Document:

<PAGE>

                                                                    EXHIBIT 10.1

                                              U.S. DEPARTMENT OF JUSTICE

                                              United States Attorney
                                              Eastern District of New York

EC: SLL                                       One Pierrepont Plaza
F#2003R01925                                  Brooklyn, New York 11201

                             Mailing Address: 156 Pierrepont Street
                                              Brooklyn, New York 11201

                                              September 28, 2004

Bruce E. Yannett, Esq.
Andrew J. Ceresney, Esq.
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022

                          Re: Whitehall Jewellers, Inc.

Dear Messrs. Yannett and Ceresney:

            This letter sets forth the agreement between the United States
Attorney's Office for the Eastern District of New York (the "Office") and
Whitehall Jewellers, Inc. ("Whitehall").

            1.    The Office is conducting a criminal investigation to
determine, among other things, whether any Whitehall officers or employees
conspired with and/or aided and abetted Cosmopolitan Gem Inc., Colorcast
Corporation, or their principal, Joshua Kestenbaum (collectively
"Cosmopolitan"), in defrauding their lender, Capital Factors, Inc. ("Capital").
During the course of the investigation the Office has determined that, prior to
June 2003, one or more Whitehall officers and employees furthered Cosmopolitan's
fraud through, among other things, knowingly providing false and misleading
information to, and withholding information from, Capital about Whitehall's
accounts payable obligations to Cosmopolitan. Further, the Office has determined
that, prior to June 2003, one or more Whitehall officers and employees were
aware that Cosmopolitan was making false and misleading statements to Capital
about Whitehall's accounts payable obligations to Capital. These misstatements
led Capital to believe that Whitehall owed Cosmopolitan

<PAGE>
                                                                               2

substantially more money than it did and to continue to advance funds to
Cosmopolitan.

            2.    Whitehall acknowledges that, prior to June 2003, one or more
Whitehall officers and employees violated federal criminal law by conspiring
with Cosmopolitan and aiding and abetting Cosmopolitan's fraud. Whitehall
accepts responsibility for the conduct of any of its officers and employees
giving rise to any violation related to Cosmopolitan's defrauding of Capital.
Whitehall does not endorse, ratify or condone criminal conduct and, as set forth
below, has taken steps to prevent such conduct from occurring in the future.

            3.    Based upon Whitehall's acceptance of responsibility in the
preceding paragraph, its willingness to cooperate fully with the Office, its
efforts to identify and terminate any culpable employees and deter future
wrongdoing, make restitution to Capital and the adoption of various compliance
and corporate governance measures set forth below, this Office will not
criminally prosecute Whitehall for any crimes (except for possible criminal tax
violations, if any, as to which this Office cannot and does not make any
agreement) related to any statements, acts, or omissions by Whitehall, or its
current or former officers or employees, which relate to or were in furtherance
of Cosmopolitan's scheme to defraud Capital Factors or any other party, which
scheme was in existence from in or about and between 1999 until in or about
December 2003. This Agreement does not provide any protection against
prosecution for any crimes except as set forth above, and applies only to
Whitehall and not to any other individuals or entities, including, but not
limited to, any current or former officer, director or employee of Whitehall.

            4.    Whitehall shall: (a) continue to truthfully and completely
disclose all information with respect to the activities of Whitehall, and its
respective officers, directors and employees, concerning all matters about which
the Office inquires of them, which information can be used for any purpose; (b)
continue to cooperate fully with the Office, the United States Postal Inspection
Service, and any other federal law enforcement or regulatory agency designated
by the Office; (c) continue to provide voluntarily to the Office, upon request,
any non-privileged document, record or other tangible evidence relating to
matters about which the Office or other designated law enforcement or regulatory
agency inquires of them; (d) provide to the Office and to any designated law
enforcement or regulatory agency unlimited

<PAGE>
                                                                               3

access to Whitehall facilities, documents, and employees; and (e) commit, or
attempt to commit, no crimes whatsoever.

            5.    Whitehall has implemented or will implement all of the
remedial and corrective actions described in your letter dated September 28,
2004 (the "Letter"). Specifically, Whitehall will implement and maintain the
compliance program set forth in your Letter, which includes, but is not limited
to, the adoption of a code of conduct, the appointment of a chief compliance
officer and the hiring of an Internal Audit Director, the formation of a
compliance committee, the creation of a reporting hotline, whistleblower
protection, compliance training and other corporate governance changes, as
outlined in your Letter.

