Document:

Exhibit
10.7

EXECUTED VERSION

SECOND
AMENDED AND RESTATED STOCK PLEDGE AGREEMENT

THIS SECOND AMENDED AND
RESTATED STOCK PLEDGE AGREEMENT (this “Agreement”), dated as of August 22,
2007, is entered into by and between NEW YORK & COMPANY, INC., a Delaware
corporation (“Pledgor”), and WACHOVIA BANK, NATIONAL ASSOCIATION, a
national banking association, in its capacity as agent (in such capacity, “Pledgee”)
for the Lenders (as hereinafter defined) and Bank Product Providers (as defined
in the Loan Agreement).

RECITALS

WHEREAS, Pledgor and Pledgee
entered into the Amended and Restated Stock Pledge Agreement, dated as of March
16, 2004, as in effect on the date hereof (the “Existing Pledge Agreement”)
and the other agreements, documents and instruments executed or delivered in
connection therewith as heretofore amended (the “Existing Financing
Agreements”).

WHEREAS, Pledgor owns one
hundred percent (100%) of the issued and outstanding Capital Stock (as defined
in the Loan Agreement) of Lerner New York Holding, Inc. (the “Company”),
and may from time to time in the future, subject to the terms and conditions
set forth in the Financing Agreements, acquire one or more additional
Subsidiaries (as defined in the Loan Agreement) (“Future Subsidiaries”).

WHEREAS, Lerner
New York, Inc., Jasmine Company, Inc., and Lernco, Inc. (each individually a “Borrower”
and collectively “Borrowers”), Pledgee and the persons from time to time party
to the Loan Agreement (as hereinafter defined) as lenders (collectively, “Lenders”),
have amended and restated or are about to amend and restate the existing
financing arrangements of Agent, Lenders, Borrowers and Guarantors pursuant to
which Lenders (or Pledgee on behalf of Lenders) may make loans and advances and
provide other financial accommodations to Borrowers as set forth in the Second
Amended and Restated Loan and Security Agreement, dated as of the date hereof,
by and among Pledgee, Lenders, Borrowers and Guarantors (as the same now exists
or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the “Loan Agreement”) and other agreements,
documents and instruments referred to therein or at any time executed and/or
delivered in connection therewith or related thereto, including, but not
limited to, this Agreement (all of the foregoing, together with the Loan
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the “Financing Agreements”).

WHEREAS, Pledgor desires to
pledge to Pledgee, for its benefit and the ratable benefit of the Lenders and
Bank Product Providers (as defined in the Loan Agreement), a continuing
security interest in all of the Capital Stock of the Company, any and all of
the Future Subsidiaries organized under the laws of any jurisdiction within the
United States of America (“Domestic Future Subsidiaries”) and 65% of the
Capital Stock of all Future Subsidiaries organized under the laws of any
jurisdiction outside of the United States of America (“Foreign Future
Subsidiaries”), in each case as collateral security for the Obligations (as
defined below).

 

WHEREAS, in order to induce
Pledgee and the Lenders to enter into the Loan Agreement, Pledgor and Pledgee
desire to amend and restate the Existing Pledge Agreement in its entirety as
set forth herein.

AGREEMENT

NOW, THEREFORE, in
consideration of the foregoing facts the parties hereto agree as follows:

1.             Pledge.  Pledgor hereby delivers, pledges and grants a
continuing security interest to Pledgee, for Pledgor’s benefit and the ratable
benefit of the Lenders and the Bank Product Providers, in all of the Capital
Stock of the Company, all of the Capital Stock of each Domestic Future
Subsidiary and 65% of the Capital Stock of each Foreign Future Subsidiary,
whether now or hereafter owned or beneficially owned by Pledgor, together with
all proceeds, replacements, substitutions, newly issued stock, stock received
by reason of a stock split, bonus or any other form of issue, dividend or
distribution with respect to or arising from such stock (collectively, the “Collateral”).  Pledgor shall forthwith deliver to Pledgee
the Collateral together with stock powers in form and substance satisfactory to
Pledgee duly executed in blank, with signatures guaranteed, regarding the
Collateral.  Pledgor hereby authorizes
Pledgee and its agents and attorneys to file any and all UCC financing
statements and amendments thereto deemed desirable by Pledgee to perfect or
evidence the security interest in the Collateral granted hereunder.

2.             Obligations Secured.  The pledge and security interest effectuated
hereby shall secure all of Pledgor’s obligations to Pledgee and/or the Lenders,
which obligations shall consist of all debts, obligations and liabilities of
Pledgor to Pledgee and/or the Lenders under any Financing Agreement by which
Pledgor is bound, including, without limitation, all obligations that are
included in the definition of “Obligations” under the Loan Agreement
(collectively, the “Obligations”).

3.             Representations And Warranties
Regarding The Collateral.  Pledgor
represents and warrants that:  (a) all of
the shares of stock described in Paragraph 1 hereof are fully paid,
non-assessable and validly issued; (b) the Collateral was not issued in
violation of any person’s or entity’s preemptive rights; (c) the Collateral is
owned free and clear of any and all security interests, pledges, options to
purchase or sell, redemptions or liens, other than the liens in favor of
Pledgee; (d) Pledgor has full power to convey the Collateral; (e) no financing
statements covering the Collateral are recorded with any cognizant state
official or recording office (other than in favor of Pledgee, for itself and
the ratable benefit of the Lenders and Bank Product Providers); and (f) the
Collateral is free and clear of any claims, security interests or liens other
than those in favor of Pledgee.

4.             Covenants.  Pledgor will not permit the Company to (i)
authorize the amendment of or amend its articles of organization, operating
agreement or other organizational documents to provide that its Capital Stock
is governed by Article 8 of the Code, or (ii) authorize the issuance of or
issue certificates evidencing its Capital Stock.

5.             Events Of Default.  For purposes herein, “Event of Default”
shall mean any “Event of Default” as defined under the Loan Agreement.  Pledgor hereby appoints Pledgee as 

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its attorney-in-fact to
arrange, upon the occurrence and during the continuance of an Event of Default,
for a transfer of the Collateral on the books of the Company or Future
Subsidiary, as applicable, to the name of Pledgee or to the name of Pledgee’s
nominee.

