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                                                                    EXHIBIT 10.1


                                VECTOR GROUP LTD.
                       100 S.E. SECOND STREET, 32ND FLOOR
                              MIAMI, FLORIDA 33131

                                                     January 22, 2001



Mr. Bennett S. LeBow
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131

Dear Mr. LeBow:

         We are pleased to inform you that Vector Group Ltd. (the "Company") has
granted you a nonqualified option (the "Option") to purchase 500,000 shares of
the Company's common stock, par value $.10 per share (the "Common Stock"), at a
purchase price of $19.125 per share, subject to adjustment (any of the
underlying shares of Common Stock to be issued upon exercise of the Option are
referred to hereinafter as the "Shares"), pursuant to the Company's 1999
Long-Term Incentive Plan, as may be and is in effect and as amended from time to
time (the "Plan"). This agreement is subject in all respects to the terms and
provisions of the Plan, all of which terms and provisions are made a part of and
incorporated in this agreement as if they were each expressly set forth herein.
In the event of any conflict between the terms of this agreement and the terms
of the Plan, the terms of the Plan shall control.

         1. The Option may be exercised on or prior to the tenth anniversary of
the date of grant (after which date the Option will, to the extent not
previously exercised, expire), provided the Option shall only vest and become
exercisable as to all of the aggregate shares covered thereby on November 4,
2003. However, the Option shall earlier vest and become immediately exercisable
upon (i) the occurrence of a "Change in Control" as defined in Section 6(f) of
the Employment Agreement dated as of June 1, 1995, as amended as of January 1,
1996, by and between you and New Valley Corporation, regardless of whether the
Employment Agreement is then in effect (the "Employment Agreement"), or (ii) the
termination of your employment with the Company due to death or Disability (as
defined in Section 2.8 of the Plan).

         2. The Option, from and after the date it vests and becomes exercisable
pursuant to Section 1 hereof, may be exercised in whole or in part by delivering
to the Company a written notice of exercise in the form attached hereto as
Exhibit A, specifying the number of the Shares to be purchased and the purchase
price therefor, together with payment of the purchase price of the Shares to be
purchased. The purchase price is to be paid in cash or by delivering shares of
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Mr. Bennett S. LeBow
January 22, 2001
Page 2


Common Stock already owned by you for at least six months and having a fair
market value on the date of exercise equal to the purchase price of the Option
being exercised, or a combination of such shares and cash.

                  In addition, payment of the purchase price of the Shares to be
purchased may also be made by delivering a properly executed notice to the
Company, together with a copy of the irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds necessary to
pay the purchase price, and, if required, the amount of any federal, state or
local withholding taxes.

                  No Shares shall be issued until full payment therefor has been
made. You shall have all of the rights of a stockholder of the Company holding
the Common Stock that is subject to the Option (including, if applicable, the
right to vote the Shares and the right to receive dividends thereon), when you
have given written notice of exercise, have paid in full for such Shares and, if
requested, have given the certificate described in Section 9 hereof.

         3. In the event your employment with the Company is terminated for any
reason, the Option shall forthwith terminate, provided that you may exercise any
then unexercised portion of the Option then vested and exercisable pursuant to
Section 1 hereof at any time prior to the earlier of nine months after the
termination of your employment (one year in the event of death or Disability),
or the expiration of the Option.

         4. The Option is not transferable except (i) by will or the applicable
laws of descent and distribution, (ii) as a gift to a foundation, charity or
other not-for-profit organization, or (iii) for transfers to your family members
or trusts or other entities whose beneficiaries are your family members,
provided that such transfer is being made for estate, tax and/or personal
planning purposes.

         5. In the event of your death or Disability, the Option may be
exercised by your personal representative or representatives, or by the person
or persons to whom your rights under the Option shall pass by will or by the
applicable laws of descent and distribution, within the one year period
following termination due to death or Disability.

         6. In the event of any change in capitalization affecting the Common
Stock of the Company, including, without limitation, a stock dividend or other
distribution, stock split, reverse stock split, recapitalization, consolidation,
subdivision, split-up, spin-off, split-off, combination or exchange of shares or
other form of reorganization or recapitalization, or any other change affecting
the Common Stock, the aggregate number of shares of Common Stock covered by the
Option and the exercise price per share of Common Stock subject to the Option
shall be proportionately adjusted by the Company.
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Mr. Bennett S. LeBow
January 22, 2001
Page 3


         7. The grant of the Option does not confer on you any right to continue
in the employ of the Company or any of its subsidiaries or affiliates or
interfere in any way with the right of the Company or its subsidiaries or
affiliates to terminate the term of your employment.

         8. The Company shall require as a condition to the exercise of any
portion of the Option that you pay to the Company, or make other arrangements
regarding the payment of, any federal state or local taxes required by law to be
withheld as a result of such exercise.