            6.    Further, as indicated in your Letter, the Company has
implemented certain new or modified policies, including, but not limited to: a
revised gift policy; a prohibition of "on account" payments; an improved vendor
approval process; an improved vendor reconciliation process; additional
disbursement and cash management controls; formalized procedures for
communicating with factors; additional buyout, purchase commitment, and
accelerated payment approval procedures; and controls on the assignment of new
PLU numbers to existing merchandise. It is understood that Whitehall shall
continue to operate its compliance program, as described in your Letter, and
shall continue to follow those new or modified policies (as amended from time to
time with prompt notification of any material change to the Audit Committee or
full Board of Directors) which are listed above and which are described more
extensively in your Letter. Further, it is understood that any modifications or
changes in Whitehall's compliance program or policies shall not diminish the
policies and programs set forth in your Letter. In order to ensure such
compliance, Whitehall's Chief Compliance Officer and Internal Audit Director
shall, on a quarterly basis, confer with and report to the Audit Committee on
any material modifications to the compliance program and any material violations
of the policies listed above which come to their attention. In addition, for the
three years following the signing of the Agreement - - on a quarterly basis for
the first year and on a semi-annual basis for the two remaining years, Whitehall
shall submit to this Office a report signed by the Chair of the Audit Committee,
the Chief Compliance Officer and Whitehall's Internal Audit Director, detailing
Whitehall's compliance efforts, any material modifications to the compliance
program, and any material modifications to the policies which are listed above
and which are described more extensively in your Letter, as well as any material
violations

<PAGE>
                                                                               4

of these policies which have come to their attention.

            7.    It is agreed that Whitehall shall pay:

                  a.    On the terms set forth in the Letter, restitution to
                        Capital Factors in the approximate amount of
                        $10,847,478;

                  b.    For any and all goods received by Whitehall from
                        Cosmopolitan or entities through which Cosmopolitan
                        directed its business to wit: International Diamonds LLC
                        or Ultimo, Inc., in the approximate amount of $2,488,017
                        and return goods in the approximate amount of $1,446,985
                        on such terms as discussed in the Letter; and

                  c.    $350,000 by certified check or bank cashier's check to
                        the United States Postal Inspection Service Consumer
                        Fraud Fund immediately upon execution of this Agreement
                        by all parties.

            8.    It is further understood that this Agreement does not bind any
federal, state or local prosecuting or regulatory authorities other than this
Office. This Office will, however, bring the cooperation of Whitehall, as well
as this Agreement, to the attention of other prosecuting offices or regulatory
authorities, if requested by Whitehall's counsel.

            9.    It is further agreed that in the event that the Office, in its
sole discretion, within the next three years determines that (a) Whitehall
committed any crimes within three years subsequent to the date of the signing of
this Agreement; (b) Whitehall knowingly and intentionally has given false,
incomplete, or misleading information; or (c) Whitehall otherwise violated any
provision of this Agreement, Whitehall shall thereafter be subject to
prosecution for any federal criminal violation of which this Office has
knowledge. Any such prosecutions may be premised upon information provided by
Whitehall and upon the admission of criminal conduct contained in this
Agreement. Moreover, Whitehall agrees that any such prosecutions that are not
time-barred by the applicable statute of limitations on the date of the signing
of this Agreement may be commenced against Whitehall, in the Eastern District of
New York, in accordance with this Agreement, notwithstanding the expiration of
the statute of limitations

<PAGE>
                                                                               5

between the signing of this Agreement and the commencement of any such
prosecutions.

            10.   Furthermore, it is agreed that if the Office, in its sole
discretion, determines that Whitehall has committed any crime after signing this
Agreement or otherwise violated any provision of this Agreement within three
years, (i) all statements by or on behalf of Whitehall to this Office or other
designated law enforcement or regulatory officials, or other testimony given by
any agent of Whitehall before a grand jury or other tribunal, whether prior to
or subsequent to the signing of this Agreement, and any leads from such
statements or testimony, shall be admissible in any and all criminal proceedings
hereafter brought against Whitehall, and (ii) Whitehall shall not assert any
claim under the United States Constitution, any statute, Rule 11(f) of the
Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence,
Agreement with the Office or any other federal rule, that statements made by or
on behalf of Whitehall prior to or subsequent to this Agreement, or any leads
therefrom, should be suppressed.