6.             Voting Rights.  During the term of this Agreement, so long as
there shall not occur any Event of Default, Pledgor shall have the right to
vote the Collateral on all corporate questions for all purposes not
inconsistent with the terms of this Agreement. 
Upon the occurrence and during the continuance of an Event of Default,
Pledgee shall thereafter have, at its discretion, the option to exercise all
voting powers and other corporate rights pertaining to the Collateral.  Pledgee may, upon or at any time after the
occurrence of an Event of Default, at its option, transfer or register the
Collateral or any part thereof into its own or its nominee’s name.

7.             Stock Adjustments And Dividends.  If during the term of this Agreement, any
stock dividend, reclassification, readjustment or other change is declared or
made in the capital structure of the Company or Future Subsidiary or any option
included within the Collateral is exercised, or both, all new, substituted and
additional shares, or other securities, issued to Pledgor by reason of any such
change or exercise shall be delivered to and held by Pledgee under the terms of
this Agreement in the same manner as the Collateral originally pledged
hereunder.  During the term of this
Agreement and so long as there shall not have occurred an Event of Default,
Pledgor shall have the right to receive any dividend or other distribution
(other than dividends or distributions of stock) made on account of the
Collateral; provided, however, that upon the occurrence of an
Event of Default, unless otherwise permitted under the terms of the Loan
Agreement or the Intercompany Subordination Agreement (as defined in the Loan
Agreement) Pledgor shall immediately deliver all such dividends or other
distributions to Pledgee in the same form received (except that dividends
received in cash shall be remitted to the Blocked Account) and in the same
manner as the Collateral pledged hereunder.

8.             Warrants And Rights.  If during the term of this Agreement,
subscription warrants or any other rights or options shall be issued in
connection with the Collateral, such warrants, rights and options shall be
immediately assigned by Pledgor to Pledgee to be held under the terms of this
Agreement in the same manner as the Collateral originally pledged hereunder.

9.             Remedies Upon Default.  In addition to the other remedies provided
for herein, in the Loan Agreement or otherwise available under applicable law,
upon the occurrence and during the continuance of an Event of Default:

(a)           Pledgee may:

(i)            exercise in respect to the
Collateral, any one or more of the rights and remedies available under the New
York Uniform Commercial Code and other applicable law; and

(ii)           sell or otherwise assign, give an
option or options to purchase or dispose of and deliver the Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange, broker’s board or at any of Pledgee’s
offices or elsewhere upon such terms and conditions as it may deem advisable
and at such 

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prices as it
may deem best, for cash, on credit or for future delivery without assumption of
any credit risk, free of any claim or right of whatsoever kind (including any
right or equity of redemption) of Pledgor, which claim, right and equity are
hereby expressly waived and released. 
Pledgee or any Lender shall have the right to the extent permitted by
applicable law, upon any such sale or sales, public or private, to purchase the
whole or any part of the Collateral so sold; provided, however,
Pledgor shall not receive any net proceeds, if any, of any such credit sale or
future delivery until cash proceeds are actually received by Pledgee (which
cash proceeds shall be applied by Pledgee to the Obligations) and after all
Obligations have been paid in full.  In
case of any sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by Pledgee until the selling
price is paid by the purchaser thereof, but Pledgee shall incur no liability in
case of the failure of such purchaser to pay for the Collateral so sold and, in
case of such failure, the Collateral may again be sold as herein provided.

(b)           Any notice
required to be given by Pledgee of a sale of the Collateral, or any part
thereof, or of any other intended action by Pledgee, which occurs not less than
five (5) days prior to such proposed action, shall constitute commercially
reasonable and fair notice to Pledgor thereof. 
If, after the occurrence of an Event of Default, a statement renouncing
or modifying any right to notification of sale or other intended disposition
has been signed by Pledgor, during the continuance of such Event of Default, no
such notification need be given to Pledgor.

(c)           Pledgee shall
not be obligated to make any sale or other disposition of the Collateral, or
any part thereof unless the terms thereof shall, in its sole discretion, be
satisfactory to it.  Pledgee may, if it
deems it reasonable, postpone or adjourn the sale of any of the Collateral, or
any part thereof, from time to time by an announcement at the time and place of
such sale or by announcement at the time and place of such postponed or
adjourned sale, without being required to give a new notice of sale.  Pledgor agrees that Pledgee has no
obligations to preserve rights against prior parties to the Collateral.

(d)           Pledgor
acknowledges and agrees that Pledgee may comply with limitations or
restrictions in connection with any sale of the Collateral in order to avoid
any violation of applicable law or in order to obtain any required approval of
the sale or of the purchase thereof by any governmental regulatory authority or
official and, without limiting the generality of the foregoing, Pledgor
acknowledges and agrees that Pledgee may be unable to effect a public sale of
any or all the Collateral by reason of certain prohibitions contained in the
federal securities laws and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to the
distribution or resale thereof.  Pledgor
acknowledges and agrees that any such private sale may result in prices and
other terms less favorable to the seller than if such sale were a public sale.  Notwithstanding any such circumstances,
Pledgor acknowledges and agrees that such compliance shall not result in any
such private sale for such reason alone being deemed 

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to have been made in a commercially unreasonable manner.  Pledgee shall not be liable or accountable to
Pledgor for any discount allowed by reason of the fact that the Collateral is
sold in compliance with any such limitation or restriction.  Pledgee shall not be under any obligation to
delay a sale of any of the Collateral for the period of time necessary to
permit the issuer of such securities to register such securities for public
sale under the federal securities laws, or under applicable state securities
laws, even if the issuer desires, requests or would agree to do so.

(e)           Any cash held
by Pledgee as Collateral and all cash proceeds received by Pledgee in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of Pledgee, be held by Pledgee as
Collateral for the Obligations and/or then or at any time thereafter applied,
without any marshalling of rights, remedies or assets, and after payment of any
amounts payable to Pledgee or any Lender hereunder and, after deducting all
reasonable costs and expenses of every kind in connection with the care,
safekeeping, collection, sale, delivery or otherwise of any or all of the
Collateral or in any way relating to the rights of Pledgee hereunder (including
attorneys’ fees and disbursements), to the payment of reduction of the
Obligations.  Any surplus of such cash or
cash proceeds held by Pledgee and remaining after payment in full of all the
Obligations shall be paid over to Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.

10.           Successors And Assigns.  This Agreement shall be binding upon and
inure to the benefit of Pledgor, Pledgee, and their respective successors and
assigns.  This Agreement may be sold,
assigned and transferred by Pledgee, whether in accordance with the Loan
Agreement or otherwise, to another person, firm, association or corporation, including,
without limitation, any lender for whom Pledgee is acting as agent.

