Document:

<PAGE>

                                                                EXHIBIT 10.1

                               OPERATING AGREEMENT
                                       OF
                           MONTAUK BATTERY REALTY, LLC

<PAGE>

                                     GLOSSARY OF TERMS

                 "AAA" shall have the meaning ascribed to it in Section 8.3(e).

                 "ACQUIRED ENTITY" shall have the meaning ascribed to it in
                  Section 8.3(h) hereof.

                 "AFFILIATE" shall have the meaning ascribed to it in Section
                  6.3(c) hereof.

                 "AGREED VALUE" shall have the meaning ascribed to it in Section
                  15.2 hereof.

                 "APPRAISED VALUE" shall have the meaning ascribed to it in
                  Section 8.3(e) hereof.

                 "APPROVALS" shall have the meaning ascribed to it in the
                  Recitals.

                 "B&H" shall have the meaning ascribed to it in the Recitals.

                 "BA" shall have the meaning ascribed to it in the Recitals.

                 "BANKRUPT MEMBER" shall have the meaning ascribed to it in
                  Section 15.4 hereof.

                 "BOARD" shall have the meaning ascribed to it in the Recitals.

                 "BODIES" shall have the meaning ascribed to it in Section 19.8
                  hereof.

                 "BUDGETS" shall have the meaning ascribed to it in Section
                  8.3(a) hereof.

                 "BURR III" shall have the meaning ascribed to it in the
                  Recitals.

                 "CAPITAL PERCENTAGE INTEREST" shall have the meaning ascribed
                  to it in Section 6.1 hereof.

                 "CERTIFICATE" shall have the meaning ascribed to it in Section
                  15.2 hereof.

                 "CHANGE IN CONTROL" shall have the meaning ascribed to it in
                  Section 13.1 hereof.

                 "CHIEF EXECUTIVE OFFICER" shall have the meaning ascribed to it
                  in the Recitals.

                 "CODE" shall have the meaning ascribed to it in Section 6.2
                  hereof.

                 "COMPANY" shall have the meaning ascribed to it in the
                  Recitals.

                                        i

<PAGE>

                  "COMPANY VALUATION" shall have the meaning ascribed to it in
                  Section 15.2 hereof.

                  "CONVERSION RIGHT" shall have the meaning ascribed to it in
                  Section 14.6 hereof.

                  "COVENANT PERIOD" shall have the meaning ascribed to it in
                  Section 18 hereof.

                  "CUSANO" shall have the meaning ascribed to it in the
                  Recitals.

                  "DECEASED SHAREHOLDER" shall have the meaning ascribed to it
                  in Section 15.1 hereof.

                  "DISPOSITION" shall have the meaning ascribed to it in Section
                  13.1 hereof.

                  "DIVISION" shall have the meaning ascribed to it in Section
                  8.2 hereof.

                  "DTHY" shall have the meaning ascribed to it in the preface.

                  "ERISA" shall have the meaning ascribed to it in Section 19.14
                  hereof.

                  "EXERCISE NOTICE" shall have the meaning ascribed to it in
                  Section 14.2 hereof.

                  "FINANCIAL STATEMENTS" shall have the meaning ascribed to it
                  in Section 19.10 hereof.

                  "FRANCHISE NOTE" shall have the meaning ascribed to it in
                  Section 13.1 hereof.

                  "HAMPTONS" shall have the meaning ascribed to it in the
                  Recitals.

                  "HERMAN" shall have the meaning ascribed to it in the Preface.

                  "HERMAN EMPLOYMENT AGREEMENT" shall have the meaning ascribed
                  to it in Section 8.2 hereof.

                  "HERMAN INSURANCE" shall have the meaning ascribed to it in
                  Section 11 hereof.

                  "JUSSAM" shall have the meaning ascribed to it in the
                  Recitals.

                  "LAMPEN" shall have the meaning ascribed to it in Section 8.1
                  hereof.

                                       ii

<PAGE>

                  "LIEN" shall have the meaning ascribed to it in Section 13.3
                  hereof.

                  "LLCL" shall have the meaning ascribed to it in the Recitals.

                  "LOAN AGREEMENT" shall have the meaning ascribed to it in
                  Section 6.3(e) hereof.

                  "LORBER" shall have the meaning ascribed to it in Section 8.1
                  hereof.

                  "MANAGER" shall have the meaning ascribed to it in the
                  Recitals.

                  "MATERIAL/SERVICE AGREEMENTS" shall have the meaning ascribed
                  to it in Section 19.17(a) hereof.

                  "MEMBER(S)" shall have the meaning ascribed to it in the
                  preface.

                  "MEMBER LOAN(S)" shall have the meaning ascribed to it in
                  Section 7.1 hereof.

                  "NAME CHANGE" shall have the meaning ascribed to it in Section
                  13.1 hereof.

                  "NEW VALLEY MORTGAGE" shall have the meaning ascribed to it in
                  the Preface.

                  "NEW VALLEY MORTGAGE UNRETURNED INITIAL CAPITAL CONTRIBUTIONS"
                  shall have the meaning ascribed to it in Section 6.4 hereof.

                  "NON-PURCHASING MEMBER" shall have the meaning ascribed to it
                  in Section 14.2 hereof.

                  "NOTICE OF INTENT TO SELL" shall have the meaning ascribed to
                  it in Section 14.1 hereof.

                  "NV" shall have the meaning ascribed to it in the preface.

                  "NV UNRETURNED INITIAL CAPITAL CONTRIBUTIONS" shall have the
                  meaning ascribed to it in Section 6.4 hereof.

                  "OFFERED INTEREST" shall have the meaning ascribed to it in
                  Section 14.1 hereof.

                  "OFFERED SHARES" shall have the meaning ascribed to it in
                  Section 14.1 hereof.

                                       iii

<PAGE>

                  "OFFEROR" shall have the meaning ascribed to it in Section
                  14.1 hereof.

                  "PARENT" shall have the meaning ascribed to it in Section 13.1
                  hereof.

                  "PARTNERSHIP" shall have the meaning ascribed to it in the
                  Recitals.

                  "PE" shall have the meaning ascribed to it in the Recitals.

                  "PERMITS" shall have the meaning ascribed to it in Section
                  19.8 hereof.

                  "PERSON" shall have the meaning ascribed to it in Section 13.4
                  hereof.

                  "PREA" shall have the meaning ascribed to it in Section 8.4(d)
                  hereof.

                  "PREFERRED" shall have the meaning ascribed to it in the
                  Recitals.

                  "PREFSA" shall have the meaning ascribed do it in the Preface.

                  "PREFSA RESTRICTED PERIOD" shall have the meaning ascribed to
                  it in Section 18 hereof.

                  "PREFSA UNRETURNED CAPITAL CONTRIBUTIONS" shall have the
                  meaning ascribed to it in Section 6.4 hereof.

                  "PROFITS OR LOSSES" shall have the meaning ascribed to it in
                  Section 6.2 hereof.

                  "PURCHASING MEMBER" shall have the meaning ascribed to it in
                  Section 14.6 hereof.

                  "RANGELEY" shall have the meaning ascribed to it in the
                  Recitals.

                  "REMAINING MEMBERS" shall have the meaning ascribed to it in
                  Section 14.1 hereof.

                  "RESERVES" shall have the meaning ascribed to it in Section
                  6.8 hereof.

                  "RESTRICTED INDIVIDUAL" shall have the meaning ascribed to it
                  in Section 18 hereof.

                                       iv

<PAGE>

                  "RESTRICTIVE PERIOD" shall have the meaning ascribed to it in
                  Section 18 hereof.

                  "SALE" shall have the meaning ascribed to it in Section 8.4(c)
                  hereof.

                  "SCHEDULED CONTRACTS" shall have the meaning ascribed to it in
                  Section 19.17(c).

                  "SECOND EXERCISE NOTICE" shall have the meaning ascribed to it
                  in Section 14.2 hereof.

                  "SELLING MEMBER" shall have the meaning ascribed to it in
                  Section 14.1 hereof.

                  "SELLING SHAREHOLDER" shall have the meaning ascribed to it in
                  Section 14.1 hereof.

                  "SHAREHOLDER(S)" shall have the meaning ascribed to it in
                  Section 13.1 hereof.

                  "SHARES" shall have the meaning ascribed to it in Section 13.1
                  hereof.

                  "TAX DISTRIBUTION" shall have the meaning ascribed to it in
                  Section 6.10 hereof.

                  "TAX MATTERS MEMBER" shall have the meaning ascribed to it in
                  Section 8.6 hereof.

                  "TERMINATING DIVISION" shall have the meaning ascribed to it
                  in Section 15.5 hereof.

                  "THIRD PARTY" shall have the meaning ascribed to it in Section
                  17.2 hereof.

                  "VALUATION DATE" shall have the meaning ascribed to it in
                  Section 15.2 hereof.

                                        v

<PAGE>

                             OPERATING AGREEMENT OF
                           MONTAUK BATTERY REALTY, LLC

        AGREEMENT, made as of the 17th day of December, 2002, among DTHY
REALTY, INC., a New York corporation ("DTHY"), DOROTHY HERMAN ("Herman"), NEW
VALLEY REAL ESTATE CORPORATION, a Delaware corporation ("NV"), NEW VALLEY
MORTGAGE CORPORATION, a Delaware corporation ("New Valley Mortgage"), and THE
PRUDENTIAL REAL ESTATE FINANCIAL SERVICES OF AMERICA, INC., a California
corporation ("Prefsa") (DTHY, Herman, NV, New Valley Mortgage and Prefsa are
also each individually referred to herein as a "Member" and collectively as the
"Members"). W I T N E S S E T H:

         WHEREAS, B&H Associates ("B&H" or the "Partnership") is a New York
partnership doing business as The Prudential Long Island Realty;

         WHEREAS, the Partnership may have previously been, or may hereafter be,
converted to a New York limited liability company known as B&H Associates of NY,
LLC, which in accordance with Section 1007 of the New York Limited Liability
Company Law ("LLCL") is, in any event, the same entity that existed before the
conversion and all references herein to "B&H" or the "Partnership" shall be
deemed to apply to B&H Associates of NY, LLC;

         WHEREAS, DTHY, NV, Burr Affiliates, Inc., a New York corporation
("BA"), Rangeley Lakes Corp., a New York corporation ("Rangeley"), and Jussam
Associates, LLC, a New York limited liability company ("Jussam"), were the
former partners in B&H;

         WHEREAS, B&H of the Hamptons, LLC ("Hamptons") is a New York limited
liability company;

                                        1

<PAGE>

         WHEREAS, DTHY, NV, BA, Rangeley and Jussam were the former members of
Hamptons;

         WHEREAS, PE Title Agency, LLC ("PE") is a New York limited liability
company;

         WHEREAS, Herman, Carll S. Burr III ("Burr III") and Ralph Cusano
("Cusano") were the former members of PE;

         WHEREAS, Burr Enterprises, Ltd., a New York corporation d/b/a Preferred
Empire Mortgage Company ("Preferred"), is a New York corporation engaged in the
mortgage brokerage business;

         WHEREAS, Herman, Cusano, Burr III and New Valley Mortgage were the
shareholders of Preferred;

         WHEREAS, simultaneous with the execution hereof, the Partnership is
redeeming the interests of BA, Rangeley and Jussam in the Partnership; Hamptons
is redeeming the interests of BA, Rangeley and Jussam in Hamptons; PE is
redeeming the interests of Burr III and Cusano in PE; and Preferred is redeeming
the interest of Burr III in Preferred;

         WHEREAS, Preferred and Cusano are parties to an agreement pursuant to
which upon obtaining certain approvals from the New York State Banking
Department (the "Approvals") Preferred will redeem the interest of Cusano in
Preferred;

         WHEREAS, simultaneous with the execution hereof, Herman is selling her
entire interest in PE to NV;

         WHEREAS, simultaneous with the execution hereof, DTHY is selling a
portion of its interest in B&H to NV;

                                        2

<PAGE>

         WHEREAS, simultaneous with the execution hereof, each of DTHY and NV
are transferring their respective interests in each of the Partnership, Hamptons
and PE to the Montauk Battery Realty, LLC (the "Company");

         WHEREAS, simultaneous with the execution hereof, Herman and New Valley
Mortgage are agreeing to convey their interests in Preferred to the Company upon
obtaining the Approvals;

         WHEREAS, the Members desire to conduct business as members of a limited
liability company pursuant to the laws of the State of New York;

         WHEREAS, the Members desire that the business and affairs of the
Company and the Divisions shall generally be managed by a Board of Managers (the
"Board") comprised of four (4) managers (each a "Manager" and, collectively, the
"Managers"), except with respect to certain decisions set forth herein which the
Board has determined shall be reserved to the Chief Executive Officer of the
Company (the "Chief Executive Officer"), all as hereinafter described;

         WHEREAS, the Board desires that Herman shall be the Chief Executive
Officer;

         NOW THEREFORE, in consideration of the mutual covenants, conditions and
representations set forth herein, the parties hereto hereby agree as follows:

         1. NAME. The name of the Company is Montauk Battery Realty, LLC. The
Company may also do business under any other assumed name as the Board may
select. The Members have caused, or will hereafter cause, to be filed with the
Department of State of the State of New York the Articles of Organization for
the Company and shall hereafter satisfy all other requirements of the LLCL to
conduct the business of the Company in the State of New York.