            11.   The decision whether conduct and/or statements of any
individual will be imputed to Whitehall for the purpose of determining whether
Whitehall has violated any provision of this Agreement shall be in the sole
discretion of the Office. Should the Office determine that Whitehall has
committed a knowing breach of any provision of this Agreement, the Office will
provide written notice to Whitehall and will provide Whitehall with a two-week
period in which to make a presentation to the Office to demonstrate that no
breach has occurred or, to the extent relevant, that the breach was not knowing
or had been cured. Whitehall understands and agrees that the exercise of
discretion by the Office is not subject to review in any court or tribunal
outside the Department of Justice.

            12.   Whitehall agrees that it shall not, through its attorneys,
Board of Directors, agents, officers or employees, make any public statement, in
litigation or otherwise, contradicting its acceptance of responsibility or its
agreement to implement the elements of your Letter. Any such contradictory
statement by Whitehall, its present or future attorneys, Board of Directors,
agents, officers or employees shall constitute a breach of this Agreement and
Whitehall thereafter may, in the Office's sole discretion, be subject to
prosecution as set forth in paragraphs 9-10. The decision as to whether any such
contradictory statement will be imputed to Whitehall for the purpose of
determining whether Whitehall has

<PAGE>
                                                                               6

breached this Agreement shall be at the sole discretion of the Office. Upon the
Office's written notification of Whitehall of any such contradictory statement,
Whitehall may avoid a breach of this Agreement by publicly repudiating such
statement within three business days after notification by the Office. This
paragraph is not intended to apply to any statement made by any Whitehall
officer, director or employee or former officer, director or employee who has
been charged with a crime or other wrongdoing by the federal or any state
government or an agency thereof.

            13.   With respect to this matter, this Agreement supersedes all
prior, if any, written or oral understandings, promises, and/or conditions
between this Office and Whitehall, with the exception of the agreement as to
privilege as set forth in the letter from Bruce E. Yannett to this Office dated
October 28, 2003. No additional promises, agreements, and conditions have been
entered into other than those set forth in this letter,

<PAGE>
                                                                               7

and none will be entered into unless in writing and signed by all the parties.

Dated: September 28, 2004
       Brooklyn, New York

                                            ROSLYNN R. MAUSKOPF
                                            United States Attorney
                                            Eastern District of New York

                                        By: /s/ Seth L. Levine
                                            ----------------------------------
                                            Seth L. Levine
                                            Assistant U.S. Attorney

                                        Approved by:

                                        /s/ Eric Corngold
                                        --------------------------------------
                                        Eric Corngold
                                        Chief, Business and Securities
                                          Fraud Unit

Agreed and consented to by:

WHITEHALL JEWELERS, INC.

By: /s/ Hugh Patinkin
    -----------------------------------
    Hugh Patinkin
    Chairmen of the Board of Directors
    and Chief Executive Officer,
    Whitehall Jewellers, Inc.

APPROVED:

/s/ Andrew J. Ceresney, Esq.
---------------------------------------
Bruce E. Yannett, Esq.
Andrew J. Ceresney, Esq.
Attorneys for Whitehall Jewellers, Inc.<PAGE>

                                                                    EXHIBIT 10.2

DEBEVOISE & PLIMPTON LLP                                919 Third Avenue
                                                        New York, NY 10022
                                                        Tel 212 909 6000
                                                        Fax 212 909 6836
                                                        www.debevoise.com

September 28, 2004

Seth Levine, Esq.
Assistant United States Attorney
United States Attorney's Office
One Pierrepont Plaza
Brooklyn, NY  11201

                            WHITEHALL JEWELLERS, INC.

Dear Mr. Levine:

      We write on behalf of our client, Whitehall Jewellers, Inc. ("Whitehall"
or the "Company"): (1) to describe the remedial measures which either have been
implemented, or will be implemented by Whitehall, as a result of its internal
investigation relating to Whitehall's relationship with Cosmopolitan Gem Corp.
and Joshua Kestenbaum; and (2) to describe the restitution and other payments
which Whitehall plans to make upon execution of a non-prosecution agreement with
your Office.