11.           Applicable Law.  This Agreement shall be governed by and
construed under the internal laws of the State of New York but excluding any
principles of conflicts of law or other rule of law that would cause the
application of the law of any jurisdiction other than the laws of the State of
New York.  Whenever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but, if any provision of this
Agreement shall be held to be prohibited or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.

12.           Further Assurances.  Pledgor covenants and agrees that:  (a) it will execute and deliver, or cause to
be executed and delivered, all such other stock powers, proxies, instruments
and documents as Pledgee may reasonably request from time to time in order to
perfect and protect the security interests granted or purported to be granted hereunder
(including without limitation the security interest granted in any Capital
Stock of any Future Subsidiary) or otherwise to carry out the provisions and
purposes hereof, (b) it will take all such other action, as Pledgee may
reasonably request from time to time in order to perfect and protect the
security interests granted or purported to be granted hereunder (including without
limitation the security interest granted in any Capital Stock of any Future
Subsidiary) or otherwise to carry out the provisions and purposes hereof; (c)
the Collateral will remain free and clear of all security interests and liens
throughout the term hereof, and (d) it will forward to Pledgee, immediately 

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upon receipt, copies of
any information or documents received by Pledgor in connection with the
Collateral.  For purposes of defining
security interest perfection, Pledgor further agrees that any Collateral which
is in transit to Pledgee shall be deemed to be in Pledgee’s possession.  Pledgor warrants and represents that none of
the Collateral constitutes margin securities for the purposes of Regulations T,
U or X, and also warrants and represents that none of the proceeds of any loans
made by Pledgee or the Lenders to Pledgor will be used to purchase or carry any
margin stock.

13.           Integrated Agreement.  Except as otherwise provided in the Loan
Agreement, this Agreement sets forth the entire understanding of the parties
with respect to the within matters, and may not be modified except by a writing
signed by all parties.

14.           Incorporation By Reference.  All of the terms and conditions, including,
without limitation, the warranties, representations, covenants, agreements and
default provisions, of the Loan Agreement are incorporated herein by this
reference.

15.           Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument and agreement.

16.           Section Headings.  The section headings herein are for
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.

17.           Release.  At such time as Pledgor shall completely
satisfy all of the non-contingent Obligations, and the Financing Agreements
have been terminated, other than upon enforcement of Pledgee’s remedies under
the Financing Agreements after an Event of Default, (i) Pledgee will execute
and deliver to Pledgor a release or other instrument as may be necessary or
proper to release Pledgor’s lien in the Collateral and return to Pledgor all
stock certificates and stock powers relating to this Agreement which are in its
possession, subject to any dispositions thereof which may have been made by
Pledgee pursuant hereto and (ii) this Agreement will terminate along with such
other Financing Agreements as provided for in the Loan Agreement.

18.           Acknowledgment and Restatement.

(a)           Pledgor hereby
acknowledges, confirms and agrees that Pledgor is indebted to Pledgee
and Lenders in respect of any obligations, liabilities or indebtedness for
loans, advances and letter of credit accommodations to Pledgee under the
Existing Loan Agreement, the Existing Security Agreement or the other Existing
Financing Agreements, together with all interest accrued and accruing thereon,
and all fees, costs, expenses and other charges relating thereto, all of which
are unconditionally owing by Pledgor to Pledgee without offset, defense, or
counterclaim of any kind, nature or description whatsoever. Pledgor hereby
ratifies, assents, adopts and agrees to pay all of the Obligations arising
before, on or after the date hereof.

(b)           Pledgor
hereby acknowledges, confirms and agrees that Pledgee has and shall continue to
have, for itself and the benefit of Lenders, valid, enforceable and perfected
first priority security interests in and liens upon all of the Collateral
heretofore granted to Pledgee pursuant to the Existing Security Agreement to
secure all 

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of the Obligations subject only to liens permitted under the Loan
Agreement and the other Financing Agreements.

(c)           Pledgor
hereby acknowledges, confirms and agrees that: (i) the Existing Security
Agreement has been duly executed and delivered by Pledgor and is in full force
and effect as of the date hereof; (ii) the agreements and obligations of
Pledgor contained in the Existing Security Agreement constitute legal, valid
and binding obligations of Pledgor enforceable against it in accordance with
the terms thereof, and Pledgor has no valid defense, offset or counterclaim to
the enforcement of such obligations; and (iii) Pledgee and Lenders are entitled
to all of the rights, remedies and benefits provided for in the Existing Security
Agreement.

(d)           Except as
otherwise stated in Section 18(b) hereof and in this Section 18(d), as of the
date hereof, the terms, conditions, agreements, covenants, representations and
warranties set forth in the Existing Security Agreement are hereby amended and
restated in their entirety, and as so amended and restated, are replaced and
superseded by the terms, conditions agreements, covenants, representations and
warranties set forth in this Agreement, except that nothing herein shall impair
or adversely affect the continuation of the liability of Pledgor for the
obligations or the security interests and liens heretofore granted, pledged or
assigned to Pledgee for itself and the benefit of Lenders.  The amendment and restatement contained
herein shall not, in any manner, be construed to constitute payment of, or
impair, limit, cancel or extinguish, or constitute a novation in respect of,
the indebtedness and other obligations and liabilities of Pledgor evidenced by
or arising under the Existing Security Agreement and any of the other Existing
Financing Agreements to which Pledgor is a party, and the liens and security
interests securing such indebtedness and other obligations and liabilities
shall not in any manner be impaired, limited, terminated, waived or released.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, this Agreement is executed as of
the date first written above.

	
  

  	
  “Pledgor”

  
	
   

  	
   

  
	
   

  	
  NEW YORK & COMPANY, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Ronald W.
  Ristau

  
	
   

  	
  Name:

  	
   

  	
  Ronald W. Ristau

  
	
   

  	
  Title:

  	
   

  	
  President, Chief Financial Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  “Pledgee”

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  WACHOVIA BANK, NATIONAL

  ASSOCIATION,  as
  Agent

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Laurence Forte

  
	
   

  	
  Name:

  	
   

  	
  Laurence Forte

  
	
   

  	
  Title:

  	
   

  	
  Managing Director

  

 

 8Exhibit
10.8

SECOND AMENDED AND RESTATED INTERCOMPANY
SUBORDINATION

AGREEMENT

THIS SECOND AMENDED AND
RESTATED INTERCOMPANY SUBORDINATION AGREEMENT (this “Agreement”), dated
as of August 22, 2007, is made among the Obligors (as defined below), and
WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as agent
(in such capacity, “Agent”) for the Lenders (as defined below) and Bank
Product Providers (as defined in the Loan Agreement (as defined below)).