         9. Unless at the time of the exercise of any portion of the Option a
registration statement under the Securities Act of 1933, as amended (the "Act"),
is in effect as to the Shares, the Shares shall be acquired for investment and
not for sale or distribution, and if the Company so requests, upon any exercise
of the Option, in whole or in part, you agree to execute and deliver to the
Company a reasonable certificate to such effect.

         10. You understand and acknowledge that: (i) any Shares purchased by
you upon exercise of the Option may be required to be held indefinitely unless
such Shares are subsequently registered under the Act or an exemption from such
registration is available; (ii) any sales of such Shares made in reliance upon
Rule 144 promulgated under the Act may be made only in accordance with the terms
and conditions of that Rule (which, under certain circumstances, restrict the
number of shares which may be sold and the manner in which shares may be sold);
(iii) certificates for Shares to be issued to you hereunder shall bear a legend
to the effect that the Shares have not been registered under the Act and that
the Shares may not be sold, hypothecated or otherwise transferred in the absence
of an effective registration statement under the Act relating thereto or an
opinion of counsel satisfactory to the Company that such registration is not
required; and (iv) the Company shall place an appropriate "stop transfer" order
with its transfer agent with respect to such Shares.

         11. In the event of the payment of any dividends or other distributions
in respect of the Common Stock on or after the date hereof, through and
including the tenth anniversary of the date of grant, you shall receive, within
ten days of the payment of such dividend or distribution, a payment equal to the
amount of any such dividends or other distributions that would have been paid to
you had you been at the record date for such dividends or other distributions a
shareholder of the Shares issuable upon exercise of any then unexercised portion
of the Option, whether vested or unvested.

         12. The Company represents and warrants to you as follows: (i) this
agreement and the grant of the Option hereunder have been authorized by all
necessary corporate action by the Company and this letter agreement is a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms; (ii) the grant of the Option to you on the terms set
forth herein will be exempt from the provisions of Section 16(b) of the
Securities Exchange
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Mr. Bennett S. LeBow
January 22, 2001
Page 4


Act of 1934, as amended, pursuant to Rule 16b-3(d) thereunder; (iii) the Company
will obtain, at its expense, any regulatory approvals necessary or advisable in
connection with the grant of the Option or the issuance of the Shares; and (iv)
the Company currently has reserved and available, and will continue to have
reserved and available during the term of the Option, sufficient authorized and
issued shares of its Common Stock for issuance upon exercise of the Option.

         13. Promptly following the date hereof, the Company shall use its best
efforts to file and keep in effect a Registration Statement on Form S-8, Form
S-3 or other applicable form to register under the Act the Shares issuable to
you upon exercise of the Option and the resale thereof by you.

         14. This letter agreement contains all the understandings between the
Company and you pertaining to the matters referred to herein, and supercedes all
undertakings and agreements, whether oral or in writing, previously entered into
by the Company and you with respect hereto. No provision of this letter
agreement may be amended or waived unless such amendment or waiver is agreed to
in writing signed by you and a duly authorized officer of the Company. No waiver
by the Company or you of any breach by the other party hereto of any condition
or provision of this letter agreement to be performed by such other party shall
be deemed a waiver of a similar or dissimilar condition or provision at the same
time, any prior time or any subsequent time. If any provision of this letter
agreement or the application of any such provision to any party or circumstances
shall be determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this letter agreement or the
application of such provision to such person or circumstances other than those
to which it is so determined to be invalid and unenforceable, shall not be
affected thereby, and each provision hereof shall be validated and shall be
enforced to the fullest extent permitted by law. This letter agreement will be
governed by and construed in accordance with the laws of the State of Delaware,
without regard to its conflicts of laws principles. This letter agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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Mr. Bennett S. LeBow
January 22, 2001
Page 5

         Would you kindly evidence your acceptance of the Option and your
agreement to comply with the provisions hereof by executing this letter
agreement in the space provided below.

                                           Very truly yours,

                                           VECTOR GROUP LTD.


                                           By: /s/ Richard J. Lampen
                                              ----------------------------------
                                              Richard J. Lampen
                                              Executive Vice President

AGREED TO AND ACCEPTED:

/s/ Bennett S. Lebow
---------------------------
Bennett S. LeBow


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                                                                       EXHIBIT A



Vector Group Ltd.
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131

Gentlemen:

         Notice is hereby given of my election to purchase _________ shares of
Common Stock, $.10 par value (the "Shares"), of Vector Group Ltd., at a price of
$______ per Share, pursuant to the provisions of the stock option granted to me
on January 22, 2001. Enclosed in payment for the Shares is:

                   [ ]     my check in the amount of $_________________.

                   [ ]     ______________ Shares having a total value of
                           $______________, such value being based on the
                           closing price(s) of the Shares on the date hereof.

         The following information is supplied for use in issuing and
registering the Shares purchased hereby:

                  Number of Certificates
                     and Denominations           ___________________________

                  Name                           ___________________________

                  Address                        ___________________________

                                                 ___________________________

                                                 ___________________________

                  Social Security No.            ___________________________

Dated:
                                                 Very truly yours,



                                                 Bennett S. LeBow