Remedial Measures

      Since the commencement of its internal investigation, Whitehall has taken
extensive measures to further its commitment to maintaining a corporate culture
driven by ethical conduct and compliance with the laws. The Company has: (1)
terminated the employment of all personnel it determined, following an internal
investigation, to have engaged in misconduct; (2) hired an Internal Audit
Director and authorized the hiring of a General Counsel; (3) committed to hiring
and has engaged a search firm to recruit a President and COO with significant
public company experience; (4) taken measures to

<PAGE>

Seth Levine, Esq.                      2                      September 28, 2004

continue to increase the Board's independence; (5) instituted a comprehensive
compliance program; and (6) implemented numerous policies, procedures, and
controls to address issues identified in the internal investigation. In short,
Whitehall has strengthened and codified its culture of compliance and business
ethics, encouraged all employees to conduct the Company's business activities
according to the highest ethical standards, and taken measures to increase
management's compliance and financial reporting expertise.

      A.    Termination of Certain Personnel

      In the midst of the internal investigation, Whitehall's Board and
management acted swiftly to terminate the employment of all personnel it
determined had engaged in misconduct. Both Jon Browne and Lynn Eisenheim were
placed on leave almost immediately after the Company became aware of
circumstances which suggested that they had engaged in misconduct. Neither was
permitted to continue to conduct Company business after they were placed on a
leave of absence. Then, after the investigation had further progressed, Browne
and Eisenheim were promptly terminated.

      B.    Personnel Changes Relating To Compliance And Accounting

      In addition to terminating certain employees, Whitehall also has committed
to making personnel changes to enhance its focus on compliance with laws and
regulations, and to ensure that any future wrongdoing is more promptly detected.
First, in March 2004, the Company hired an Internal Audit Director, a certified
public accountant ("CPA"), who reports directly to the Audit Committee of the
Board, with additional dotted line reporting to the Chief Executive Officer. The
Internal Audit Director is responsible for, among other things, evaluating the
Company's financial data, internal controls, department procedures, and
compliance with regulatory rules and regulations and Company policies.

      Second, the Board has authorized the hiring of a full-time General Counsel
to oversee all legal matters. Once appointed, the General Counsel also is
expected to assume the role of Chief Corporate Compliance Officer, and thus
oversee the compliance program and any disciplinary activity arising out of that
program. Having an on-site General Counsel will no doubt solidify the Company's
focus on legal and regulatory compliance. The Company expects that the General
Counsel will be hired in the coming months.

<PAGE>
Seth Levine, Esq.                      3                      September 28, 2004

      In addition, the Company has made personnel additions which have enhanced
its financial reporting and compliance. In particular, the Company has hired two
additional CPAs to work in the accounting department. One of those CPAs manages
the general ledger department. The other CPA is responsible for assisting the
Vice President-Controller and Chief Financial Officer in completing the
Company's compliance with Section 404 of the Sarbanes-Oxley Act, which requires
that the Company make certain assessments and document its internal controls by
January 31, 2005. These CPAs have increased the level of accounting expertise at
the Company.

<PAGE>
Seth Levine, Esq.                      4                      September 28, 2004

      C.    Other Personnel and Board Changes

      In addition to the above-noted personnel changes, the Company also is in
the process of making additional management and Board changes to improve the
Company's overall management structure and to increase Board independence. In
the coming months, the Company intends to hire a President and Chief Operating
Officer ("COO"). The new President and COO will report to Hugh Patinkin, who
will continue to serve as Chairman and CEO. The Company has retained a search
firm and is seeking an individual for President and COO who has substantial
public company financial experience. As currently anticipated (and subject to
finding the appropriate person for the position), certain Executive Vice
Presidents, including the Chief Financial Officer, will report directly to the
President and COO to further strengthen Whitehall's management.

      Moreover, the Company's Board has reduced the number of management
directors, increased the proportion of Board members who are independent outside
directors, and intends, in due course, to add additional financial and
regulatory expertise to the Board. First, in January 2004, John Desjardins and
Matthew Patinkin resigned as Board members. The sole reason for these
resignations was to increase the proportion of Board members who are independent
outside directors. Currently, the Board numbers five, with only one management
director -- Hugh Patinkin. Second, the Board's current intention is to attempt
to add two additional independent outside directors. To fill these two Board
positions, the Board will attempt in due course to recruit one Board member with
significant legal or regulatory experience, and another Board member with a
significant financial background. The Board is in the process of hiring a search
firm to assist in this search for additional Board members. The Board's success
in recruiting individuals with these skills will enhance the Company's focus on
compliance and financial reporting issues.