WHEREAS, Lerner New York,
Inc. (“Lerner”), Lernco, Inc. (“Lernco”), NY & Co. Group,
Inc. (“NY&Co”), Lerner New York Holdings, Inc. (“Parent”),
Nevada Receivable Factoring, Inc. (“Nevada Factoring”), Jasmine Company,
Inc. (“Jasmine”), Associated Lerner Shops of America, Inc. (“Associated
Lerner”) and Lerner New York GC, LLC (“Lerner GC” and together with
Lerner, Lernco, NY&Co, Parent, Nevada Factoring, Jasmine, Associated Lerner
and any other “Borrower”, or “Guarantor” or “Obligor” under the Loan Agreement
(as defined below), “Obligors” and each an “Obligor”), and Agent
have previously entered into the Amended and Restated Intercompany
Subordination Agreement, dated March 16, 2004 (the “Existing Intercompany
Agreement”).

WHEREAS, Lerner,
Lernco and Jasmine (each a “Borrower” and collectively, “Borrowers”),
Agent and the persons from time to time party to the Loan Agreement (as
hereinafter defined) as lenders (collectively, “Lenders”), have amended
and restated or are about to amend and restate the existing financing
arrangements of Agent, Lenders, Borrowers and Guarantors pursuant to which
Lenders (or Agent on behalf of Lenders) may make loans and advances and provide
other financial accommodations to Borrowers as set forth in the Second Amended
and Restated Loan and Security Agreement, dated as of the date hereof, by and
among Agent, Lenders, Borrowers and Guarantors (as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the “Loan Agreement”) and other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto, including, but not limited to, this
Agreement (all of the foregoing, together with the Loan Agreement, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, being collectively referred to herein as the “Financing
Agreements”);

WHEREAS, the Obligors,
other than Borrowers, have each entered into a Second Amended and Restated
Guarantee, dated as of the date hereof (as amended, modified, supplemented,
renewed, extended, or replaced from time to time, the “Guarantees” and
each a “Guarantee”);

WHEREAS, the Obligors
have or may from time to time enter into certain transactions with one another
pursuant to which certain sums are or may be owing from one Obligor to another;

WHEREAS, in connection
with the Loan Agreement and in order to induce Agent and the Lenders to enter
into the Loan Agreement, Agent and the Obligors now wish to amend and 

restate the
Existing Intercompany Agreement, in its entirety, on the terms and conditions
set forth herein in order to subordinate all such intercompany indebtedness
upon the terms set forth herein.

NOW, THEREFORE, in
consideration of the mutual promises, covenants, conditions, representations,
and warranties set forth herein and for other good and valuable consideration,
the parties hereto agree as follows:

SECTION 1.           Definitions; Interpretation.

(a)           Terms
Defined in Loan Agreement.  All
capitalized terms used in this Agreement and not otherwise defined herein shall
have the meanings assigned to them in the Loan Agreement.

(b)           Certain
Defined Terms.  As used in this
Agreement, the following terms shall have the following meanings:

“Agent” has the meaning set forth in the preamble to this
Agreement.

“Agreement” has the meaning set forth in the preamble to this
Agreement.

“Insolvency Event” has the meaning set forth in Section 3.

“Lenders” has the meaning set forth in the recitals to this
Agreement.

“Obligors” has the meaning set forth in the recitals to this
Agreement.

“Senior Debt” means the Obligations and other indebtedness and
liabilities of the Borrowers to Agent or the Lenders under or in connection
with the Loan Agreement, the Guaranteed Obligations and other indebtedness and
liabilities of the Guarantors under or in connection with the Guarantees and
all other indebtedness and liabilities of any Obligor to Agent or the Lenders
under or in connection with any other Financing Agreements, including all
unpaid principal of the Loans, all interest accrued thereon (including all
interest that, but for the provisions of the United States Bankruptcy Code,
would have accrued), all fees due under the Loan Agreement and the other
Financing Agreements (including all fees that, but for the provisions of the
United States Bankruptcy Code, would have accrued), and all other amounts
payable by the Obligors, or any of them, to Agent or the Lenders thereunder or
in connection therewith, whether now existing or hereafter arising, and whether
due or to become due, absolute or contingent, liquidated or unliquidated,
determined or undetermined.

“Subordinated Debt” means, with respect to each Obligor, all
indebtedness, liabilities, and other obligations of any other Obligor owing to
such Obligor in respect of any and all loans or advances made by such Obligor
to such other Obligor whether now existing or hereafter arising, and whether
due or to become due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, including all fees and all other amounts payable by
any other Obligor to such Obligor under or in connection with any documents or
instruments related thereto.

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“Subordinated
Debt Payment” means any payment or distribution by or on behalf of the
Obligors, directly or indirectly, of assets of the Obligors of any kind or
character, whether in cash, property, or securities, including on account of
the purchase, redemption, or other acquisition of Subordinated Debt, as a
result of an collection, sale, or other disposition of collateral, or by
setoff, exchange, or in any other manner, for or on account of the Subordinated
Debt.

(c)           Interpretation.  Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references
to the singular include the plural, the term “including” is not limiting, and
the term “or” has, except where otherwise indicated, the inclusive meaning
represented by the phrase “and/or.”  The
words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement.  Section,
subsection, clause, schedule, and exhibit references are to this Agreement unless
otherwise specified.  References to
agreements and other contractual instruments shall be deemed to include all subsequent amendments and other
modifications thereto.  References to
statutes or regulations are to be construed as including all statutory and
regulatory provisions consolidating, amending, or replacing the statute or
regulation referred to.  The captions and
headings are for convenience of reference only and shall not affect the
construction of this Agreement.

SECTION 2.           Subordination to Payment of Senior
Debt.  As to each Obligor, all
payments on account of the Subordinated Debt shall be subject, subordinate, and
junior, in right of payment and exercise of remedies, to the extent and in the
manner set forth herein, to the prior payment, in full, in cash or cash
equivalents of the Senior Debt.  To the
extent required under any agreements to which any of the Obligors are party,
each Obligor hereby consents to the security interest of Agent in each of the
Obligor’s personal property and other assets.