                                        3

<PAGE>

         2. OFFICE. The principal office of the Company is 110 Walt Whitman
Road, Huntington Station, New York 11746 or such other place or places as the
Board shall hereafter designate.

         3. BUSINESS. The business of the Company is to own all of the interests
in B&H, Hamptons and PE. It is also contemplated that (i) the Company will own a
majority interest in Preferred; (ii) B&H will operate a real estate brokerage
business in Queens; and (iii) a new entity will be formed by the Company which
will operate a real estate brokerage business in Brooklyn and Manhattan. The
Company may also own interests in other entities to be formed in the future. The
business of the Company shall also be to (i) enter, perform and carry out
contracts or take action of any kind necessary to, in connection with, or
incidental to the accomplishment of the foregoing, (ii) engage in any other
lawful act or activity as the Board, by unanimous vote of the Managers, shall
determine, and (iii) from time to time, to do any one or more of the things and
acts set forth herein and any lawful act or activity for which companies may be
formed under LLCL as the Board, by unanimous vote of the Managers, shall
determine.

         4. TERM. The term of the Company commenced upon the filing of the
Articles of Organization and shall continue until terminated as hereinafter
provided.

         5. CAPITAL CONTRIBUTIONS.

         5.1 The capital contributions to the Company required of each of the
Members shall be as follows:

                  (a) Upon execution hereof (i) DTHY and NV shall each
         contribute its respective interests in each of the Partnership and
         Hamptons to the Company, and (ii) NV shall contribute its interest in
         PE to the Company. Upon the receipt by Preferred of the Approvals,
         Herman and New Valley Mortgage shall contribute their respective
         interests in Preferred to the

                                        4

<PAGE>

         Company. It is agreed that for the purpose of establishing
         capital account balances of the Members, the aggregate value of the
         contributions being made by DTHY and Herman pursuant to this Section
         5.1(a) is $6,608,258 and that DTHY and Herman, collectively, shall
         receive a 40.01% interest in the Company as a result of such
         contribution. It is agreed that for the purpose of establishing capital
         account balances of the Members, the aggregate value of the
         contributions being made by NV and New Valley Mortgage pursuant to this
         Section 5.1(a) is $7,158,258 and that NV and New Valley Mortgage,
         collectively, shall receive a 43.34% interest in the Company as a
         result of such contribution.

                  (b) Upon execution hereof, NV shall make a capital
         contribution of One Million One Hundred Thousand ($1,100,000) Dollars
         to the Company payable by bank check or wire transfer, in exchange for
         which NV shall receive a 6.66% interest in the Company.

                  (c) Upon the execution hereof, Prefsa shall make a capital
         contribution of One Million Six Hundred Fifty Thousand ($1,650,000)
         Dollars to the Company payable by bank check or wire transfer, in
         exchange for which Prefsa shall receive an 9.99% interest in the
         Company.

                  (d) After giving effect to the foregoing, each of the Members
         shall have an initial capital account in the Company as set forth on
         Schedule 5.1(d) attached hereto and made a part hereof.

                  5.2 An individual capital account shall be maintained for each
         Member in accordance with normal tax and accounting procedures.

                  5.3 Unless otherwise stated herein, no interest shall be paid
         by the Company on the capital contributions of the Members and no
         Member shall, except as otherwise provided herein, have the right to
         withdraw from the Company, or demand a refund or return of, its capital

                                        5

<PAGE>

         contribution, or demand property other than cash.

                  5.4 The foregoing provisions and the other provisions of this
         Agreement relating to the maintenance of capital accounts are intended
         to comply with Treasury Regulation Section 1.704-1(b), and shall be
         interpreted and applied in a manner consistent with such Regulation. In
         the event the accountants for the Company shall determine that it is
         prudent to modify the manner in which the capital accounts, or any
         debits or credits thereto, are computed in order to comply with such
         Regulation, such modification may be made, provided that it is not
         likely to have a material effect on the amounts distributable to any
         Member pursuant to this Agreement. There shall be an adjustment to the
         amounts debited or credited to capital accounts with respect to (a) any
         property contributed to the Company or distributed to the Members and
         (b) any liabilities that are secured by such contributed or distributed
         property or that are assumed by the Company or the Members, in the
         event the Board shall determine such adjustments are necessary or
         appropriate pursuant to Treasury Regulation Section 1.704-1(b) (2)
         (iv). The Board also shall make other adjustments in the event
         unanticipated events might otherwise cause this Agreement not to comply
         with Treasury Regulation Section 1.704-1(b).

                  5.5 No Member shall, at any time, have any obligation to the
         Company or to any other Member to restore or contribute any deficit
         balance in its capital account.

        6.       PROFITS AND LOSSES AND DISTRIBUTIONS.

                  6.1 The capital percentage interest of each Member (the
         "Capital Percentage Interest") shall be as follows:

                           DTHY                31.94%
                           Herman               8.07%
                           NV                  41.93%
                           New Valley Mortgage  8.07%
                           Prefsa               9.99%

                                        6

<PAGE>

                  6.2 Profits or Losses of the Company shall be allocated to
         each of the Members in proportion to their respective Capital
         Percentage Interests. For purposes hereof, "Profits and Losses" are
         defined to be, for each fiscal year or other period, an amount equal to
         the Company's taxable income or loss for such year or period,
         determined in accordance with Section 703(a) of the Internal Revenue
         Code of 1986, as amended (the "Code") (for this purpose, all items of
         income, gain, loss, or deduction required to be stated separately
         pursuant to Code Section 703(a)(1) shall be included in taxable income
         or loss), with the following adjustments:

                           (a) Any income of the Company that is exempt from
                  Federal income tax and not otherwise taken into account in
                  computing Profits or Losses pursuant to this definition shall
                  be added to such taxable income or loss;

                           (b) Any expenditures of the Company described in Code
                  Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
                  expenditures pursuant to Treasury Regulation Section
                  1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
                  computing Profits or Losses pursuant to this definition, shall
                  be subtracted from such taxable income or loss;

                           (c) Gain or loss resulting from any disposition of
                  Company property with respect to which gain or loss is
                  recognized for Federal income tax purposes shall be computed
                  by reference to the gross asset value (its fair market value)
                  of the property disposed of, notwithstanding that the adjusted
                  tax basis of such property differs from its gross asset value;
                  and

                           (d) Notwithstanding any other provision of this
                  definition, any items which are specially allocated to a
                  Member shall not be taken into account in computing Profits or
                  Losses.

                                        7

<PAGE>

                  6.3 The Company shall collect its revenues and pay its normal
         operating expenses (including, but not limited to, the debt service
         payments, Tax Distributions (as such term is hereinafter defined) and
         excess cash flow sweep to the extent the same is required to be paid to
         Prefsa) as the same become due. Thereafter, all funds available for
         distribution by the Company, whether resulting from cash flow generated
         by operations, or from any other source (other than a sale of all or
         substantially all of the assets of the Company) shall be paid or
         distributed, at such times and in such amounts as determined in
         accordance with Section 6.8, in the following order of priority:

                           (a) First, to pay any accrued and unpaid interest due
                  on any Member Loans;

                           (b) Then, in the event there remains outstanding any
                  Member Loans due to DTHY and/or Herman as listed on Schedule
                  7.4 hereto, (i) to DTHY and/or Herman, as a principal payment
                  thereof, provided that (ii) to the extent NV or New Valley
                  Mortgage has Unreturned Initial Capital Contributions (as
                  hereinafter defined) there shall simultaneously be distributed
                  to NV and New Valley Mortgage, collectively, as a return of
                  capital, an amount equal to the amount paid to Herman pursuant
                  to clause (i) of this Section 6.3(b) and (iii) to the extent
                  Prefsa has Unreturned Capital Contributions (as hereinafter
                  defined) there shall simultaneously be distributed to Prefsa,
                  as a return of capital, an amount which bears the same ratio
                  to the amount paid to NV and New Valley Mortgage,
                  collectively, pursuant to clause (ii) of this Section 6.3(b)
                  as the Capital Percentage Interest of Prefsa bears to the
                  aggregate Capital Percentage Interests of NV and New Valley
                  Mortgage;

                           (c) Then, in the event there remains outstanding any
                  other Member Loans, to the Members (or their Affiliates (as
                  such term is hereinafter defined)) to which

                                        8

<PAGE>

                  Member Loans are outstanding in the relative proportion of the
                  outstanding principal amount of all such Member Loans (for the
                  purposes hereof, "Affiliate" means any Person (as such term is
                  hereinafter defined) directly or indirectly controlling or
                  controlled by, or under direct or indirect common control
                  with, another Person. A Person shall be deemed to control
                  another Person for the purposes of this definition if the
                  first Person possesses, directly or indirectly, the power to
                  direct, or cause the direction of, the management and policies
                  of the second Person, whether through the ownership of voting
                  securities, common directors, trustees or officers, by
                  contract or otherwise);

                           (d) Then, to the Members in proportion to their
                  Capital Percentage Interests.

                           (e) Notwithstanding the foregoing, payments and
                  distributions under Section 6.3(b), (c) and (d) may be limited
                  to twenty percent (20%) of the Excess Cash Flow of the
                  Company, as such term is defined in that certain Loan and
                  Security Agreement between Prefsa and the Company and certain
                  other parties dated as of the date hereof (the "Loan
                  Agreement") to the extent required pursuant to the terms of
                  the Loan Agreement.

                  6.4 For the purposes of this Agreement, NV's Unreturned
         Initial Capital Contributions are defined to be NV's aggregate
         contributions to B&H as reflected in the books and records of B&H less
         the aggregate of all distributions to NV from B&H or from the Company
         pursuant to Section 6.3(b) hereof (either directly or as a result of
         the application of Section 6.6(d)). For the purposes of this Agreement,
         New Valley Mortgage's Unreturned Initial Capital Contributions are
         defined to be New Valley Mortgage's aggregate contributions to
         Preferred as reflected in the books and records of Preferred less the
         aggregate of all distributions to New Valley Mortgage from Preferred or
         from the Company pursuant to Section 6.3(b) hereof

                                        9

<PAGE>

         (either directly or as a result of the application of Section
         6.6(d)). For the purposes of this Agreement, Prefsa's Unreturned
         Capital Contributions are defined to be the amount of Prefsa's
         contributions made to the Company pursuant to Section 5.1(b) hereof
         less the aggregate of all distributions to Prefsa from the Company,
         pursuant to Section 6.3(b) hereof (either directly or as a result of
         the application of Section 6.6(d)). Schedule 6.4 sets forth the amount
         of NV's Unreturned Initial Capital Contributions, New Valley Mortgage's
         Unreturned Initial Capital Contributions and the amount of any Member
         Loans due DTHY and/or Herman as of the execution and delivery hereof
         after giving effect to any loan payments and distributions made
         immediately prior thereto.

                  6.5 To the extent that amounts that are payable or
         distributable under Section 6.3(a) or Section 6.6(c) of this Agreement
         to Members (or their Affiliates) to pay interest due under Member Loans
         are insufficient to pay all of the outstanding interest then due under
         all Member Loans, the total amount being paid or distributed shall be
         allocated among all Members (or their Affiliates) to which interest on
         Member Loans is due in the proportion that the interest due each Member
         (or its Affiliate) bears to the total amount of interest due all
         Members (or their Affiliates) on Member Loans. To the extent that
         amounts that are payable or distributable under Section 6.3(c) or
         Section 6.6(e) of this Agreement to Members (or their Affiliates) to
         pay principal due under Member Loans are insufficient to pay all of the
         outstanding principal of all Member Loans, the total amount being paid
         or distributed shall be allocated among all Members (or their
         Affiliates) to which Member Loans are due in the proportion that the
         principal amount due to each Member (or its Affiliates) for its Members
         Loans bears to the total principal amount due all Members (or their
         Affiliates) for all Member Loans.

                                       10

<PAGE>

                  6.6 Notwithstanding Section 6.3, the net cash proceeds from
         the sale of all or substantially all of the assets of the Company or
         from the liquidation of the Company following, or in connection with, a
         dissolution of the Company which is not reinvested or retained by the
         Company for the continuation of the business thereof, shall be paid or
         distributed in the following order or priority:

                           (a) First, to pay any debts or liabilities of the
                  Company other than any indebtedness due in connection with
                  Member Loans;

                           (b) Then, to establish any reserves which the Board
                  deems reasonably necessary to provide for any contingent or
                  unforeseen liabilities or obligations of the Company, provided
                  however, that at the expiration of such period of time as the
                  Board may deem advisable, the balance of such reserve
                  remaining after the payment of such contingencies shall be
                  distributed in the manner hereinafter in this Section 6.6 set
                  forth;

                           (c) Then, to pay any accrued and unpaid interest due
                  on any Member Loans;

                           (d) Then, as set forth in Section 6.3(b); and

                           (e) Then, as set forth in Section 6.3(c);

                           (f) Then, to the Members, in an amount equal to the
                  aggregate positive capital account balances, in proportion to
                  their positive capital account balances after taking into
                  account income and loss allocations for the Company's taxable
                  year during which dissolution occurs; and

                           (g) Then, to the Members in proportion to their
                  Capital Percentage Interests.