      D.    Compliance Program

      Besides new personnel, Whitehall has already implemented a comprehensive
compliance program aimed at ensuring that Whitehall employees are sensitive to
ethical and regulatory issues, are imbued with an understanding of the need to
report any ethical or legal concerns, and are provided with the means and
protection necessary to facilitate such reporting. The program includes several
components:

<PAGE>
Seth Levine, Esq.                      5                      September 28, 2004

            1.    Code of Conduct: Whitehall's Board has adopted a Code of
Conduct (the "Code") which summarizes the principles of conduct that are
expected from all employees and directors to ensure that Whitehall's business is
conducted with integrity and in compliance with the law. The Code generally
requires that employees comply with the law and act ethically, including that
they: (a) comply with insider trading laws, (b) reduce the likelihood of
conflicts of interest, (c) abide by confidentiality obligations, (d) properly
use Company assets, (e) ensure the accuracy of financial statements, and (f)
report illegal or unethical conduct or conduct not in compliance with Company
policy. All active employees have certified compliance with the Company's Code
of Conduct. New employees must certify in writing their awareness of the Code
upon commencement of their employment, and continuing employees must certify in
writing their awareness and compliance annually.

            2.    Appointment of a Chief Corporate Compliance Officer: The Board
has appointed a Chief Corporate Compliance Officer, who will oversee the
development, implementation, and operation of the Compliance Program, including
the enforcement of policies and training programs. John Desjardins has been
appointed the Chief Corporate Compliance Officer until the hiring of a General
Counsel, who is expected to then assume those responsibilities.

            3.    Appointment of Divisional Compliance Officers: The Company has
appointed compliance officers for numerous functional areas of the Company to
address particular compliance issues arising out of those functional areas and
to serve as a conduit for ethical or legal concerns raised by employees. Each of
these Divisional Compliance Officers serves on the Compliance Committee, which
assists the Chief Corporate Compliance Officer with the implementation and
operation of the compliance program. The Divisional Compliance Officers
currently include: the Senior Vice President of Merchandise Control, the Vice
President for Loss Prevention, the Vice President-Controller, the Vice President
for Human Resources, and the Internal Audit Director.

            4.    Reporting Hotline: The Company has contracted with an outside
vendor to provide an 800-number reporting hotline. The hotline provides
employees with an additional avenue for reporting ethical or legal concerns
through a forum outside of the Company's management hierarchy. The service was
operational starting January 5, 2004.

            5.    Whistleblower Protection Policy: The Company has implemented a
policy which protects employees who raise ethical and legal concerns from
retaliation as a result of such reporting.

<PAGE>
Seth Levine, Esq.                      6                      September 28, 2004

            6.    Compliance Training: The Company has begun a training program
through which employees are educated about the Code of Conduct and the reporting
mechanisms for ethical or legal misconduct. The program is designed to reinforce
the message to Whitehall personnel that misconduct will not be tolerated and
that employees are required to report such misconduct immediately. By February
2004, all employees attended a training session on these matters (store
employees received the training through video presentations), and had certified
their participation in the training. Top management, as well as Company
attorneys and members of E&Y, have conducted the training. In addition, all new
employees will receive such training through a video presentation as part of
their new employee orientation. Follow-up training sessions will also be held at
least annually for all employees.

      E.    New Policies and Procedures

      In addition to a compliance program, the Company also has implemented
specific policies designed to respond to some of the concerns raised by the
internal investigation. These include:

            1.    Revised Gift Policy: In November 2003, the Board adopted a
revised gift policy, which prohibits solicitation or receipt by Company
employees of gifts worth a total of more than $50 from any vendor during a
calendar year. The policy also places limits on the amount and nature of
employee entertainment expenses that can be paid by Company vendors, requiring
that: (a) such entertainment be limited to meals and industry business
functions, (b) that only the employee and his or her spouse or domestic partner
be permitted to attend these meals or industry business functions, and (c) the
entertainment be reasonable in light of the nature of the vendor and the
seniority level of the employee. The policy also requires quarterly reporting of
all entertainment received by Company employees, and annual certification of
compliance with this policy by all officers and supervisors. All vendors were
notified of the gift policy in advance of the holiday season to ensure that
their gifts complied with the policy. Vendors have been and will be notified of
the policy annually to ensure compliance with Company policy. Moreover, the
Company will modify its standard Vendor Trading Agreement to incorporate the
gift policy.