SECTION 3.           Subordination Upon Any
Distribution of Assets of the Obligors. 
As to each Obligor, in the event of any payment or distribution of
assets of any other Obligor of any kind or character, whether in cash,
property, or securities, upon the dissolution, winding up, or total or partial
liquidation or reorganization, readjustment, arrangement, or similar proceeding
relating to such other Obligor or its property, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership, arrangement, or
similar proceedings or upon an assignment for the benefit of creditors, or upon
any other marshaling or composition of the assets and liabilities of such other
Obligor, or otherwise (such events, collectively, the “Insolvency Events”)
except as otherwise permitted under Section 9.7(a) of the Loan Agreement, but
in any event, if an Event of Default has occurred and is continuing:  (i) all amounts owing on account of the
Senior Debt shall first be paid, in full, in cash, or payment provided for in
cash or in cash equivalents, before any Subordinated Debt Payment is made; and
(ii) to the extent permitted by applicable law, any Subordinated Debt
Payment to which such Obligor would be entitled except for the provisions
hereof, shall be paid or delivered by the trustee in bankruptcy, receiver,
assignee for the benefit of creditors, or other liquidating agent making such
payment or distribution directly to Agent for application to the payment of the
Senior Debt in accordance with clause (i), after giving effect to any
concurrent payment or distribution or provision therefor to Agent or any Lender
in respect of such Senior Debt.

 3
 

SECTION 4.           Payments on Subordinated Debt.

(a)           Permitted
Payments.  Except as otherwise
permitted under the terms of the Loan Agreement, each Obligor may make, and
each other Obligor shall be entitled to accept and receive, payments on account
of the Subordinated Debt in the ordinary course of business.  Notwithstanding the foregoing, and without in
any way limiting the generality of any provision of this Agreement, Nevada
Factoring hereby acknowledges that it has no right to chargeback against any
amounts owing to or seek recapture of any payments or other remittances at any
time made to Lerner.

(b)           No
Payment Upon Senior Debt Defaults. 
Except as otherwise permitted under the terms of the Loan Agreement,
upon the occurrence of any Event of Default, and until such Event of Default is
cured or waived, no Obligor shall make, and no other Obligor shall accept or
receive, any Subordinated Debt Payment; provided, however, Obligors
may continue to make any payments due to any Borrower.

SECTION 5.           Subordination of Remedies.  As long as any Senior Debt shall remain
outstanding and unpaid, following the occurrence of any Event of Default and
until such Event of Default is cured or waived, each Obligor other than any
Borrower shall not, without the prior written consent of Agent:

(a)           accelerate,
make demand, or otherwise make due and payable prior to the original due date
thereof any Subordinated Debt or bring suit or institute any other actions or
proceedings to enforce its rights or interests in respect of the obligations of
any other Obligor owing to such Obligor;

(b)           exercise
any rights under or with respect to guaranties of the Subordinated Debt, if
any;

(c)           exercise
any rights to set-offs and counterclaims in respect of any indebtedness,
liabilities, or obligations of such Obligor to any other Obligor against any of
the Subordinated Debt; or

(d)           commence,
or cause to be commenced, or join with any creditor other than Agent and the
Lenders in commencing, any bankruptcy, insolvency, or receivership proceeding
against the other Obligors.

SECTION 6.           Payment Over to Agent.  In the event that, notwithstanding the
provisions of Section 3, Section 4, and Section 5, any
Subordinated Debt Payments shall be received in contravention of Section 3,
Section 4, or Section 5 by any Obligor before all Senior Debt is
paid, in full, in cash or cash equivalents, such Subordinated Debt Payments
shall be held in trust for the benefit of Agent, the Lenders and Bank Product
Providers (as defined in the Loan Agreement) and shall be paid over or
delivered to Agent for application to the payment, in full, in cash or cash
equivalents of all Senior Debt remaining unpaid to the extent necessary to give
effect to Section 3, Section 4, and Section 5, after
giving effect to any concurrent payments or distributions to Agent or any
Lender in respect of the Senior Debt.

SECTION 7.           Authorization to Agent.  If, while any Subordinated Debt is
outstanding, any Insolvency Event shall occur and be continuing with respect to
any other Obligor or its property: 
(i) Agent hereby is irrevocably authorized and empowered (in the
name of each 

 4
 

Obligor or otherwise),
but shall have no obligation, to demand, sue for, collect, and receive every
payment or distribution in respect of the Subordinated Debt and give
acquittance therefor and to file claims and proofs of claim and take such other
action (including voting the Subordinated Debt) as it may deem necessary or
advisable for the exercise or enforcement of any of the rights or interests of
Agent or any Lender; and (ii) each Obligor shall promptly take such action
as Agent reasonably may request (A) to collect the Subordinated Debt for
the account of Agent and the Lenders and to file appropriate claims or proofs
of claim in respect of the Subordinated Debt, (B) to execute and deliver
to Agent such powers of attorney, assignments, and other instruments as it may
request to enable it to enforce any and all claims with respect to the Subordinated
Debt, and (C) to collect and receive any and all Subordinated Debt
Payments.

SECTION 8.           Certain Agreements of Each Obligor.

(a)           No
Benefits.  Each Obligor understands
that there may be various agreements between Agent, the Lenders and any other
Obligor evidencing and governing the Senior Debt, and each Obligor acknowledges
and agrees that such agreements are not intended to confer any benefits on such
Obligor and that neither Agent nor any Lender shall have any obligation to such
Obligor or any other Person to exercise any rights, enforce any remedies, or
take any actions which may be available to them under such agreements.

(b)           No
Interference.  Each Obligor
acknowledges that each other Obligor has granted to Agent, for itself and the
benefit of the Lenders and Bank Product Providers, security interests in all of
such other Obligor’s assets, and agrees not to interfere with or in any manner
oppose a disposition of any Collateral by Agent in accordance with applicable
law.

(c)           Reliance
by Agent and the Lenders.  Each
Obligor acknowledges and agrees that Agent and the Lenders will have relied
upon and will continue to rely upon the subordination provisions provided for
herein and the other provisions hereof in entering into the Financing
Agreements and making or issuing the Advances, the Letters of Credit, or other
financial accommodations thereunder.