                                       11

<PAGE>

                  6.7 In accordance with Code Section 704(c) and the Treasury
         Regulations thereunder, income, gain, loss, and deduction with respect
         to any property contributed to the capital of the Company shall, solely
         for tax purposes, be allocated among the Members so as to take account
         of any variation between the adjusted basis of such property to the
         Company for Federal income tax purposes and its initial gross asset
         value (computed in accordance with the terms set forth herein).

                  In the event the gross asset value of any Company asset is
         adjusted in accordance with the terms set forth herein, subsequent
         allocations of income, gain, loss and deduction with respect to such
         asset shall take account of any variation between the adjusted basis of
         such asset for Federal income tax purposes and its gross asset value in
         the same manner as under Code Section 704(c) and the Treasury
         Regulations thereunder.

                  Any elections or other decisions relating to such allocations
         shall be made by the Board in any manner that reasonably reflects the
         purpose and intention of this Agreement.

                  6.8 Unless otherwise determined by the Board, by a unanimous
         vote of the Managers, and subject to (i) any restrictions imposed by
         the Company's institutional lenders and (ii) the maintenance by the
         Company of such working capital reserves (the "Reserves") as shall be
         reasonably required for the operations of the Company as reasonably
         determined by the Board, by the vote of a majority of the Managers, the
         Company shall make distributions pursuant to Section 6.3 of the cash
         flow generated by operations, or from any other source (other than a
         sale of all or substantially all of the assets of the Company) for each
         year. Subject to clause (i) above, to the extent that the amount of
         such cash flow for any year, less the Reserves, has not been
         distributed to the Members pursuant to Section 6.3 (whether in the form
         of periodic distributions or the Tax Distribution), the Company shall
         make a distribution on June 1 of each

                                       12

<PAGE>

         year, to the extent of the then available cash on hand, equal
         to the previously undistributed cash flow for the prior year.

                  6.9 The Members incorporate by reference a "qualified income
         offset" provision as described in Section 1.704-1(b)(ii)(d) of the
         Treasury Regulations and the "minimum gain chargeback" requirement of
         Section 1.704-2(f) and Section 1.704-2(i)(4) of the Treasury
         Regulations.

                  6.10 For any year that the Company has taxable income, to the
         extent of available cash on hand on or about March 31 of the subsequent
         year, the Company shall make distributions to the Members, if and to
         the extent necessary, so that the aggregate of all distributions (other
         than Member Loan payments and distributions under Section 6.3(b)) for
         the most recent year then ended is an amount equal to the tax liability
         of the Members arising from the taxable income of the Company for such
         year assuming for this purpose that each Member was paying the maximum
         federal and New York State individual tax rates in effect for such year
         for married individuals (the "Tax Distribution"). For purposes of this
         provision, unless otherwise agreed, all distributions (other than
         Member Loan payments and distributions under Section 6.3(b)) made on or
         before April 15 of any year shall be deemed to relate to the prior
         year, and all distributions (other than Member Loan payments and
         distributions under Section 6.3(b)) made after April 15 of any year
         shall be deemed to be made for the year in which made. Notwithstanding
         the foregoing, no Member shall be entitled to a Tax Distribution until
         such Member has been allocated Profits for any tax year in the
         aggregate since the inception of the Company to offset the amount of
         any Losses taken by any Member for any previous tax years in the
         aggregate since the inception of the Company.

                                       13

<PAGE>

         7.       ADDITIONAL CAPITAL AND MEMBER LOANS.

                  7.1 In the event the Board, by a unanimous vote of the
         Managers, determines that the Company needs additional capital, other
         than what is available from outside lenders, it may authorize the
         making of one or more loans by Members (or their Affiliates) to the
         Company (each a "Member Loan" and collectively the "Member Loans"). The
         terms "Member Loan" and "Member Loans" shall also include the loans
         described in Section 7.2 and Section 7.4. The Member Loans made under
         this Section 7.1 shall be made in such amounts and in such proportions
         as the Board, by a unanimous vote of the Managers, shall determine,
         provided that (a) no Member shall at any time be required to make a
         Member Loan and (b) each Member that desires to participate in a Member
         Loan shall in each instance be entitled to participate, in the minimum,
         to the extent of its Capital Percentage Interest of each Member Loan.

                  7.2 Notwithstanding Section 7.1, any Member that in good faith
         believes the Company is in need of additional capital for valid
         business purposes may, without the approval of the Board, make a Member
         Loan to the Company in an amount not in excess of $250,000 provided
         that no Member may make such a unilateral Member Loan to the Company
         more than twice in any calendar year.

                  7.3 All Member Loans shall bear interest at one and one-half
         (1 1/2%) percent above the prime rate as published in the Wall Street
         Journal, as adjusted from time to time, and shall be repaid to the
         Members in accordance with Sections 6.3, 6.5 and/or 6.6.

                  7.4 It is agreed that certain loans to the Partnership
         previously made by DTHY and/or Herman shall for all purposes be treated
         as Member Loans to the Company and the Company hereby assumes the
         obligation to repay such Member Loans in accordance with the terms
         hereof. Such Member Loans, the date of the making of such Member Loans
         and the

                                       14

<PAGE>

         outstanding principal amount and the accrued interest due
         thereunder are identified on Schedule 7.4 attached hereto and made a
         part hereof. Such Member Loans are the Member Loans referred to in
         Section 6.3(b). The accrued and unpaid interest due as of the date
         hereof with respect to such Member Loans shall be deemed added to the
         principal and shall hereafter bear interest and be repaid as set forth
         in Section 7.3. Any prior oral or written agreement to the contrary
         concerning such Member Loans shall be deemed amended by the terms
         hereof.

        8.       MANAGEMENT OF BUSINESS.

                  8.1 Except as otherwise set forth in this Agreement, the
         Company shall generally be managed by the Board. The Board shall be
         comprised of four Managers. Herman and DTHY, collectively, shall have
         the right to designate one Manager, NV and New Valley Mortgage,
         collectively, shall have the right to designate two Managers and Prefsa
         shall have the right to designate one Manager. Each of the Members
         hereby makes the following initial designation of its Manager(s) to
         serve on the Board:

                  DTHY and Herman - Herman

                  NV and New Valley Mortgage - Howard Lorber ("Lorber") and
                  Richard Lampen ("Lampen")

                  Prefsa - Leila Ghoroghchi

         The designated Manager of each of the Members may be changed
         by such Member upon the approval of all of the Managers, provided that
         such approval shall not be unreasonably withheld or delayed. Each of
         the Members hereby agrees that Andrew Downs is approved as a
         replacement Manager designation for Leila Ghoroghchi so long as, to the
         extent required, he obtains any requisite approvals of the New York
         State Banking Department. No Member shall have the right to change the
         Manager designation of any other Member. Each Manager shall hold his or
         her office until the earlier of his or her resignation, death,
         permanent disability,

                                       15

<PAGE>

         change by the Member who has the right to designate such Manager or
         removal by a unanimous vote of the Managers (excluding the Manager who
         is the subject of such vote), provided that the Managers shall only be
         permitted to vote to remove a Manager if such Manager in question has
         committed theft, gross negligence or fraud with respect to the
         operation of the Company. In the event any Manager shall cease to be a
         Manager in accordance with the previous sentence, a successor Manager
         shall be promptly designated by the Member whose interest was
         represented by such affected Manager. Further, it is hereby expressly
         acknowledged and agreed that, except for any transferees of the
         interests of the original Members of the Company (Herman, DTHY, NV, New
         Valley Mortgage and Prefsa) approved in accordance with the terms
         hereof, no new member of the Company shall have the right to designate
         a Manager to serve on the Board.

                  8.2 The Board has determined that Herman shall be the Chief
         Executive Officer of the Company and each of the Divisions (as defined
         below). Subject to the employment agreement between Herman and the
         Company, dated as of the date hereof (the "Herman Employment
         Agreement"), the balance of this Article 8 and except as otherwise
         provided herein, the full and exclusive right, power and authority to
         make day-to-day and operating decisions and manage the day-to-day and
         general operations and affairs of the Company and all of the operating
         divisions of the Company, including B&H, Hamptons, the real estate
         operations intended to be known as Prudential Manhattan Realty,
         Preferred, PE and any other division hereafter established
         (collectively the "Divisions") with all the rights and powers generally
         conferred by law, or necessary, advisable or consistent in connection
         therewith shall be vested in the Chief Executive Officer. The Chief
         Executive Officer may cause the Company and/or the Divisions to retain
         agents, contractors and employees to assist her. Further, nothing
         contained herein shall prohibit the Company from lending money to or
         receiving money or other

                                       16

<PAGE>

         distributions from the Divisions or subsidiaries of the Company, and
         any decision to do any of the foregoing shall be made exclusively by
         the Chief Executive Officer without the approval of the Board. In all
         respects the Chief Executive Officer shall use her best efforts to
         follow the Budgets (as hereinafter defined) approved by the Board as
         hereinafter provided. The Chief Executive Officer shall not be
         permitted to authorize any expenditure resulting in a deviation from
         said Budgets of more than 10% with respect to any one line item therein
         without the approval of the Board, by a vote of a majority of the
         Managers; however, notwithstanding the foregoing, or Section 8.3(b),
         the Chief Executive Officer shall be permitted to reallocate related
         Budget items without the approval of a majority of the Managers of the
         Board.

                  8.3 Subject to Section 8.4, any decisions otherwise reserved
         in this Agreement to the Board shall be made by the vote of a majority
         of the Managers, unless otherwise expressly provided herein.
         Additionally, the Board, by a vote of a majority of the Managers, shall
         be required to:

                           (a) approve the operating budget and any amendments
                  thereto (collectively, the "Budgets") for the Company and/or
                  each Division for each fiscal year;

                           (b) approve any expenditures resulting in a deviation
                  from any of the Budgets of more than 10% with respect to any
                  line item therein;

                           (c) hire, fire or retain the Chief Executive Officer
                  or otherwise take action with respect to any employment
                  agreement of the Chief Executive Officer;

                           (d) issue certain membership interests in the Company
                  or a Division in accordance with Sections 17.1 and 17.2;

                           (e) approve and enter into a transaction to sell a
                  Division, or all or substantially all of the assets of a
                  Division, to a Member or an Affiliate of a Member so long as

                                       17

<PAGE>

                  the purchase price therefor is within 10% of the "Appraised
                  Value." If all of the Managers approve a proposed sale at a
                  stated price, then no appraisal shall be necessary. If,
                  however, a majority (but not all) of the Managers approve a
                  proposed sale, then the Appraised Value shall be determined by
                  having three business appraisals prepared, one by the minority
                  Manager not approving such sale, one by the majority Managers
                  approving the sale and a third by an independent appraiser
                  approved by each side, or if none, appointed by the American
                  Arbitration Association in New York, New York (the "AAA"). The
                  average of the two appraisals that are closest in value to one
                  another shall be the Appraised Value;

                           (f) approve the acquisition of another entity
                  ("Acquired Entity"), except if the purchase price for such
                  Acquired Entity is less than $500,000, in which event, the
                  Chief Executive Officer may make this decision without the
                  need for Board approval; and

                           (g) determine the amount of bonus compensation and/or
                  bonus pools for employees of the Company and/or the Divisions;
                  provided, however, that no Manager shall be entitled to vote
                  on any such bonus compensation for such Manager or for the
                  Member whose interest he or she represents, or for an
                  Affiliate or family member of such Manager or Member;
                  provided, further, the foregoing clause shall not be construed
                  to prevent any Manager from voting on an entire bonus pool in
                  which such Manager or the Member whose interest he or she
                  represents or an Affiliate or family member of such Manager or
                  the Member participates.