            2.    Prohibition of On Account Payments: In September 2003, the
Company prohibited all on account payments. Accordingly, all check payments to
vendors now must be accompanied by a remittance advice identifying the invoices
and credit memos covered by that check. Remittance advices relating to wire
transfers must be sent to the vendor by fax contemporaneously with the wire
transfer. In order to verify that this process is followed, each packet of
invoices and/or credit memos supporting a

<PAGE>
Seth Levine, Esq.                      7                      September 28, 2004

payment is reviewed by an individual outside of the accounts payable process
prior to payment being sent.

            3.    Vendor Approval Process: The Company has implemented a vendor
approval policy which will ensure that, among other things, new vendors are
appropriately screened, and are, based upon the information available,
financially sound and operating ethically. The policy provides for a background
and credit check on each new and existing merchandise vendor. The existing
vendors all will be screened in a cycle over the course of the year. Once that
cycle is complete, each vendor will be required to certify annually its
familiarity and compliance with Whitehall's Code of Conduct and its gift policy,
as well as other elements of the Company's Vendor Trading Agreement. In
addition, the approval process will identify whether the vendor uses a factor to
secure its receivables, and if so, identify the specifics of the arrangement
between the vendor and the factor.

            4.    Vendor Statement Reconciliation Process: The Company has made
substantial improvements to its vendor statement reconciliation process. The
Company hired a new Supervisor of Inventory Reconciliation Control (who began
work on December 8, 2003). Under new procedures adopted in November 2003, the
supervisor must review the vendor statement reconciliation for the Company's top
ten vendors at least once every two months, and report any material
discrepancies between vendor statements and Whitehall records, in appropriate
cases, to more senior Whitehall management. Further, the Company has adopted a
new format for the reconciliations, which attempts to make the results of the
reconciliations more understandable, and is in the process of making additional
improvements in the reconciliation process.

            5.    Disbursement and Cash Management Controls: In October 2003,
the Company implemented improvements to its controls on disbursements and its
cash management procedures. For example, checks are not generated until they are
ready to be sent to vendors. Similarly, tighter controls have been placed on
actual disbursements, with strict enforcement of the pre-existing policy
requiring two signatures for disbursements over $20,000. In addition, the cash
requirements report, which documents open invoices and credit memos, is reviewed
on a regular basis by the Vice President-Controller and the CFO to ensure that
invoices and credit memos are being applied promptly.

            6.    Formalized Procedures For Communicating With Factors: In
October 2003, the Company implemented formalized procedures for communicating
with vendor factors. All day-to-day communication with such factors (except for
incidental contact) must be conducted through the Company's Vice
President-Controller or another

<PAGE>
Seth Levine, Esq.                      8                      September 28, 2004

employee designated by the Chief Financial Officer. Further, factors are
notified promptly of any material discrepancies between vendor or factor
statements, and Whitehall records. When factors make requests for information,
Company policy requires that those requests are processed promptly and
accurately.

            7.    Buyout Approval Procedures: In November 2003, the Company
implemented additional procedures for approving consignment buyouts. Prior to
committing the Company to any buyouts, buyers must complete a form identifying
the merchandise being purchased and the business justification for the purchase,
as well as the vendor's stated justification for the buyout. Any buyouts over
$50,000 require prior written approval of the Executive Vice President,
Merchandising, and the Chief Financial Officer. In addition, the Company has
created a monthly report, circulated to all appropriate personnel, which lists
all conversions between consignment and asset inventory from the prior month.

            8.    Purchasing Commitment Approval Procedures: As of November
2003, all purchases or purchase commitments in excess of $1 million must be
approved by the Executive Vice President, Merchandising and the CFO. In
addition, the Company has implemented a policy which provides for approvals by
appropriate executive officers for certain purchase commitments for amounts
below $1 million.