(d)           Waivers.  Except as provided under the Loan Agreement,
each Obligor hereby waives any and all notice of the incurrence of the Senior
Debt or any part thereof and any right to require marshaling of assets.

(e)           Obligations
of Each Obligor Not Affected.  Each
Obligor hereby agrees that at any time and from time to time, without notice to
or the consent of such Obligor, without incurring responsibility to such
Obligor, and without impairing or releasing the subordination provided for
herein or otherwise impairing the rights of Agent or any Lender hereunder,
(i) the time for any other Obligor’s performance of or compliance with any
of its agreements contained in the Financing Agreements may be extended or such
performance or compliance may be waived by Agent (in accordance with the
Financing Agreements); (ii) the agreements of any other Obligor with
respect to the Financing Agreements may from time to time be modified by such
other Obligor, Agent and the Lenders (in accordance with the Financing
Agreements) for the purpose of adding any requirements thereto or changing in
any manner the rights and obligations of such other Obligor, Agent or the
Lenders thereunder; (iii) the manner, place, or terms for payment of
Senior Debt or any portion thereof may be altered or the terms for payment
extended, or the Senior Debt may be renewed in whole or in part; (iv) the
maturity of the Senior Debt may be accelerated in accordance with the terms of
any present or future agreement by any 

 5
 

other Obligor, Agent and the Lenders (in accordance with the Financing
Agreements); (v) any Collateral may be sold, exchanged, released, or
substituted and any Lien in favor of Agent or any Lender may be terminated,
subordinated, or fail to be perfected or become unperfected; (vi) any
Person liable in any manner for Senior Debt may be discharged, released, or
substituted; and (vii) all other rights against the other Obligors, any other
Person, or with respect to any Collateral may be exercised (or Agent or any
Lender may waive or refrain from exercising such rights in accordance with the
Financing Agreements).

(f)            Rights of Agent and the Lenders Not to Be Impaired.  No right of Agent or any Lender to enforce
the subordination provided for herein or to exercise its other rights hereunder
shall at any time in any way be prejudiced or impaired by any act or failure to
act by any other Obligor, Agent or any Lender hereunder or under or in connection
with the other Financing Agreements or by any noncompliance by the other
Obligors with the term and provisions and covenants herein or in any other Loan
Document, regardless of any knowledge thereof Agent or any Lender may have or
otherwise be charged with.

(g)           Financial Condition of the Obligors.  Except as provided under the Loan Agreement,
each Obligor shall not have any right to require Agent or any Lender to obtain
or disclose any information with respect to: 
(i) the financial condition or character of any other Obligor or
the ability of the other Obligors to pay and perform Senior Debt; (ii) the
Senior Debt; (iii) the Collateral or other security for any or all of the
Senior Debt; (iv) the existence or nonexistence of any guarantees of, or
any other subordination agreements with respect to, all or any part of the
Senior Debt; (v) any action or inaction on the part of Agent, any Lender
or any other Person; or (vi) any other matter, fact, or occurrence
whatsoever.

(h)           Acquisition of Liens or Guarantees.  Each Obligor shall not, without the prior
consent of Agent, acquire any right or interest in or to any Collateral not
owned by such Obligor or accept any guaranties for the Subordinated Debt.

SECTION 9.           Subrogation.

(a)           Subrogation. 
Until the payment and performance in full in cash of all Senior Debt,
each Obligor shall not have, and shall not directly or indirectly exercise, any
rights that it may acquire by way of subrogation under this Agreement, by any
payment or distribution to Agent or any Lender hereunder or otherwise.  Upon the payment and performance in full in
cash of all Senior Debt, each Obligor shall be subrogated to the rights of
Agent and the Lenders to receive payments or distributions applicable to the
Senior Debt until the Subordinated Debt shall be paid in full.  For the purposes of the foregoing
subrogation, no payments or distributions to Agent or any Lender of any cash,
property, or securities to which any Obligor would be entitled except for the
provisions of Section 3, Section 4, or Section 5 shall, as
among such Obligor, its creditors (other than Agent and the Lenders), and the
other Obligors, be deemed to be a payment by the other Obligors to or on
account of the Senior Debt.

(b)           Payments Over to the Obligors.  If any payment or distribution to which any
Obligor would otherwise have been entitled but for the provisions of Section
3, Section 4, or Section 5 shall have been applied pursuant
to the provisions of Section 3, Section 4, or Section 5 to
the payment of all amounts payable under the Senior Debt, such Obligor shall be
entitled to receive from Agent or any Lender, as the case may be, any payments
or distributions received by such Person in excess of the amount sufficient to
pay in full in cash all amounts payable under or 

 6
 

in respect of the Senior Debt.  If any such excess payment is made to Agent
or any Lender, such Person shall promptly remit such excess to such Obligor and
until so remitted shall hold such excess payment for the benefit of such
Obligor.

SECTION 10.         Continuing
Agreement; Reinstatement.

(a)           Continuing Agreement.  This Agreement is a continuing agreement of
subordination and shall continue in effect and be binding upon each Obligor
until payment and performance in full in cash of the Senior Debt.  The subordinations, agreements, and
priorities set forth herein shall remain in full force and effect regardless of
whether any party hereto in the future seeks to rescind, amend, terminate, or
reform, by litigation or otherwise, its respective agreements with the other
Obligors.

(b)           Reinstatement. 
This Agreement shall continue to be effective or shall be reinstated, as
the case may be, if, for any reason, any payment of the Senior Debt by or on
behalf of any other Obligor shall be rescinded or must otherwise be restored by
Agent or any Lender, whether as a result of an Insolvency Event or otherwise.

SECTION 11.         Transfer of
Subordinated Debt.  Each Obligor may
not assign or transfer its rights and obligations in respect of the
Subordinated Debt without the prior written consent of Agent, and any such
transferee or assignee, as a condition to acquiring an interest in the
Subordinated Debt shall agree to be bound hereby, in form satisfactory to
Agent.

SECTION 12.         Obligations
of the Obligors Not Affected.  The
provisions of this Agreement are intended solely for the purpose of defining
the relative rights of each Obligor against the other Obligors, on the one
hand, and of Agent and the Lenders against the Obligors, on the other
hand.  Nothing contained in this
Agreement shall (i) impair, as between each Obligor and the other
Obligors, the obligation of the other Obligors to pay their respective
obligations with respect to the Subordinated Debt as and when the same shall
become due and payable, or (ii) otherwise affect the relative rights of
each Obligor against the other Obligors, on the one hand, and of the creditors
(other than Agent and the Lenders) of the other Obligors against the other
Obligors, on the other hand.