                           8.4 Notwithstanding Sections 8.2 and 8.3, the
                  following decisions and actions shall require the approval of
                  the Board, by unanimous vote of the Managers:

                           (a) unless done in accordance with Section 8.3(e),
                  the decision to sell a Division, or substantially all of the
                  assets of a Division;

                                       18

<PAGE>

                           (b) to approve the liquidation and/or dissolution of
                  the Company in accordance with Section 12;

                           (c) to approve the sale, exchange, lease, refinance
                  or other transfer (each a "Sale") of all, or substantially
                  all, of the assets of the Company, provided that with respect
                  to an arms' length sale to an unaffiliated third party only,
                  if all of the other Managers on the Board vote in favor of
                  such sale, but the Manager on the Board representing Prefsa's
                  interest in the Company votes against such Sale, the Company
                  shall have the option of proceeding with the Sale and
                  acquiring Prefsa's entire interest in the Company (the
                  exercise of such option to be determined by the Board, by
                  unanimous vote of the Managers excluding the Manager
                  representing Prefsa's interest in the Company) at the price
                  offered to the Company pursuant to the Sale offer multiplied
                  by Prefsa's Capital Percentage Interest with such purchase
                  price being payable in accordance with the same payment terms
                  offered pursuant to the Sale offer;

                           (d) prior to the expiration of any Division's then
                  current franchise term (1) to approve the termination by such
                  Division as a Prudential Real Estate Affiliates, Inc. ("PREA")
                  franchisee or (2) to approve the decision to become a
                  franchisee of any other real estate brokerage firm or
                  association other than PREA; provided that if the termination
                  is permitted by the terms of the franchise agreement with
                  PREA, the approval of decisions provided by clause (1) and/or
                  (2) above may be made by a vote of a majority of the Board;

                           (e) to approve the release of any officer or director
                  (or former officer or director) of the Company or any of its
                  subsidiaries (or any of their predecessors in interest) from
                  any non-competition obligations;

                           (f) to approve and enter into transactions with
                  Members, Restricted Individuals or their Affiliates or family
                  members, subject to Section 8.3(e) hereof;

                                       19

<PAGE>

                           (g) to compromise any liability for capital
                  contributions or distributions;

                           (h) to make any modifications to the capital accounts
                  of any Members not otherwise provided by this Agreement;

                           (i) to elect not to follow generally accepted
                  accounting principles with respect to the accounting of the
                  Company and its Divisions or subsidiaries;

                           (j) to elect not to conduct an annual audit of the
                  Company's financial statements on a consolidated basis;

                           (k) to purchase any real property (provided that if
                  the Manager representing Prefsa's interest in the Company
                  votes against any purchase of any such real property, then
                  Herman and/or NV shall be entitled to purchase such property
                  individually or through their Affiliates and, if appropriate,
                  lease such property to the Company or a Division on an arm's
                  length basis);

                           (l) to make an assignment for the benefit of the
                  creditors of the Company or to file a voluntary bankruptcy
                  petition;

                           (m) to commit any act which makes it impossible to
                  carry on the business of the Company;

                           (n) to issue additional membership interests in the
                  Company or any Division not otherwise contemplated by the
                  terms of this Agreement;

                           (o) to establish a new Division; and

                           (p) to approve the incurrence of indebtedness by the
                  Company or a Division or subsidiary other than in the ordinary
                  course of its business consistent with normal business
                  practices.

                                       20

<PAGE>

                  8.5 Reference herein to a "vote" of the Board or any similar
         expression shall not be deemed to require an actual meeting where the
         Managers are in the same room and all such votes may be accomplished
         through written agreement or through telephonic or "on-line" meetings
         of the Board. In no event shall a Manager be entitled to grant any
         proxy in respect of his or her voting rights hereunder. Unless
         otherwise agreed upon by the Board, by unanimous vote of all Managers,
         at least one meeting of the Board shall be held during each quarter
         during every year of the existence of the Company. Any Manager may call
         a meeting of the Board by providing the Company and each other Manager
         with no less than five business days notice of such meeting, and such
         notice of meeting shall state the time, place and purpose of such
         meeting. For the purposes of determining whether there is a majority of
         the Managers under any provision of this Agreement that so requires, a
         majority of the Managers shall at all times be three of the four
         Managers provided for herein, except that in the event that the NV and
         New Valley Mortgage designated Managers are precluded from voting on
         bonus matters pursuant to Section 8.3(g)(1) hereof, then a majority of
         the Managers shall require the vote or approval of both of the other
         Managers.

                  8.6 Notwithstanding anything contained herein to the contrary,
         Herman is hereby authorized to act as the "Tax Matters Member" of the
         Company as that term is defined in Section 6231(a)(7) of the Code and
         in such regulations as may be promulgated pursuant thereto, and to take
         such action and exercise such rights, powers and duties as "Tax Matters
         Member" of the Company as contemplated by the Code (all at the cost and
         expense of the Company), including, without limitation, keeping all
         Members informed of, and forwarding copies of, notices with respect to
         all administrative and judicial proceedings for the adjustment at the
         Company level of Company items; consenting to extensions relating to
         the tax returns filed for

                                       21

<PAGE>

         the Company; participating in administrative and judicial
         proceedings, including appeals, relating to the Company's tax returns
         or its tax liabilities; and entering into settlement agreements with
         respect to tax proceedings involving the Company's tax returns which
         will bind those Members who are parties to this Agreement. The Tax
         Matters Member shall not be allowed to change any tax elections if any
         such desired new tax election would be detrimental to the interests of
         any of the then current Members; if any such proposed new tax election
         would be detrimental to the interests of the then current Members of
         the Company, the Board shall approve such new tax elections, provided
         that no such election shall be made which could have an adverse effect
         upon any Member without such adversely affected Member's consent. The
         Board, by unanimous vote, may change the Tax Matters Member.

              9. BOOKS AND RECORDS.

                  9.1 The fiscal year of the Company shall end on December 31.

                  9.2 Proper accounting records of all Company business shall be
         kept and open to inspection of any of the Members, or their designee or
         legal representative, at all reasonable times. The Company shall
         maintain its accounting records and shall report for income tax
         purposes on the accrual basis of accounting. The Company shall use its
         best efforts to furnish each Member with a complete accounting of the
         affairs of the Company together with such appropriate information as
         may be required by each Member for the purpose of preparing its income
         tax return, within 90 days after the end of each year. All matters of
         accounting for which there is no provision in this Agreement are to be
         governed by generally accepted accounting principles applied on a
         consistent basis. The Company shall cause to have its financial
         statements, on a consolidated basis, audited by an independent
         accounting firm on an annual

                                       22

<PAGE>

         basis. The unanimous vote of the Managers shall be required to
         change or select the Company's independent accounting firm.

                  9.3 The books and records of the Company shall be kept at the
         principal place of business of the Company, or in such other place as
         may be agreed upon by the Board.

                  10. BANKING. All funds of the Company shall be deposited in
         its name in such bank account or accounts as shall be designated by the
         Company. All withdrawals therefrom are to be made on checks or other
         authorized forms of withdrawal signed or authorized by the Chief
         Executive Officer and/or such individual(s) as are approved by the
         Board, by a vote of a majority of the Managers.

                  11. INSURANCE. Except as provided for below, the Company, in
         its discretion, may obtain, at the cost and expense of the Company,
         key-man life insurance with respect to the Chief Executive Officer,
         Managers and/or the principals of any Member naming the Company as
         beneficiary of the policies. All Members agree, to the extent
         necessary, to cause their principals to cooperate in the obtaining of
         any such life insurance. In addition to the foregoing, with respect to
         DTHY and Herman only, promptly following the date hereof, the Company
         will obtain and maintain, at the cost and expense of the Company, life
         insurance in the minimum amount of Twelve Million Dollars ($12,000,000)
         on the life of Herman, naming such person(s) as Herman shall designate
         as the beneficiary of such policies ("Herman Insurance"). The Herman
         Insurance shall be increased from time to time so that the amount
         thereof is not less than the Agreed Value of Herman's and DTHY's
         interests in the Company or if there is no Agreed Value, the
         approximate value of such interests in the Company as determined by the
         Board, by vote of all of the Managers (excluding the Manager
         representing the interests of Herman and DTHY) and shall be utilized
         for the purposes described in Section 15.3.

                                       23

<PAGE>

         12.      VOLUNTARY TERMINATION.

                  12.1 The Company may be dissolved and terminated at any time
         upon the decision to do so by the Board, in which event the Board shall
         proceed with reasonable promptness to liquidate the business of the
         Company. The proceeds of such liquidation shall be applied and
         distributed in the order of priority set forth in Section 6.6.

                  12.2 In liquidating the assets of the Company, if a decision
         is made to sell Company assets, then such assets shall be sold at such
         price and on such terms as the Board shall in good faith determine are
         fair and equitable. Any Member, or any Company, corporation, limited
         liability company, or other entity in which they, or any of them, are
         in any way interested, may purchase such assets at such sale.
         Alternatively, the Board may determine not to sell the tangible assets
         of the Company but may distribute all or any part of them in kind to
         the Members upon liquidation.

                  12.3 A reasonable amount of time shall be allowed for the
         orderly liquidation of the assets of the Company and the discharge of
         liabilities to creditors so as to permit the sale of Company property
         on favorable prices or terms.

                  12.4 No Member shall have the right or power to demand
         property other than cash from the Company.

         13.      RESTRICTIONS UPON DISPOSITIONS OF, AND LIENS AGAINST,
         INTERESTS IN THE COMPANY AND SHARES.

                  13.1 No Member nor any shareholder of any Member (shareholders
         of any Member are collectively referred to as "Shareholders" and are
         each individually a "Shareholder") shall, for value or otherwise, make
         a sale, assignment, transfer or other disposition (collectively, the
         "Disposition") of (i) all or any part of any membership interest in

                                       24

<PAGE>

         the Company, except that, subject to the remainder of this
         Article 13, Prefsa can transfer its membership interest in the Company
         to a Prefsa Affiliate in connection with any merger, consolidation,
         business combination, restructuring or other reorganization affecting
         Prefsa, or (ii) the shares of a Member (shares of any Member are
         collectively referred to as "Shares" and are each individually a
         "Share") or of any beneficial interest therein, now or hereafter owned
         by such Shareholder, except as permitted by and in accordance with the
         provisions of Articles 14, 15 or 16 of this Agreement or with the
         approval of the Board, by vote of all of the Managers (excluding the
         Manager representing such affected membership interest in the Company),
         in each case, upon receipt, if necessary, of the requisite New York
         State Banking Department approval. Provided that, (x) clause (i) above
         shall not be applicable to a Disposition of the membership interests in
         the Company from NV to New Valley Mortgage or from either NV or New
         Valley Mortgage to another direct or indirect wholly-owned subsidiary
         of New Valley Corporation and (y) clause (ii) above shall not be
         applicable to the Shareholders or the Shares of NV, New Valley Mortgage
         or Prefsa so long as, in the case of any events under clause (x) or
         (y), such Disposition does not result in a violation of any federal or
         state law, including any regulations promulgated by the New York State
         Banking Department, or otherwise cause the Company or any Division to
         be in violation of any license it holds, and any such Disposition is
         done in compliance with the franchise agreement to which the Company or
         any Division is a party. Notwithstanding the foregoing, in the event
         that (i) PREA franchises are no longer being issued under the name
         "Prudential" (a "Name Change") or (ii) there is a Change in Control (as
         such term is hereinafter defined) of Prefsa, PREA or any entity that
         through the chain of title, directly or indirectly, controls Prefsa or
         PREA (a "Parent"), the Company shall have the option to purchase the
         interest of Prefsa in the Company at the then current Agreed Value of
         the Prefsa interest pursuant to the terms of Section 15.6 hereof;
         provided that, in the event the Company elects to exercise such option
         to purchase, the Company shall concurrently with the closing of

                                       25

<PAGE>

         such purchase, pay, or cause to be paid, in full all indebtedness owing
         to Prefsa (but not that certain promissory note made payable by the
         Company to PREA in the original principal amount of $3,300,000 (the
         "Franchise Note")) pursuant to the Loan Agreement. For the purposes
         hereof, a "Change in Control" shall mean:

                  (1) The transfer, through one transaction or a series of
         related transactions, either directly or indirectly, or through one or
         more intermediaries, of beneficial ownership (within the meaning of
         Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of
         25% or more of either the then outstanding shares of common stock or
         the combined voting power of the then outstanding voting securities of
         Prefsa, PREA or a Parent entitled to vote generally in the election of
         directors, or the last of any series of transfers that results in the
         transfer of beneficial ownership (within the meaning of Rule 13d-3
         promulgated under the Securities Exchange Act of 1934) of 25% or more
         of either the then outstanding shares of common stock or the combined
         voting power of the then outstanding voting securities of Prefsa, PREA
         or a Parent entitled to vote generally in the election of directors,
         except that any such transfer may be made to any Affiliate of Prefsa or
         PREA without such transfer being considered a Change in Control;

                  (2) Approval by the shareholders of Prefsa, PREA or a Parent
         of a merger or consolidation, with respect to which persons who were
         the shareholders of Prefsa, PREA or a Parent immediately prior to such
         merger or consolidation do not, immediately thereafter, own more than
         25% of the combined voting power entitled to vote generally in the
         election of directors of the merged or consolidated company's then
         outstanding voting securities, except if Prefsa, PREA or a Parent is
         merged or consolidated with an existing Affiliate of Prefsa, PREA or
         such Parent, or there is a liquidation or dissolution of Prefsa or PREA
         where the assets of Prefsa or PREA are distributed to an existing
         Parent or the sale of all or substantially all of the assets of Prefsa
         or PREA to an existing Affiliate of Prefsa or PREA;

                                       26

<PAGE>

                  (3) The transfer, through one transaction or a series of
         related transactions, of more than 50% of the assets of Prefsa, PREA or
         a Parent, or the last of any series of transfers that results in the
         transfer of more than 50% of the assets of Prefsa, PREA or a Parent,
         except for any transfer to an Affiliate of Prefsa or PREA, which shall
         not be considered a Change in Control. For purposes of this paragraph,
         the determination of what constitutes more than 50% of the assets of
         Prefsa, PREA or a Parent shall be determined based on the most recent
         financial statement prepared by Prefsa's, PREA's (or such entity's
         applicable Parent's) independent accountants; or

                  (4) During any calendar year, individuals who at the beginning
         of such year constituted the board of directors of Prefsa or PREA and
         any new director or directors whose election by the board of directors
         was approved by a vote of a majority of the directors then still in
         office who either were directors at the beginning of the year or whose
         election or nomination for election was previously so approved, cease
         for any reason to constitute a majority thereof provided.