            9.    Accelerated Payment Approval Procedures: As of December 2003,
all payments to vendors prior to an invoice due date must be approved by three
individuals: (1) the Vice President-Controller or Senior Vice President of
Finance; and (2) two other executive officers (Executive Vice Presidents, COO or
CEO). The documentation supporting those approvals must identify the amount of
the payment, the amount of the discount, a description of how the discount was
determined, and an explanation of the business purpose for the early payment. In
addition, in February 2004, the Company began the circulation of a monthly
report to all appropriate individuals, listing all accelerated payments made to
vendors in the prior month.

            10.   Controls on Re-PLUing Activity: Starting January 2004, the
Information Technology Department has been generating a monthly report of all
new PLU or product identification numbers created in the prior month. That list
is reviewed by the Loss Prevention Department to verify that there is a
legitimate reason for assigning a new PLU number.

Restitution and Other Payments

<PAGE>
Seth Levine, Esq.                      9                      September 28, 2004

      Upon execution by all parties of a non-prosecution agreement with your
Office, the Company intends to enter into a settlement agreement with Capital
Factors, under which Whitehall will pay Capital Factors approximately
$10,847,000 - a figure which includes full restitution to Capital Factors for
all losses which may have resulted to Capital Factors from any actions taken by
Whitehall or any of its officers or employees. The agreement will also provide
that Whitehall will make such payments to Capital Factors on the following
schedule: (a) $7,847,000 in cash within five business days following the closing
of the agreement; and (b) the remaining $3 million in cash to be paid by
December 23, 2004. In addition, under the settlement agreement, Capital Factors
will assign to Whitehall all of its rights with respect to: (a) payables due to
Colorcast or Cosmopolitan, which currently amount to approximately $1 million
(approximately $1 million of which is currently on deposit in Friedman, Kaplan,
Seiler & Adelman's attorney trust account); and (b) consignment goods provided
by Colorcast or Cosmopolitan, which currently amount to approximately $1,276,000
worth of goods. In addition, under the agreement, Capital Factors and Whitehall
will mutually release each other from any claims relating to Whitehall's actions
in connection with Cosmopolitan, Colorcast or Joshua Kestenbaum, and Capital
Factors will agree to a dismissal of its pending civil suit.

      In addition, upon execution by all parties of a non-prosecution agreement
with your Office, the Company intends to enter a settlement agreement with
International Diamonds LLC/Astra ("International"), under which Whitehall would
pay International $1.93 million. Under this settlement agreement, International
and Whitehall will mutually release each other from any claims, and
International will agree to a dismissal of its pending civil suit.

      Finally, the Company has deposited in three safe deposit boxes consignment
goods originally provided to Whitehall by Ultimo, which currently amount to
approximately $1,446,985 worth of consignment goods. The Company intends to
deposit these goods with an escrow agent approved or appointed by the New York
State Supreme Court, New York County, once such an agent is approved or
appointed by the court, or, if no such agent is appointed, will transfer these
goods from the safe deposit boxes solely upon and pursuant to an order of the
New York State Supreme Court, New York County. In addition, it is understood
that Whitehall has already deposited into Friedman, Kaplan, Seiler & Adelman's
attorney trust account the proceeds of Ultimo consignment goods, which currently
amount to approximately $558,017 in cash. Such funds shall be paid from this
account solely upon order of the New York State Supreme Court, New York County.

      Finally, upon execution by all parties of the non-prosecution agreement
with your Office, the Company shall pay $350,000 by certified check or bank
cashier's check to the United States Postal Inspection Service Consumer Fraud
Fund.

<PAGE>
Seth Levine, Esq.                      10                     September 28, 2004

Conclusion

      As demonstrated by these numerous measures, the Company has taken real and
substantial steps towards improving its procedures to address issues raised by
the Company's internal investigation. Further, the Company is continuing to
evaluate other processes to ensure that its internal controls prevent employee
misconduct. Finally, the Company is making full restitution for any losses which
may have resulted to Capital Factors from any actions taken by Whitehall or any
of its officers or employees.

      Please let me know if you would like any additional information.

                                        Sincerely yours,
                                        /s/Andrew Ceresney

                                        Bruce E. Yannett
                                        Andrew Ceresney

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}]]