SECTION 13.         Endorsement of
Obligor Documents; Further Assurances and Additional Acts.

(a)           Endorsement of Obligor Documents.  At the request of Agent, all documents and
instruments evidencing any of the Subordinated Debt, if any, shall be endorsed
with a legend noting that such documents and instruments are subject to this
Agreement, and each Obligor shall promptly deliver to Agent evidence of the
same.

(b)           Further Assurances and Additional Acts.  Each Obligor shall execute, acknowledge,
deliver, file, notarize, and register at its own expense all such further agreements,
instruments, certificates, financing statements, documents, and assurances, and
perform such acts as Agent reasonably shall deem necessary or appropriate to
effectuate the purposes of this Agreement, and promptly provide Agent with
evidence of the foregoing reasonably satisfactory in form and substance to
Agent.

SECTION 14.         Notices.  All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (including
by facsimile transmission) and shall 

 7
 

be mailed, sent,
or delivered in accordance with the notice provisions contained in the Loan
Agreement.

SECTION 15.         No Waiver;
Cumulative Remedies.  No failure on
the part of Agent or any Lender to exercise, and no delay in exercising, any
right, remedy, power, or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, remedy, power, or
privilege preclude any other or further exercise thereof or the exercise of any
other right, remedy, power, or privilege. 
The rights and remedies under this Agreement are cumulative and not
exclusive of any rights, remedies, powers, and privileges that may otherwise be
available to Agent or any Lender.

SECTION 16.         Costs and
Expenses.  Each of the Obligors,
jointly and severally, agrees to pay to Agent and the Lenders on demand (a) the
reasonable out-of-pocket costs and expenses of such Person, and the reasonable
fees and disbursements of counsel to such Person, in connection with the
negotiation, preparation, execution, delivery, and administration of this
Agreement, and any amendments, modifications, or waivers of the terms thereof
and (b) all costs and expenses of such Person, and the fees and disbursements
of counsel to such Person, in connection with the enforcement or attempted
enforcement of, and preservation of rights or interests under, this Agreement,
including any losses, costs and expenses sustained by such Person as a result
of any failure by any Obligor to perform or observe its obligations contained
in this Agreement.

SECTION 17.         Survival.  All covenants, agreements, representations
and warranties made in this Agreement shall, except to the extent otherwise
provided herein, survive the execution and delivery of this Agreement, and
shall continue in full force and effect so long as any Senior Debt remains
unpaid.  Without limiting the generality
of the foregoing, the obligations of each Obligor under Section 16 shall
survive the satisfaction of the Senior Debt.

SECTION 18.         Benefits of Agreement.  This Agreement is entered into for the sole
protection and benefit of the parties hereto and their successors and assigns,
and no other Person shall be a direct or indirect beneficiary of, or shall have
any direct or indirect cause of action or - claim in connection with,
this Agreement.

SECTION 19.         Binding
Effect.  This Agreement shall be
binding upon, inure to the benefit of and be enforceable by each Obligor,
Agent, each Lender, each Bank Product Provider and their respective successors
and permitted assigns.

SECTION 20.         Governing
Law; Choice of Forum; Service of Process; Jury Trial Waiver.

(a)           The validity, interpretation and enforcement of this
Agreement and any dispute arising out of the relationship between any Obligor
and Agent or any Lender, whether in contract, tort, equity or otherwise, shall
be governed by the internal laws of the State of New York, but excluding any
principles of conflicts of law or other rule of law that would cause the
application of the law of any jurisdiction other than the laws of the State of
New York.

(b)           Each Obligor hereby irrevocably consents and submits to
the non-exclusive jurisdiction of the Supreme Court of the State of New York
for New York County and the United States District Court for the Southern
District of New York, whichever Agent may elect, and waives any objection based
on venue or forum non conveniens with respect to any action instituted therein
arising under this Agreement or any of the other Financing Agreements 

 8
 

or in any way connected with or related or
incidental to the dealings of any Obligor and Agent or any Lender in respect of
this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising and whether in contract, tort, equity or otherwise, and agrees that any
dispute arising out of the relationship between any Obligor or any Borrower and
Agent or any Lender or the conduct of any such persons in connection with this
Agreement, the other Financing Agreements or otherwise shall be heard only in
the courts described above (except that Agent and Lenders shall have the right
to bring any action or proceeding against any Obligor or its property in the
courts of any other jurisdiction which Agent deems necessary or appropriate in order
to realize on any collateral at any time granted by any Borrower or any Obligor
to Agent or any Lender or to otherwise enforce its rights against any Obligor
or its property).

(c)           Each Obligor hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth
below and service so made shall be deemed to be completed five (5) days after
the same shall have been so deposited in the U.S. mails, or, at Agent’s option,
by service upon any Obligor in any other manner provided under the rules of any
such courts.  Within thirty (30) days
after such service, any Obligor so served shall appear in answer of such
process, failing which such Obligor shall be deemed in default and judgment may
be entered by Agent against such Obligor for the amount of the claim and other
relief requested.

(d)           EACH OBLIGOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT
OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF OBLIGORS AND AGENT OR ANY
LENDER IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.  EACH OBLIGOR HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT ANY OBLIGOR, ANY LENDER OR AGENT MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF OBLIGORS, LENDERS AND AGENT TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

(e)           Agent and Lenders shall not have any liability to Obligors
(whether in tort, contract, equity or otherwise) for losses suffered by
Obligors in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by
a final and non-appealable judgment or court order binding on Agent or such
Lender that the losses were the result of acts or omissions constituting gross
negligence or willful misconduct.  In any
such litigation, Agent and Lenders shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of the Loan Agreement and
the other Financing Agreements.

SECTION 21.         SUBMISSION
TO JURISDICTION.  EACH OBLIGOR HEREBY
irrevocably consents and submits to the non-exclusive jurisdiction of the State
of New York and the State and Federal courts located in the Borough of
Manhattan, County of New York, State of 

 9
 

New York, whichever Agent may elect, and waives any objection based
on venue or forum  non  conveniens with respect to any
action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agreeS that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Agent
and Lenders shall have the right to bring any action or proceeding against any
Obligor or its or their property in the courts of any other jurisdiction which
Agent deems necessary or appropriate in order to realize on the Collateral or
to otherwise enforce its rights against any Obligor or its or their property).