                  13.2 The Company shall not recognize as valid or give effect
         to any Disposition of any interests in the Company or any Shares, or
         any interest therein, upon the books of the Company unless and until
         the Member or Shareholder desiring to make such Disposition shall have
         complied with each of the provisions of this Agreement.

                  13.3 No Member or Shareholder shall create any mortgage, lien,
         pledge, security interest, charge, claim, restriction (other than
         restrictions on Disposition pursuant to applicable federal and state
         securities laws or as provided for in this Agreement), subscription,
         option, warrant, right, call, commitment, hypothecation and encumbrance
         of any nature whatsoever (collectively, the "Lien") on or with respect
         to any interest in the Company or Shares

                                       27

<PAGE>

         now or hereafter held by such Member or Shareholder, except
         with the approval of the Board. This provision shall not apply to
         restrict or prevent a Shareholder of NV, New Valley Mortgage or Prefsa
         from creating or imposing a Lien against the Shares of NV, New Valley
         Mortgage or Prefsa, respectively.

                  13.4 It shall be a condition precedent to any Disposition
         permitted by Article 13 or Article 16 hereof that each third party
         individual or entity (the "Person") shall execute and deliver to each
         Member a legally enforceable agreement expressly assuming all of the
         terms, conditions and covenants of this Agreement as they relate to the
         transferor, and such other documents as the Company may reasonably
         require, whereupon the Person shall have all of the rights and
         obligations of the transferor hereunder.

        14.      DISPOSITION OF SHARES SUBSEQUENT TO BONA FIDE OFFER.

                  14.1 Except as otherwise provided in Sections 13.1 and 14.6
         and Article 15 hereof, if, at any time, a Member (the "Selling Member")
         or any Shareholder (or a Shareholder of a company that owns an
         interest, directly or indirectly, in a Member) (the "Selling
         Shareholder") desires to make a Disposition of all, or any part, of
         its, his or her interest (including any beneficial interests) in the
         Company (the "Offered Interest") or Shares (the "Offered Shares"), now
         or hereafter owned by it, him or her, to any third party individual or
         entity person (the "Offeror") pursuant to a BONA FIDE offer, it, he or
         she shall give written notice of its or his intention to do so (the
         "Notice of Intent to Sell") to the Company and the other Members (the
         "Remaining Members") (which in turn shall give such notice and any
         other notices provided for under this Agreement to their respective
         Shareholders) which notice shall specify the name of the Offeror, the
         Capital Percentage Interest in the Company comprising the Offered
         Interest or the number of Offered Shares which the Selling Shareholder
         proposes to sell,

                                       28

<PAGE>

         the price for the Offered Interest or for the Offered Shares,
         and all other material terms and conditions of the proposed
         transaction. The Remaining Members and the Company shall then have the
         option to purchase all, but not less than all, of the Offered Interest
         or the Offered Shares, as applicable, on the same terms as are
         contained in the BONA FIDE offer in accordance with Sections 14.2 and
         14.3 below. This Article 14 shall not apply to any disposition of
         Shares by any Shareholder of NV, New Valley Mortgage or Prefsa.

                  14.2 Subject to the provisions of Section 14.5 hereof, each
         Remaining Member, upon written notice given to each of the Selling
         Member or Selling Shareholder, as applicable, the other Remaining
         Members and the Company (an "Exercise Notice") within thirty (30) days
         after receipt by the Remaining Members of the Notice of Intent to Sell,
         shall be entitled to purchase, on a PRO RATA basis, all or any portion
         of the Offered Interest or Offered Shares. In the event, however, that
         any Remaining Member shall elect not to acquire all or any part of its
         PRO RATA portion of the Offered Interest or Offered Shares or fails to
         give timely the requisite notice set forth herein (the "Non-Purchasing
         Member"), then, subject to the provisions of Section 14.5 hereof, the
         other Remaining Members shall have the right to purchase, on a PRO RATA
         basis among all such other Remaining Members, all or any part of that
         portion of the Offered Interest or Offered Shares allocated to the
         Non-Purchasing Member which the Non-Purchasing Member elected not to
         acquire, which right shall be exercised by a Remaining Member's
         indication of its desire to do so in a second written notice (the
         "Second Exercise Notice") given to each of the Selling Member or the
         Selling Shareholder, as applicable, the other Remaining Members and the
         Company within 45 days after receipt of the Notice of Intent to Sell.
         Such Second Exercise Notice shall specify the Remaining Member=s desire
         to purchase up to a specified amount of the Offered Interest or number
         of additional Offered Shares. Any Remaining Member who so

                                       29

<PAGE>

         indicates such desire in the Second Exercise Notice shall be
         entitled to purchase such additional Offered Interest or Offered
         Shares, subject to the provisions of Section 14.5 hereof and any PRO
         RATA rights of other Remaining Members.

                  14.3 The Company shall be entitled to purchase all, but not
         less than all, of the Offered Interest or Offered Shares, if any, not
         purchased by the Remaining Members pursuant to Section 14.2 above, upon
         written notice, given no later than sixty (60) days following its
         receipt of the Notice of Intent to Sell, to the Selling Member or
         Selling Shareholder and each of the Remaining Members who timely
         executed and delivered an Exercise Notice. The decision of the Company
         to purchase any of the Offered Shares as provided for in this Section
         14.3 shall be made by the Board, by unanimous vote of all the Managers,
         excluding the Manager representing the interest of the Selling Member.

                  14.4 The closing for any purchase and sale of the Offered
         Interest or Offered Shares shall take place within seventy-five (75)
         days following receipt by the Remaining Members and the Company of the
         Notice of Intent to Sell.

                  14.5 Notwithstanding the foregoing, if the Remaining Members
         and the Company shall not have elected to purchase, in the aggregate,
         all of the Offered Interest and Offered Shares in accordance with
         Sections 14.2 or 14.3 above, then the Selling Member or Selling
         Shareholder shall thereupon be free to dispose of all, but not less
         than all, of the Offered Interest or Offered Shares to the Offeror in
         accordance with the terms of the BONA FIDE offer, provided that the
         Offeror, as a condition precedent to the purchase of such Offered
         Interest or Offered Shares, executes and delivers to the Company and
         each Member a legally enforceable agreement expressly assuming all of
         the terms, conditions and covenants of this Agreement, and such other
         documentation as the Company may reasonably require, whereupon the
         Offeror shall

                                       30

<PAGE>

         have all of the rights and obligations of the Selling Member
         or the Selling Shareholder with respect to the Offered Interest or
         Offered Shares. If all of the Offered Interest or Offered Shares are
         not disposed of in accordance with the terms of the BONA FIDE offer to
         the Offeror within a period of one hundred twenty (120) days after the
         Selling Member or Selling Shareholder gives the Notice of Intent to
         Sell, then the Offered Interest or Offered Shares may not thereafter be
         sold without compliance again with the provisions of this Article 14.

                  14.6 Immediately upon purchasing Offered Shares, the Member
         which purchased such shares (the "Purchasing Member") and/or the
         Company (if it purchased Offered Shares) shall be entitled to convert
         the Offered Shares into an interest in the Company (the "Conversion
         Right"). If the Purchasing Member or the Company exercises such
         Conversion Right, the Member whose shares are the Offered Shares shall
         immediately redeem that number of Offered Shares of the electing
         Purchasing Member or the Company in exchange for an interest of such
         Member in the Company. The interest in the Company to be assigned by
         such Member to the Purchasing Member shall be the product of: (i) a
         ratio the numerator of which is the number of Offered Shares purchased
         by the Purchasing Member or the Company and the denominator of which is
         the total number of Shares that are issued and outstanding as of the
         date of the Notice of Intent to Sell of the Member whose shares are the
         Offered Shares, multiplied by (ii) the Capital Percentage Interest as
         of the date of the Notice of Intent to Sell of the Member whose Shares
         are the Offered Shares. Upon a Purchasing Member's conversion of an
         interest in a Member to an interest in the Company, the Capital
         Percentage Interest of the Member whose shares are the Offered Shares
         shall be decreased and the Capital Percentage Interest of the
         Purchasing Member increased by the amount calculated in accordance with
         the foregoing formula. To the extent that the Company has purchased the
         Offered Shares, upon the exercise of

                                       31

<PAGE>

         its Conversion Right, the Capital Percentage Interest of the Member
         whose shares are the Offered Shares shall be decreased in accordance
         with the foregoing formula, while each Member's Capital Percentage
         Interest (including the Member whose shares are the Offered Shares)
         shall be similarly increased in proportion to each Member's relative
         Capital Percentage Interest at the time of conversion (after giving
         effect to the decrease in the Capital Percentage Interest of the Member
         whose shares are the Offered Shares in accordance with the foregoing
         formula and any increase in the Capital Percentage Interest of any
         Member that has elected to purchase some of the Offered Shares
         simultaneous with the Company's purchase of Offered Shares).
         Notwithstanding the foregoing, all parties agree to implement an
         alternative method of converting shares purchased pursuant to a right
         of first refusal to an interest in the Company if such alternative
         method accomplishes the same result with diminished legal or tax
         consequences to the parties with no adverse impact upon the cooperating
         parties.

         15.  PURCHASE OF INTEREST OF A MEMBER UPON THE OCCURRENCE OF
         CERTAIN EVENTS.

                  15.1 In the event of the death of Herman (a "Deceased
         Shareholder"), then the interests in the Company of DTHY and Herman
         shall be purchased by the Company for the greater of (i) the amount of
         the Herman Insurance or (ii) the Agreed Value in accordance with the
         following.

                  15.2 The "Agreed Value" for a Member's interest in the Company
         purchased by the Company pursuant to Article 15 hereof shall be equal
         to the "Company Valuation", as determined in accordance with this
         Section 15.2, multiplied by such Member's Capital Percentage Interest.
         The "Company Valuation" shall be determined as of the date of the death
         of the Deceased Shareholder in the event of the death of Herman, or as
         of the date of the event giving rise to the right or obligation to
         purchase the interest of a Member hereunder (in either

                                       32

<PAGE>

         case, the "Valuation Date"), and shall be the Company Valuation set
         forth in the most recent Certificate of Valuation (a "Certificate")
         executed and agreed to by 97% or more of all of the Members, so long as
         such Certificate was not executed more than fifteen months prior to the
         Valuation Date. To determine the Company Valuation, the Members shall
         review the historical performance of the Company, project the
         anticipated future performance of the Company, review similar
         information for competitive companies of comparable size and otherwise
         use its best efforts to determine the Company Valuation. The first such
         Certificate shall be executed as of the date hereof and attached hereto
         as Schedule 15.2. The Members shall endeavor to execute a new
         Certificate on or before April 30 of each year or more frequently, as
         the Members may determine. Each such Certificate shall remain in effect
         for a period of fifteen (15) months from the date of execution thereof,
         unless superseded prior thereto by a new Certificate. In the event, as
         of a Valuation Date, there is no Certificate then in effect, the
         Company Valuation shall not be determined by reference to the most
         recent Certificate but instead shall be determined, as of the end of
         the calendar month immediately preceding the Valuation Date, by a panel
         of three appraisers, one of whom shall be designated by the Estate of
         the Deceased Shareholder (in the event of the death of Herman) or by
         the Member whose interest is being purchased, one by the Company (in
         the event of the death of Herman, neither DTHY nor the Estate of the
         Deceased Shareholder, shall be entitled to vote for these purposes and,
         otherwise, the Member whose interest is being purchased shall not be
         entitled to vote for these purposes), and the third shall be an
         appraiser appointed by the AAA. The average of the two appraised values
         closest to one another shall be conclusive and binding on the parties
         hereto (the third appraised value ignored) with regard to the
         determination of Company Valuation pursuant to this Article 15 and
         shall be

                                       33

<PAGE>

         deemed to be a Certificate for purposes of this Agreement. The
         Company Valuation shall not include the value of any life insurance
         proceeds received or receivable by the Company.

