EXHIBIT 10.16
    

   
January 9, 1998

TO:      BONNIE DEXTER-WOLTERSTORFF

FROM:    LINDA NASH MERKER
    

   
This letter is to confirm our mutual understanding of the arrangement you have
discussed and agreed upon with respect to your Separation from Loehmann's Inc.
The following provisions represent both your benefit entitlement and the
additional considerations which have been agreed upon in order to reach this
agreement. As agreed, neither the specific terms nor the existence of this
agreement will be disclosed by you to anyone except as required by law or for
the purpose of obtaining advice as provided for herein.
    
   
1. Your employment with Loehmann's will be final on February 3, 1998. All verbal
or written inquiries made of either Loehmann's, Inc. or members of the Senior
Management team, will be responded to with a confirmation of Voluntary
Resignation versus Termination.
    
   
2. If the terminated member of senior management has not obtained other
employment at the end of her severance, Loehmann's agrees to pay, on a month to
month basis, her salary for a period of up to and including six (6) months.
During this time, severance will be terminated if she accepts other employment
and will be mitigated if employment is of a non-permanent nature. These
payments, unless otherwise terminated by acceptance of other employment, will
continue even if the Company is sold or enters into any form of Bankruptcy
(Chapter 11 or 7).
    
   
3. For the period 3/l/98 through 2/28/99, if Ms. Dexter-Wolterstorff has not
obtained other employment with available coverage, she will continue to have
group medical insurance at no cost to her. Beginning on 3/l/99, if she has not
obtained other employment which entities her to benefits, she will be eligible
to continue
    

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health coverage in accordance with COBRA, for the remaining six (6) months or
until otherwise eligible for health care coverage, whichever occurs first.
    
   
4. Your regular 401K benefits will be payable to you in accordance with the
terms of the 401K Plan. These payments will be made in accordance with the terms
of the 401K Plan for a resignation or retirement, not termination.
    
   
5. All of your vested stock options, including vested 1997 options, will be made
available to you to purchase and sell after 2/3/98.
    
   
6.  You understand that any and all payments, encompassed within items 1 through
5 above, will be subject to such tax treatment as applies, and to such 
deductions, if any, as may be required under applicable tax laws.
    
   
7.  Upon completion of all severance payments, if you have not accepted other
employment, Loehmann's, Inc. will not contest any claim made for unemployment
benefits.
    
   
8. You agreed that you will take no action which is intended, or would
reasonably be expected, to harm Loehmann's Inc., the officers or employees of
each ("the Company"), impair the Company's reputation, or lead to unwanted or
unfavorable publicity to the Company, nor will you disclose any confidential or
proprietary information obtained by you in the course of your employment.
Nothing herein shall preclude you from accepting any other employment, including
employment with a competing retailer.
    
   
9. Loehmann's, Inc., the officers or employees of each ("The Company") agree
that they will take no action which is intended, or would reasonably be
expected, to harm Bonnie Dexter-Wolterstorff, impair her reputation, or lead to
unwanted or unfavorable publicity concerning her.
    
   
10.  You agree that the terms, existence and circumstances surrounding this
Agreement shall be and remain confidential and shall not be disclosed to anyone
except as required by law or for the purpose of obtaining advice as provided for
herein.
    
   
11. In consideration for the Company's commitment to the various arrangements
described in the preceding paragraphs, and in lieu of any other benefits of
payments, as a full and final mutual settlement, you hereby release and
discharge Loehmann's Inc., and the current and former directors, officers,
shareholders, agents and employees of each, and each of their predecessors,
successors and assigns, (herein "The Loehmann's Entity") from any and all claims
and causes of action (except for the payments and benefits specifically set
forth in this Agreement) arising out of or related to your employment or
separation from employment,
    

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<PAGE>
   
including, but not limited to, any claims for severance pay, vacation pay, or
other compensation, race, color, national origin, ancestry, religion, marital
status, sexual orientation, pregnancy, disability (as defined by the Americans
with Disabilities Act, or any other federal, state or local law), age or other
unlawful discrimination (under the Age Discrimination in Employment Act, as
amended by the Older Workers Benefit Protection Act of 1990, Title VII of the
Civil Rights Act, as amended, or any other federal, state, or local laws),
breach of implied or express contracts, breach of promises, misrepresentation,
fraud, estoppel or wrongful discharge, that you, your heirs, executors,
administrators, successors, and assigns now have, ever had or may hereafter
have, whether known or unknown, suspected or unsuspected, up to and including
the date of this Agreement. It is further agreed that you have not and will not
institute any complaint, lawsuit, or action at law or otherwise against the
Loehmann's Entity and shall hold the Loehmann's Entity harmless against such
actions (except, of course, for the right to the various payments and benefits
specified in this Agreement which describes the complete arrangements to which
we agree).
    
   
12. It is expressly understood and agreed that this settlement and the
effectuation of its terms do not constitute an admission or statement by any
party that Loehmann's has acted unlawfully or is otherwise liable. It is further
agreed that evidence of this settlement, its terms or the circumstances
surrounding the parties entering into this Agreement, shall be inadmissible in
any action or lawsuit of any kind, except an action for alleged breach of this
Agreement.
    
   
13.  This agreement contains the entire understanding of the parties hereto and
supersedes and revokes any and all prior agreements, discussions, negotiations 
or understandings between the parties.
    
   
14. You agree to return to Loehmann's all documents, software, equipment, and
all other materials belonging to Loehmann's, including but not limited to, your
Loehmann's computer, modem, printer, identification, keys, etc., wherever such
items may be located, together with all copies (in whatever form they exist) of
all materials related to your employment or obtained or created in the course of
your employment with Loehmann's.
    
   
15. If any section of this Agreement should be held invalid by operation of law
or by any tribunal of competent jurisdiction, or if compliance with or
enforcement of any section is restrained by such tribunal, the application of
any and all other sections, other than those which have been held invalid, shall
not be affected.
    
   
16. You have the right to consult with an attorney to review this Agreement and
are encouraged to do so.
    

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<PAGE>
   
17. You have twenty-one (21) days to consider this Agreement from the date it
was first given to you although you may accept it anytime within those
twenty-one (21) days.
    
   
18. You have seven (7) days after signing this Agreement to revoke it by
notifying Loehmann's, in writing, of such revocation within the seven (7) day
period. However, if you do not revoke your signature, the Agreement will become
effective on the eighth day after you sign it ("Effective Date").
    
   
If the arrangements we have discussed and agreed upon are accurately set forth
above, please confirm your approval and acceptance of our agreement by signing 
the enclosed copy of this Agreement, and returning the copy to me.
    
   

                                                Linda Nash Merker
                                                Vice President-Human Resources
    
   
         I acknowledge that I have carefully read this agreement and understand
         all of its terms including the full and final release of claims set
         forth above. I further acknowledge that I have voluntarily entered into
         this agreement, that I have not relied upon any representation or
         statement, written or oral, not set forth in this agreement and that I
         have been given the opportunity and encouraged to have this agreement
         reviewed by my attorney and tax advisor. I also acknowledge that I have
         been afforded 21 days to consider this agreement and that I, or
         Loehmann's, have 7 days after signing this agreement to revoke it by
         notifying the other party, in writing, of such revocation. If neither
         party has revoked this agreement, the agreement will become effective
         on the eighth day after I have signed it (the "effective date").
    
   
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