signed  by the  party  against  whom  enforcement  of  the  waiver,  change,  or
termination is sought.

         10. No  Waiver.  The  failure  of  Landlord  to insist  upon the strict
performance  by Tenant of any of the  obligations of Tenant under this Agreement
shall  not  be  deemed  to  be a  waiver  of  such  obligations,  and  Landlord,
notwithstanding  any  such  failure,  may  thereafter  insist  upon  the  strict
performance by Tenant of any such obligations.

         11. Captions. The captions,  headings, and titles in this Agreement are
solely for convenience of reference and shall not affect its interpretation.

                                      -10-

<PAGE>

         12.  Remedies Not  Exclusive.  The rights and remedies  provided for in
this Agreement or that Landlord may have otherwise pursuant to the Lease, at law
or in equity,  shall be  distinct,  separate,  and  cumulative  and shall not be
deemed to be  inconsistent  with each  other,  and none of them,  whether or not
exercised by Landlord,  shall be deemed to be in exclusion of any other, and any
two or more of such rights and remedies  may be exercised at the same time,  all
to the extent permitted by law.

         13.  Invalid  Provisions.  If any  provision  of this  Agreement or the
application thereof to any person or circumstance shall to any extent be invalid
or  unenforceable,  the remainder of this  Agreement or the  application of such
provision to persons or circumstances other than those as to which it is invalid
or  unenforceable,  shall  not be  affected  thereby,  and  shall be  valid  and
enforceable to the fullest extent permitted by law.

         14.  Successors  and  Assigns.  This  Agreement  shall bind the parties
hereto and their respective  heirs,  administrators,  executors,  successors and
permitted assigns.

         15. Condition Subsequent. This Agreement shall be void ab initio and of
no further  force and effect  unless,  within 20 Business  Days from the date of
full execution of this  Agreement,  Landlord  obtains and delivers to Tenant the
written  consent of Nomura Asset  Capital  Corporation,  which  entity  Landlord
represents is the only existing mortgagee,  or any successor thereof as mortgage
holder  ("Mortgagee") of the Building as of the date hereof, as evidenced by the
execution  and delivery by such  Mortgagee of that certain  Amended and Restated
Subordination,  Non-Disturbance and Attornment  Agreement,  substantially in the
form annexed  hereto as Schedule 1 (the date upon which such  agreement is fully
executed and delivered to Tenant,  herein  referred to as the "Approval  Date").
Neither Landlord nor Tenant shall have any right to cancel this Agreement during
such 20 Business Day period. Tenant shall have the right to enter the Additional
Premises  during such 20 Business Day period for the purpose of  inspecting  and
measuring  the same,  provided  that Tenant shall  indemnify  and hold  Landlord
harmless from and against all loss, cost,  claims and damage arising as a result
of any such entry.
                                                               
                                      -11-

<PAGE>


         IN WITNESS WHEREOF, Landlord and Tenant have cause this Agreement to be
duly executed as of the day and year first above written.

LANDLORD:

FASHION GALLERY OWNERS, LLC

By:      Fashion Gallery, LLC, its Manager


         By:    /s/ Bruce S. Brickman
                 --------------------------
                 Bruce S. Brickman, President


TENANT

LESLIE FAY MARKETING, INC.

By:      /s/ Warren Wishart
         ------------------------------------
         Name:  Warren Wishart
         Title: Chief Financial Officer

                                      -12-