SECTION 22.         Entire
Agreement; Amendments and Waivers.

(a)           Entire Agreement. 
This Agreement constitutes the entire agreement of each of the Obligors,
Agent and each of the Lenders with respect to the matters set forth herein and
supersedes any prior agreements, commitments, draft, communications,
discussions and understandings, oral or written, with respect thereto.

(b)           Amendments and Waivers.  No amendment to any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed by each of the Obligors and Agent; and no waiver of any provision of
this Agreement, or consent to any departure by any Obligor therefrom, shall in
any event be effective unless the same shall be in writing and signed by
Agent.  Any such amendment, waiver, or
consent shall be effective only in the specific instance and for the specific
purpose for which given.

SECTION 23.         Conflicts.  In case of any conflict or inconsistency
between any terms of this Agreement, on the one hand, and any documents or
instruments in respect of the Subordinated Debt, on the other hand, then the
terms of this Agreement shall control.

SECTION 24.         Severability.  Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. 
If, however, any provision of this Agreement shall be prohibited by or
invalid under any such law or regulation in any jurisdiction, it shall, as to
such jurisdiction, be deemed modified to conform to the minimum requirements of
such law or regulation, or, if for any reason it is not deemed so modified, it
shall be ineffective and invalid only to the extent of such prohibition or
invalidity without affecting the remaining provisions of this Agreement or the
validity or effectiveness of such provision in any other jurisdiction.

SECTION 25.         Interpretation.  This Agreement is the result of negotiations
between, and have been reviewed by the respective counsel to, the Obligors, Agent
and each Lender and is the product of all parties hereto.  Accordingly, this Agreement shall not be
construed against Agent or any Lender merely because of their involvement in
the preparation hereof.

SECTION 26.         Counterparts;
Telefacsimile Execution.  This
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
but one and the same agreement.  Delivery
of an executed counterpart of this Agreement by telefacsimile shall be equally
effective as delivery of an original executed counterpart of this
Agreement.  Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed 

 10
 

counterpart of
this Agreement but the failure to deliver an original executed counterpart
shall not affect the validity, enforceability, and bind effect of this
Agreement.

SECTION 27.         Termination
of Agreement.  Upon payment and
performance in full in cash of the Senior Debt, this Agreement shall terminate
and Agent shall promptly execute and deliver to each Obligor such documents and
instruments as shall be reasonably necessary to evidence such termination; provided,
however, that the obligations of each Obligor under Section 16 shall
survive such termination.

SECTION 28.         Acknowledgment
and Restatement.

(a)           Each Obligor hereby acknowledges, confirms and agrees
that: (i) the Existing Intercompany Agreement has been duly executed and
delivered by Obligors and is in full force and effect as of the date hereof;
(ii) the agreements and obligations of Obligors contained in the Existing
Intercompany Agreement constitute legal, valid and binding obligations of
Obligors enforceable against it in accordance with the terms thereof, and
Obligors have no valid defense, offset or counterclaim to the enforcement of
such obligations; and (iii) Agent, Lenders and Bank Product Provider are
entitled to all of the rights, remedies and benefits provided for in the
Existing Intercompany Agreement.

(b)           As of the date hereof, the terms, conditions, agreements,
covenants, representations and warranties set forth in the Existing
Intercompany Agreement are hereby amended and restated in their entirety, and
as so amended and restated, are replaced and superseded by the terms,
conditions agreements, covenants, representations and warranties set forth in
this Agreement, except that nothing herein shall impair or adversely affect the
continuation of the liability of Obligors for the obligations or the security
interests and liens heretofore granted, pledged or assigned to Agent for itself
and the benefit of Lenders and Bank Product Provider.  The amendment and restatement contained
herein shall not, in any manner, be construed to constitute payment of, or
impair, limit, cancel or extinguish, or constitute a novation in respect of,
the indebtedness and other obligations and liabilities of Obligors evidenced by
or arising under the Existing Intercompany Agreement and any of the other
Existing Financing Agreements to which Obligors are a party, and the liens and
security interests securing such indebtedness and other obligations and
liabilities shall not in any manner be impaired, limited, terminated, waived or
released.

 

[Signatures follow
on next page]

 11
 

IN WITNESS WHEREOF, the undersigned has executed and delivered this
Agreement as of the date first written above.

	
  

  	
  LERNER NEW YORK, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald W. Ristau

  
	
   

  	
  Name: 

  	
  Ronald W. Ristau

  
	
   

  	
  Title:

  	
  President, Chief Financial Officer and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  NY & CO. GROUP, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald W. Ristau

  
	
   

  	
  Name: 

  	
  Ronald W. Ristau

  
	
   

  	
  Title:

  	
  President, Chief Financial Officer and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  JASMINE COMPANY, INC.,

  
	
   

  	
  a Massachusetts corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald W. Ristau

  
	
   

  	
  Name: 

  	
  Ronald W. Wistau

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  LERNER NEW YORK HOLDING, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald W. Ristau

  
	
   

  	
  Name: 

  	
  Ronald W. Ristau

  
	
   

  	
  Title:

  	
  President, Chief Financial Officer and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  LERNCO, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald W. Ristau

  
	
   

  	
  Name: 

  	
  Ronald W. Ristau

  
	
   

  	
  Title:

  	
  President

  

 

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  NEVADA RECEIVABLE FACTORING, INC.,

  
	
   

  	
  a Nevada corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald W. Ristau

  
	
   

  	
  Name: 

  	
  Ronald W. Ristau

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  ASSOCIATED LERNER SHOPS OF AMERICA, INC.,

  
	
   

  	
  a New York corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald W. Ristau

  
	
   

  	
  Name: 

  	
  Ronald W. Ristau

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  LERNER NEW YORK GC, LLC,

  
	
   

  	
  an Ohio limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: LERNER NEW YORK, INC.,

  
	
   

  	
   

  	
  Its: Sole Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ronald W. Ristau

  
	
   

  	
   

  	
  Name: 

  	
  Ronald W. Ristau

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Financial Officer and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  WACHOVIA BANK, NATIONAL ASSOCIATION, as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Laurence Forte

  
	
   

  	
  Name: 

  	
  Laurence Forte

  
	
   

  	
  Title:

  	
  Managing Director

  
					

 

 13

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