                  15.3 The closing of the purchase of an interest in the Company
         being acquired under this Article 15 shall take place within 120 days
         following the Valuation Date. To the extent that the Company maintains
         life insurance (other than key-man life insurance for the benefit of
         the Company) on the life of a Deceased Shareholder (i.e. the Herman
         Insurance), then the amount of the proceeds of such life insurance
         policy(ies) shall be considered a down payment toward the purchase of
         the Member's interest being acquired by the Company under this Article
         15. To the extent the amount of the life insurance proceeds is less
         than the purchase price for the interest of the Member(s) being
         acquired by the Company or if there are no life insurance proceeds, the
         purchase price or the balance of the purchase price (as the case may
         be) shall be payable in one hundred twenty (120) equal monthly
         installments with interest at one and one-half (1 1/2%) percent in
         excess of the prime rate of interest as published in the Wall Street
         Journal (as adjusted from time to time), the first payment being due at
         the above-referenced closing. The payment of the deferred portion of
         the purchase price shall be evidenced by a promissory note providing
         for acceleration in the event of default or in the event of a sale of
         all or substantially all of the assets of the Company or the
         dissolution of the Company and shall be secured by a pledge of, or
         security interest in, the interest in the Company being acquired from
         the Estate of the Deceased Shareholder. To the extent that the life
         insurance proceeds of the Herman Insurance exceed the purchase price
         for the Member's interest being acquired by the Company, the
         beneficiaries named therein shall be entitled to retain such excess.

                  15.4 In the event of the filing of a voluntary bankruptcy
         petition by a Member, or the filing of an involuntary bankruptcy
         petition against a Member that is not dismissed within

                                       34

<PAGE>

         sixty (60) days of filing (in either case such Member hereinafter
         referred to as a "Bankrupt Member"), the Company shall have the option,
         but not the obligation, to purchase the interest of the Bankrupt Member
         in the Company for a purchase price equal to 75% of the Agreed Value,
         at a closing and otherwise pursuant to the payment terms described in
         Section 15.3.

                  15.5 In the event that at the end of its franchise term
         (whether by expiration, termination or otherwise), any Division that is
         a PREA franchisee (the "Terminating Division") elects to become the
         franchisee of any other real estate brokerage firm or association other
         than PREA, the Company will purchase the interest of Prefsa in the
         Company at its then Agreed Value determined in accordance with Section
         15.2 hereof, except that the Valuation Date shall be the expiration
         date of such franchise agreement with PREA, and, if a panel of
         appraisers is needed, one of the appraisers shall be designated by
         Prefsa instead of the Estate of the Deceased Shareholder. The closing
         for the purchase of Prefsa's interest in this event shall take place on
         the later of (i) the first business day after the expiration of such
         current PREA franchise term or (ii) the date of execution of a
         franchise agreement with a real estate brokerage firm or association
         other than PREA, and the purchase price for Prefsa's interest shall be
         paid in cash in full at the closing. Subject to the other provisions
         hereof (including the requirement for an immediate buy-out upon an
         affiliation with a real estate brokerage firm or association other than
         PREA as provided for herein), in the event that a Terminating Division
         elects not to become the franchisee of any real estate brokerage firm
         or association at the end of its franchise term, but is offered a
         renewal franchise agreement from PREA, the Company will purchase the
         interest of Prefsa in the Company in accordance with the provisions set
         forth above in this Section 15.5, except that the closing of the
         purchase of Prefsa's interest shall take place on a date determined by
         the Company within three (3) years of the date of the expiration of the
         franchise agreement

                                       35

<PAGE>

         with PREA (and the purchase price for Prefsa's interest shall
         be paid in cash in full at the closing) and the Valuation Date shall be
         the expiration date of the franchise agreement with PREA for such
         Terminating Division. Further, subject to the other provisions hereof
         (including the requirement for an immediate buy-out upon an affiliation
         with a real estate brokerage firm or association other than PREA as
         provided for herein) in the event that a Terminating Division elects
         not to become the franchisee of any real estate brokerage firm or
         association at the end of its franchise term, and is not offered a
         renewal franchise agreement from PREA, the Company will purchase the
         interest of Prefsa in the Company in accordance with the provisions set
         forth above in this Section 15.5, except that (I) the closing of the
         purchase of Prefsa's interest shall take place on a date determined by
         the Company within three (3) years of the date of the expiration or
         termination of the franchise agreement with PREA, (II) the Valuation
         Date shall be the expiration or termination date of the franchise
         agreement with PREA for such Terminating Division and (III) the
         purchase price for Prefsa's interest in the Company shall be payable in
         thirty-six (36) equal monthly installments with interest at one and
         one-half percent above the prime rate of interest as published in the
         Wall Street Journal (as adjusted from time to time), the first payment
         being due at the above-referenced closing. The payment of the deferred
         portion of the purchase price shall be evidenced by a promissory note
         providing for acceleration in the event of default or in the event of a
         sale of all or substantially all of the assets of the Company or the
         dissolution of the Company and shall be secured by a pledge of, or
         security interest in, the interest in the Company being acquired from
         Prefsa. The decision of the Company as to when to purchase the interest
         of Prefsa during the three (3) year periods provided for above shall be
         made by the Board, by unanimous vote of the Managers, excluding the
         Manager representing Prefsa's interest in the Company.

                                       36

<PAGE>

                  15.6 In the event of the occurrence of (i) a Name Change or
         (ii) a Change in Control of Prefsa or PREA, as provided by Section
         13.1, the Company shall have the option to purchase the interest of
         Prefsa in the Company at its then Agreed Value determined in accordance
         with Section 15.2 hereof, except that the Valuation Date shall be the
         date of the Name Change or the Change in Control of Prefsa or PREA,
         and, if a panel of appraisers is needed, one of the appraisers shall be
         designated by Prefsa instead of the Estate of the Deceased Shareholder.
         The decision of the Company to exercise the option provided for in this
         Section 15.6 shall be made by the Board, by unanimous vote of the
         Managers, excluding the Manager representing Prefsa's interest in the
         Company. The closing for the purchase of Prefsa's interest in this
         event, should the Company elect to purchase Prefsa's interest, shall
         take place 120 days following the date of (i) the Name Change or (ii)
         the Change in Control of Prefsa or PREA. The purchase price for
         Prefsa's interest in this event shall be paid in cash in full at the
         closing. Concurrent with such closing, and in addition to payment of
         the foregoing purchase price, the Company shall pay, or cause to be
         paid, in full any amounts then outstanding to Prefsa under the Loan
         Agreement (but not the Franchise Note). To the extent that the Company
         has the option to purchase the equity interest of Prefsa in the Company
         in accordance with the foregoing provisions of this Section 15.6, the
         Company hereby agrees that Herman and/or DTHY have the option to
         purchase Prefsa's equity interest in the Company in the event of the
         foregoing on the terms set forth in this Section 15.6 prior to the
         Company, provided that Herman and/or DTHY has the ability to pay the
         purchase price for such equity interest.

                  16. DISSOLUTION OR DISTRIBUTION BY DTHY OR HERMAN.
         Notwithstanding Articles 13 or 14, (i) DTHY shall be entitled to
         distribute or otherwise effectuate a Disposition of its interest in the
         Company, whether the same is done in connection with, or without
         relation to, a

                                       37

<PAGE>

         dissolution of DTHY, but only if the interest of DTHY in the
         Company is distributed or transferred to Herman and/or a family limited
         partnership of which Herman is the general partner and/or a limited
         liability company of which Herman is the controlling managing member,
         and (ii) Herman shall be entitled to distribute or otherwise effectuate
         a Disposition of her interest in the Company to a family limited
         partnership of which Herman is the general partner and/or a limited
         liability company of which Herman is the controlling managing member.

                  17. BONUS DISTRIBUTION AND ISSUANCE OF INTERESTS TO KEY
         PERSONNEL.

                  17.1 Upon the approval of the Board, by the vote of a majority
         of the Managers, the Company shall have the right to issue, or cause to
         be issued, at any time, additional interests in the Company or in any
         Division, as compensation to employees, provided that (i) no Member nor
         any Shareholder or Affiliate of such Member (including any Restricted
         Individual, as hereinafter defined) nor a family member of such
         Shareholder or a Restricted Individual shall receive any interest in
         the Company or in any Division without the approval of 97% in interest
         of all of the Members; (ii) the maximum amount of interests in the
         Company or any Division that may be issued as such compensation during
         the entire term of the Company, in the aggregate, is ten percent (10%)
         of the total outstanding interests in the Company or any Division and
         (iii) no interest in the Company may be issued under this provision
         which would have the effect of causing (a) the aggregate of the Capital
         Percentage Interests of NV and New Valley Mortgage to be less than 50%
         without the written approval of the NV and New Valley Mortgage
         designated Managers and (b) the aggregate of the Capital Percentage
         Interests of Herman and DTHY to be less than 40.01% without the written
         approval of the Herman and DTHY designated Manager. Further, there
         shall be no voting rights whatsoever attached to any

                                       38

<PAGE>

         of the interests in the Company or in any Division or any entity owned
         in whole or controlled by the Company issued pursuant to this Section
         17.1.

                  17.2 Upon the approval of the Board, by the vote of a majority
         of the Managers, the Company may sell interests in the Company or a
         Division to third parties that are not an Affiliate of any Member, a
         Restricted Individual nor a family member of any such Persons (a "Third
         Party") in connection with the employment of such Third Party by the
         Company or a Division or subsidiary thereof at such price and upon such
         terms and conditions as the Board, by vote of a majority of the
         Managers, shall determine, provided that no such sale shall take place
         so as to cause the aggregate Capital Percentage Interests in the
         Company (i) of NV and New Valley Mortgage to be less than 50% without
         the written approval of the NV and New Valley Mortgage designated
         Managers and (ii) of Herman and DTHY to be less than 40.01% without the
         written approval of the Herman and DTHY designated Manager. In the
         event that the Board, by vote of a majority of the Managers, determines
         to sell an interest in the Company to a Third Party but is unable to
         because of the referenced restriction relating to either (i) NV and New
         Valley Mortgage or (ii) Herman and DTHY, then Prefsa hereby agrees to
         sell a portion of its interest in the Company to such Third Party
         provided that, in no event shall Prefsa be required to sell if such
         sale would have the effect of causing the Capital Percentage Interest
         of Prefsa to be less than 7.99%. The price paid to Prefsa in connection
         with any such sale shall be an amount equal to the pro rata amount of
         its capital contribution to the Company relating to the portion of the
         interest being sold, plus an eleven percent per annum simple return
         through the date of the closing on such pro rata contribution amount.
         Additionally, with respect to any sale taking place two years or more
         from the date hereof, Prefsa shall have the right to demand that the
         purchase price be the Agreed Value as determined pursuant to Section
         15.6 hereof exclusive

                                       39

<PAGE>

         of any amounts owed to Prefsa under the Loan Agreement or any
         other amounts of indebtedness owed to Prefsa by the Company. In the
         event that (I) Prefsa has sold a portion of its interest in the Company
         to one or more Third Parties pursuant to the above so as to cause
         Prefsa's Capital Percentage Interest to be 7.99% and (II) thereafter
         the Board, by a vote of a majority of the Managers, determines to sell
         interests in the Company to Third Parties, Prefsa shall have the right
         to require that NV and New Valley, collectively, and Herman and DTHY,
         collectively, each proportionately sell interests in the Company to
         such Third parties so as to reduce their respective Capital Percentage
         Interests to 48% (with respect to NV and New Valley Mortgage,
         collectively) and to 38.01% (with respect to Herman and DTHY,
         collectively) prior to the Company selling interests which would have
         the effect of diluting all Members. Nothing herein shall require NV,
         New Valley Mortgage, Herman or DTHY to sell interests in the Company at
         a price less than that for which Prefsa would be required to sell its
         interest pursuant to this Section 17.2. Further, there shall be no
         right to designate a Manager to the Board attached to any of the
         interests in the Company sold pursuant to this Section 17.2.

                  18. RESTRICTIVE COVENANT AND NON-SOLICITATION. It is
         understood and agreed that each of Herman, Lorber and Lampen, as the
         designated representatives on the Board of DTHY, NV and New Valley
         Mortgage (each such individual is hereinafter referred to as a
         "Restricted Individual"), shall have access to the Company's privileged
         and confidential information essential to the Company's business and
         shall have gained competitive benefit as a result of being a Member or
         a principal shareholder of a Member and/or an employee of the Company.
         Therefore, each Restricted Individual agrees that so long as each is a
         shareholder of a Member of the Company, or directly a Member in the
         Company, or a member of her or his immediate family or an entity in
         which she or he is an officer, director, employee of, consultant for or
         5% or

                                       40

<PAGE>

         greater (directly or indirectly) shareholder of, is a Shareholder of a
         Member or is directly a Member in the Company, and for an additional
         period of two (2) years thereafter (such additional period being the
         "Covenant Period" and, together, with the membership period, the
         "Restrictive Period"), she or he shall not, directly or indirectly,
         whether individually or as a principal, shareholder, member, officer,
         employee, partner, director, agent of or consultant for any entity, (i)
         provide consulting services to, be employed by, engage or participate
         in, or own 5% or more of, any business that is engaged in the same type
         of business as the Company, or any of its Divisions or subsidiaries,
         and which is located in, or does business in, any of the counties of
         Nassau, Suffolk, Queens or New York, or any other county in which the
         Company, directly or through its Divisions or subsidiaries, then does
         business, (except that nothing shall prevent (x) New Valley
         Corporation, or any of its subsidiaries or Affiliates, from buying,
         owning, operating, leasing, developing, subdividing, marketing, selling
         or otherwise investing in or dealing with real property for its own
         account or the account of any entity in which it has a direct or
         indirect equity interest as opposed to acting as a broker or (y) Lorber
         from engaging in business related to the development or sale of
         insurance or insurance-related products consistent with the business as
         is currently conducted by Lorber); (ii) cause or seek to persuade any
         employee, customer, agent or supplier of the Company to discontinue the
         status, employment or relationship of such person or entity with the
         Company or to become employed in any activity competitive with the
         business of the Company or with the business of any of the entities
         owned by the Company or in which the Company owns an interest; (iii)
         cause or seek to persuade any prospective business contact of the
         Company to determine not to enter into a business relationship with
         Company; or (iv) hire or retain any employee or agent of the Company;
         provided that (I) in the event that Herman's employment with the
         Company is terminated

                                       41

<PAGE>

         without cause, then the Covenant Period applicable to Herman
         shall only be one (1) year and (II) in the event of a sale of all or
         substantially all of the assets of the Company or all of the Divisions
         of the Company that are in the real estate brokerage business or other
         sale of the entire business of the Company to a Third Party (provided
         any such sale is done in accordance with the terms of this Agreement)
         or a dissolution of the Company, there shall be no Covenant Period and
         the Restricted Period (and the Prefsa Restricted Period described
         below) shall terminate upon the consummation of such sale or
         dissolution. Prefsa also agrees, so long as it is directly a Member of
         the Company, indirectly a Member in the Company, or any of its
         shareholders or Affiliates are Members in the Company, and for an
         additional period of two (2) years thereafter (the "Prefsa Restricted
         Period"), to be bound by the provisions of clauses (ii), (iii) and (iv)
         above, except, after the end of B&H's current franchise agreement with
         PREA, Prefsa may engage in activities described in clauses (ii), (iii)
         and (iv) above indirectly through Prefsa's affiliations with third
         parties as a franchisor, lender or equity partner, however, under no
         circumstances may Prefsa directly engage in the activities described in
         clauses (ii), (iii) and (iv) above during the Prefsa Restricted Period.
         The provisions contained in this Section 18 are made specifically for
         the benefit of the Members and are not made for, and may not be
         enforced by, any of the creditors of the Company, except Prefsa.

                  19. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
         makes the following representations and warranties in order to induce
         Prefsa to enter into this Agreement, acknowledges that Prefsa is
         entering into this Agreement in reliance on such representations and
         warranties and further acknowledges that the Company shall be
         responsible to Prefsa for the truth and accuracy of such
         representations and warranties:

                                       42

<PAGE>

                  19.1 VALID EXISTENCE. The Company is a limited liability
         company duly organized and validly existing under the laws of the State
         of New York. The Company has the requisite power to carry on its
         business as now conducted and to own its assets. The Partnership is a
         duly licensed real estate broker in the State of New York and does not
         do business, nor is it qualified to do business, in any other
         jurisdiction.

                  19.2 COMPANY INTEREST. Other than as contemplated by this
         Agreement, there are no commitments to which the Company is a party, or
         by which it is bound, calling for the issuance, sale or other
         disposition of any interests in the Company and there are no
         outstanding rights for the purchase of interests in the Company.

                  19.3 CONSENTS. Other than with regard to certain licensing
         issued by the State of New York, no filings with or consents of
         governmental or other regulatory agencies, foreign or domestic, or of
         other parties are required to be made or received by or on the part of
         the Company to enable it to enter into and carry out this Agreement and
         the transactions contemplated hereby.

                  19.4 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has
         the requisite power to enter into this Agreement and to carry out its
         obligations hereunder. The execution and delivery of this Agreement and
         the consummation of the transactions contemplated hereby have been duly
         authorized by the Company and no other proceedings on the part of the
         Company are necessary to authorize the execution and delivery of this
         Agreement and the consummation of the transactions contemplated hereby.
         This Agreement constitutes the valid and binding obligation of the
         Company and is enforceable against the Company in accordance with its
         terms.

                                       43

<PAGE>

                  19.5  NO BREACH. Neither the execution and delivery of this
         Agreement nor compliance by the Company with any of the provisions
         hereof nor the consummation of the transactions contemplated hereby
         will:

                           (a) other than certain loan, or loan related,
                  documents with Fleet Bank, the Partnership's Amended and
                  Restated Partnership Agreement or the Amended and Restated
                  Subscription and Shareholders' Agreement of Preferred,
                  violate, conflict with or result in the breach of the terms of
                  any agreement, indenture, instrument or other document to
                  which the Company, the Partnership or Preferred is a party or
                  by which any of their respective assets are bound or terminate
                  or result in the termination of any such agreement or
                  instrument or result in the cancellation, modification,
                  revocation or suspension of any rights of the Company, the
                  Partnership or Preferred thereunder;

                           (b) violate any judgment, order, injunction, decree
                  or award against, or binding upon, the Company, the
                  Partnership or Preferred; or

                           (c) violate any law or regulation of any jurisdiction
                  relating to the Company, the Partnership or Preferred.

                  19.6 LITIGATION. Other than as set forth on Schedule 19.6,
         there are no actions, suits or proceedings in which the Company,
         Partnership or Preferred is a defendant, and in which a judgment or
         decision against the Company, the Partnership or Preferred could have a
         material adverse effect on the Company, the Partnership or Preferred,
         which are pending or, to the knowledge of the Company, threatened; and
         there is no order, injunction, award or decree outstanding against any
         of the Company, the Partnership or Preferred which either individually
         or in the aggregate could have a material adverse effect on the
         Company, the Partnership or

                                       44

<PAGE>

         Preferred; and to the Company's knowledge, there exists no
         basis for any such action, suit, proceeding, order, injunction, award
         or decree.

                  19.7 COMPLIANCE WITH LAW. Neither the Company, the Partnership
         nor Preferred is in violation of any law, regulation, ordinance, order,
         injunction, decree, award, or other requirement of any governmental or
         other regulatory body, court or arbitrator relating to their respective
         businesses, the violation of which would have a material adverse effect
         on their respective businesses.

                  19.8 PERMITS AND LICENSES. The Partnership and Preferred each
         have all permits, licenses, certificates, registrations and approvals
         (collectively, "Permits") from all Federal, state, local and foreign
         governmental and other regulatory bodies (collectively, "Bodies")
         required to carry on their respective businesses as presently
         conducted; all such Permits are in full force and effect and there is
         no action pending or, to the knowledge of the Company, threatened, to
         suspend or cancel any of such Permits. Each of the Partnership and
         Preferred is in compliance in all material respects with all
         requirements, standards and procedures of the Bodies which have issued
         such Permits.

                  19.9 TAXES. All taxes, including, without limitation, income,
         property, sales, use, utility, excise, value added, employees'
         withholding, social security and unemployment taxes imposed by the
         United States, any state, locality or any foreign country, or by any
         other taxing authority, which have or may become due or payable by the
         Company, the Partnership and Preferred, have been paid in full subject
         only to potential claims by appropriate government authorities to the
         contrary which would be contested, in good faith; and all tax returns
         required to be filed by the Partnership and Preferred have been timely
         filed or a valid extension therefor has been timely filed. No
         deficiency notice is proposed, or to the knowledge of the Company,

                                       45

<PAGE>

         threatened against either the Partnership or Preferred. Other
         than the New York State audit of the Partnership for the periods
         December 1, 1993 to August 31, 1994 and September 1, 1996 to November
         30, 1997, the tax returns of the Partnership and Preferred have not
         been audited within the past three years.

                  Neither the Internal Revenue Service nor any state, local or
         other taxing authority has proposed any additional taxes, interest or
         penalties with respect to either the Partnership or Preferred or any of
         their respective operations or businesses; there are no pending or
         threatened tax claims or assessments; and there are no pending or
         threatened tax examinations by any taxing authorities. Neither the
         Partnership nor Preferred has given any waivers of rights (which are
         currently in effect) under applicable statutes of limitations with
         respect to the federal income tax returns for any fiscal year. Neither
         the Partnership nor Preferred is a party to, or bound by, any tax
         indemnity, tax sharing or tax allocation agreements.

                  19.10 FINANCIAL STATEMENTS. The audited financial statements
         of each of the Partnership, Hamptons and Preferred, for the fiscal year
         ended December 31, 2001 and the unaudited financial statements of each
         of the Partnership, Hamptons and Preferred for the period ended October
         31, 2002 (the "Financial Statements"), copies of which are attached as
         Schedule 19.10 hereto, (i) are true, correct and complete, (ii) are in
         accordance with the respective books and records of the Partnership,
         Hamptons and Preferred (except that all Members are aware that Hamptons
         has, to date, generally accounted for its operations as a separate
         entity, separate and apart from the Partnership, and no representation
         is made concerning the appropriateness of the use of such separate
         accounting methods), (iii) fairly present the respective financial
         position of the Partnership, Hamptons and Preferred as of such dates
         and the respective results of operations of the Partnership, Hamptons
         and Preferred for such year and period and (iv) have been prepared

                                       46

<PAGE>

         in accordance with generally accepted accounting principals
         consistently applied. As of October 31, 2002, neither the Partnership,
         Hamptons nor Preferred had any liabilities, commitments or obligations
         of a material nature, whether absolute, accrued, contingent or
         otherwise, not either shown and adequately provided for in the
         Financial Statements or disclosed herein.

                  19.11 ADVERSE DEVELOPMENTS. Since October 31, 2002, (i) the
         business of each of the Partnership, Hamptons and Preferred has been
         conducted only in the ordinary course, (ii) there have been no material
         adverse changes in the business of any of the Partnership, Hamptons or
         Preferred and the Company does not know of any development or
         threatened development of a nature which could be reasonably expected
         to have a materially adverse effect upon the business of the
         Partnership, Hamptons or Preferred and (iii) there has been no damage,
         destruction or loss or other occurrence or development, whether or not
         insured against, which, either singly or in the aggregate, materially
         adversely affects, and the Company has no knowledge of any threatened
         occurrence or development which could reasonably be expected to
         materially adversely affect, the condition (financial or otherwise),
         assets, liabilities, business, operations, affairs or prospects of any
         of the Partnership, Hamptons or Preferred, except as disclosed on
         Schedule 19.6.

                  19.12 REAL PROPERTY. Schedule 19.12 attached hereto sets forth
         a brief description of all real properties which are leased to either
         the Partnership, Hamptons or Preferred and the terms of the respective
         leases, including the identity of the lessor, the rental rate and other
         charges, and the term of the lease. Neither the Partnership, Hamptons
         or Preferred owns outright the fee simple title in and to any real
         property. Except for the leases described as "MONTHLY" or "EXPIRED,"
         the real property leases described in Schedule 19.12 that relate to the
         leased properties described therein are now in full force and effect,
         are enforceable in

                                       47

<PAGE>

         accordance with their terms and no condition exists and no
         event has occurred which, with or without the passage of time or the
         giving of notice or both, constitutes a default under any of such
         leases and all amounts due and payable thereunder have been paid.

                  19.13 OWNERSHIP OF ASSETS. Other than as set forth on Schedule
         19.13, each of the Partnership, Hamptons and Preferred owns outright,
         and has good and marketable title to, all of its respective assets,
         free and clear of all mortgages, liens, pledges, security interests,
         charges, claims, restrictions and encumbrances of any nature
         whatsoever. There are no agreements, options, commitments or
         understandings with, of or to, any person to acquire any of either of
         the Partnership's, Hampton's or Preferred's assets or any rights or
         interest therein. Each of the Company's subsidiaries owns all of the
         assets that each such subsidiary owned respectively immediately prior
         to the execution of this Agreement.

                  19.14 EMPLOYMENT RELATIONS AND BENEFIT PLANS. (a) Each of the
         Partnership and Preferred is in compliance with all Federal, state and
         other applicable laws, rules and regulations respecting employment and
         employment practices, terms and conditions of employment and wages and
         hours, and neither has engaged in any unfair labor practice which, in
         any of the foregoing cases, could have a materially adverse effect on
         the respective business of the Partnership or Preferred; (b) there is
         not pending, or to the knowledge of the Company, threatened, any unfair
         labor practice charge or complaint against the Partnership or Preferred
         by or before the National Labor Relations Board or any comparable state
         agency or authority; (c) no grievance which might have an adverse
         effect on the Partnership or Preferred or the conduct of their
         respective businesses, nor any arbitration proceeding arising out of or
         under any collective bargaining agreement, is pending and no claim
         therefor has been asserted; (d) no litigation, arbitration,
         administrative proceeding or governmental investigation is now pending,
         and, to the

                                       48

<PAGE>

         knowledge of the Company, no person or party has made any
         claim or has threatened litigation, arbitration, administrative
         proceeding or governmental investigation against either the Partnership
         or Preferred arising out of any law relating to discrimination against
         employees or employment practices; (e) Schedule 19.14 attached hereto
         includes a list of all of the "pension" and "welfare" benefit plans
         (within the respective meanings of sections 3(2) and 3(1) of the
         Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
         maintained by each of the Partnership and Preferred or to which either
         of them makes employer contributions with respect to their respective
         employees, a complete and correct copy of each of which is available to
         Prefsa. There are no vested and unfunded benefits under any such plans;
         (f) all contributions required to be made by either the Partnership or
         Preferred under law or required under the pension plans have been made
         by either the Partnership or Preferred; and (g) each of the Partnership
         and Preferred has satisfied in all material respects all reporting and
         disclosure requirements applicable to it under ERISA, and the
         Department of Labor and Internal Revenue Service regulations
         promulgated thereunder, with respect to the pension and welfare plans.

                  19.15 CONDUCT OF BUSINESS. Other than as disclosed on Schedule
         19.15 hereto, since October 31, 2002, neither the Partnership, Hamptons
         nor Preferred has: (i) created or incurred any liability in excess of
         $150,000 (absolute, accrued, contingent or otherwise) except unsecured
         current liabilities incurred in the ordinary course of business
         consistent with past practice; (ii) mortgaged, pledged or subjected to
         any lien or otherwise encumbered any of its respective assets, tangible
         or intangible; (iii) discharged or satisfied any lien or encumbrance or
         paid any obligation or liability (absolute, accrued, contingent or
         otherwise) other than current liabilities shown on the Financial
         Statements as of October 31, 2002 and taxes and current liabilities
         incurred since October 31, 2002 in the ordinary course of business or
         under contracts

                                       49

<PAGE>

         or agreements entered into in the ordinary course of business (other
         than as a result of any default or breach of, or penalty under, any
         such contracts or agreements); (iv) waived, released or compromised any
         claims or rights of substantial value, or experienced any labor trouble
         (including, without limitation, any actual or threatened strike or
         lock-out) or lost, or been threatened with the loss of, any key
         employees or any substantial number of employees; (v) entered into any
         settlement, compromise or consent for an amount in excess of $50,000
         with respect to any claim, proceeding or investigation; (vi) sold,
         assigned, transferred, leased or otherwise disposed of any of its
         respective assets, tangible or intangible, or canceled any debts or
         claims except, in each case, for fair consideration in the ordinary
         course of business (it being understood that the disposition of any
         asset or cancellation of any debt or claims carried on the books at
         more than $150,000 shall be deemed not to be a disposition or
         cancellation in the ordinary course of business); (vii) except for
         payments made in connection with the redemption of the interests of BA,
         Rangeley and Jussam and the simultaneous payments or distributions to
         DTHY and NV, declared or paid any dividends, or made any other
         distribution on or in respect of, or directly or indirectly purchased,
         retired, redeemed or otherwise acquired any shares of its capital
         stock, paid any principal due under any notes (other than the required
         amortization payments under the Fleet Loans) or opened accounts or paid
         any amount (other than salaries) or transferred any asset to any holder
         of any interest in the Partnership, Hamptons or Preferred; (viii)
         become bound by any contract or commitment or renewed, extended,
         amended, modified or terminated any contract or commitment which in any
         one case involved an amount in excess of $150,000 (or in the aggregate
         an amount in excess of $300,000) other than in the ordinary course of
         business; (ix) issued or sold any interest in either the Partnership,
         Hamptons or Preferred, except as contemplated by this Agreement; (x)
         except for certain bonuses being paid

                                       50

<PAGE>

         to Burr III, Julie Burr, Herman and Cusano as set forth on
         Schedule 19.15(x) attached hereto and made a part hereof, paid or
         agreed to pay, other than in the ordinary course of business,
         conditionally or otherwise, any bonus, extra compensation, pension or
         severance pay to any of the Members or their Shareholders, whether
         under any existing profit sharing, pension or other plan or otherwise;
         (xi) entered into any transaction not in the ordinary course of
         business (except for transactions contemplated by this Agreement) (it
         being understood that the acquisition of a real estate brokerage office
         shall be considered to be in the ordinary course of business); (xii)
         changed any of their respective accounting methods or principles used
         in recording transactions on their respective books or records or in
         preparing the Financial Statements (except for treating the operations
         of the Hamptons' offices on a combined basis with the rest of the
         Partnership's operations whereas the Partnership had previously
         reported such operations separately); or (xiii) entered into any
         contract or commitment to do any of the foregoing.

               19.16   ACCOUNTS RECEIVABLE.  Intentionally left blank.

               19.17  MATERIAL/SERVICE AGREEMENTS; OTHER CONTRACTS. Other than
         as reflected on the Financial Statements, and other than as may arise
         under or relate to the Franchise Agreement(s) between B&H, Hamptons and
         PREA, or the real estate leases to which either the Partnership,
         Hamptons or Preferred is a party, and except as which may arise in the
         ordinary course of business:

                           (a) Schedule 19.17(a) sets forth a complete list with
                  regard to each of the Partnership, Hamptons and Preferred of
                  (i) all bids, applications or proposals submitted by or
                  in-behalf of the Partnership, Hamptons or Preferred to provide
                  materials or services with a valuation of $200,000 or more to
                  any Person and for which the award, approval or selection is
                  pending, and (ii) all contracts or agreements for the
                  provision of materials or services with a

                                       51

<PAGE>

                  valuation of $200,000 or more to which the Partnership,
                  Hamptons or Preferred is a party and which has not yet been
                  performed in full (the items referred to in the foregoing
                  clauses (i) and (ii) being herein collectively called the
                  "Material/Service Agreements"). All of such Material/Service
                  Agreements are fully performable by the Partnership, Hamptons
                  or Preferred, as applicable, in compliance with their terms.
                  No grounds exist for the termination or cancellation of any
                  Material/Service Agreement by the other party thereto.
                  Schedule 19.17(a) sets forth for each Material/Service
                  Agreement: (i) the customer and (ii) the remaining revenue to
                  be earned.

                           (b) Except as disclosed in Schedule 19.17(b) hereto
                  or as disclosed in Schedule 19.17(a), neither the Partnership,
                  Hamptons nor Preferred is a party to or bound by any oral or
                  written contracts, obligations or commitments with respect to
                  any of the following:

                           (i) contract, commitment or arrangement involving, in
                  any one case, $200,000 or more;

                           (ii) other than relating to leases, office equipment
                  and machinery, a contract with a term of, or requiring
                  performance, more than one year from its date;

                           (iii) lease or lease purchase agreement, conditional
                  sale or title retention agreement, indenture, security
                  agreement, credit agreement, pledge or option with respect to
                  any property, real or personal (tangible or intangible), in
                  any capacity;

                           (iv) commitment, contract or undertaking for the
                  purchase or use of services, materials, supplies, inventory,
                  machinery or equipment and involving more than $200,000;

                           (v) employment contracts, undertakings,
                  understandings or arrangements with employees, except for an
                  employment agreement with Marcia Kaufman, the

                                       52

<PAGE>

                  Herman Employment Agreement and certain employment
                  understandings with regional and/or office managers of the
                  Partnership (the Company has previously delivered to Prefsa a
                  true, correct and complete copy of the Herman Employment
                  Agreement and the Company will deliver to Prefsa a true,
                  correct and complete copy of an employment agreement between
                  Preferred and Marcia Kaufman upon its execution);

                           (vi) contract or agreement with any labor union or
                  other collective bargaining group;

                           (vii) note, loan, credit or financing agreement or
                  other contract for money borrowed, and all related security
                  agreements and collateral documents, including any agreement
                  for any commitment for future loans, credit or financing;

                           (viii) guarantees;

                           (ix) contract or understanding regarding any capital
                  expenditures in excess of $200,000;

                           (x) distribution or advertising agreement;

                           (xi) partnership, shareholder or operating agreement
                  or contract with any Member or any Affiliate of a Member other
                  than this Agreement other than the Amended and Restated
                  Subscription and Shareholder's Agreement for Preferred and the
                  Operating Agreement for Hamptons;

                           (xii) contract, commitment or arrangement which would
                  restrain the Partnership, Hamptons or Preferred from engaging
                  or competing in any business or to maintain the
                  confidentiality of any matter (other than various
                  non-disclosure agreements relating to certain potential
                  business deals that the Partnership or Preferred was
                  investigating);

                           (xiii) contract, commitment or arrangement not made
                  in the ordinary course of business; and

                           (xiv) license, franchise or royalty agreement other
                  than those franchise agreements with PREA.

                           (c) The Partnership, Hamptons or Preferred, as
                  applicable, has delivered or has made available or will
                  hereafter make available to Prefsa correct and complete copies
                  of all of the contracts, agreements and other documents listed
                  in Schedules 19.17(a) and (b) hereto and all amendments
                  thereto and any waivers granted thereunder as well as the
                  Fleet loan documents and the real estate leases referred to in
                  the first sentence of this Section 19.17 (the "Scheduled
                  Contracts"). (Certain basic Fleet loan documents are attached
                  as Schedule 19.17(c), while all other Fleet loan documents
                  have been or will be made available to Prefsa). No unresolved
                  disputes are pending or, to the best of the Company's
                  knowledge, are threatened under or in respect of any such
                  Scheduled Contracts.

                           Except as described in Schedules 19.17 hereto, all
                  Scheduled Contracts described in such Schedules 19.17 are
                  valid and enforceable in accordance with their respective
                  terms, except as the enforcement thereof may be subject to or
                  limited by bankruptcy, insolvency, reorganization, moratorium
                  or other laws affecting the enforcement of creditors' rights
                  generally now or hereafter in effect and subject to the
                  application of equitable principles and the availability of
                  equitable remedies; and there is not, under any of such
                  documents or agreements or any obligation, or covenant or
                  condition contained therein, any existing default by either
                  the Partnership, Hamptons or Preferred, as applicable, or, to
                  the Company's knowledge, by any other party, or any event
                  which with notice, lapse or time, or both, would constitute a
                  default and which, individually or in the aggregate, could
                  reasonably be expected to have a material adverse

                                       53

<PAGE>

                  effect on the condition (financial or otherwise),
                  business, operations, affairs or prospects of either the
                  Partnership, Hamptons or Preferred, as applicable.

                  20. ARBITRATION. Any controversy, difference or dispute
         between the parties arising out of or relating to the matters set forth
         in this Agreement shall be submitted to and decided by arbitration
         before the American Arbitration Association in Nassau or Suffolk
         County, New York, in accordance with the rules of such association. Any
         award granted as a result of any such arbitration shall be binding upon
         the parties and judgment upon the award so rendered may be entered in
         any court of competent jurisdiction. The American Arbitration
         Association is authorized to award that the losing party shall bear the
         costs of the proceeding if it deems appropriate. Each of the parties
         hereby consents to the jurisdiction of the American Arbitration
         Association in Nassau County and Suffolk County, New York with respect
         to the foregoing matters.

                  21. NOTICES. Any notice required or given with respect to this
         Agreement shall be valid and effective when delivered by registered or
         certified mail return receipt requested or by receipted overnight
         delivery (e.g. Federal Express) or by hand to the address as set forth
         below. Any party hereto may change such address by notice given to the
         Company and the Members in accordance with this Article 21.

                  If to the Company:

                  Montauk Battery Realty, LLC
                  110 Walt Whitman Road
                  Huntington Station, NY 11746
                  Attention: Dorothy Herman

                  with a copy to:

                  Certilman Balin Adler & Hyman, LLP
                  90 Merrick Avenue
                  East Meadow, New York  11554
                  Attention:  Brian K. Ziegler, Esq.

                                       54

<PAGE>

                  If to DTHY and/or Herman:

                  16 Evergreen Drive
                  Syosset, New York  11791
                  Attention: Dorothy Herman

                  If to NV and/or Lorber:

                  712 Fifth Avenue
                  51st Floor
                  New York, New York 10019
                  Attention: Howard Lorber

                  with a copy to:

                  Kramer, Coleman, Wactlar & Lieberman, P.C.
                  100 Jericho Quadrangle
                  Jericho, New York 11753
                  Attention: Nancy D. Lieberman, Esq.

                  If to New Valley Mortgage and/or Lampen:

                  100 S.E. Second Street
                  32nd Floor
                  Miami, FL 33131
                  Attention: Richard Lampen

                  with a copy to:

                  Kramer, Coleman, Wactlar & Lieberman, P.C.
                  100 Jericho Quadrangle
                  Jericho, New York 11753
                  Attention: Nancy D. Lieberman, Esq.

                  If to Prefsa:

                  3333 Michelson Drive
                  Suite 1000
                  Irvine, CA 92612
                  Attention:  General Counsel

                  With a copy to:

                                       55

<PAGE>

                  Gibson, Dunn & Crutcher, LLP
                  4 Park Plaza, 18th Floor
                  Irvine, CA 92614
                  Attention: Teresa J. Farrell, Esq.

         22.      MISCELLANEOUS.

                  22.1 SUCCESSORS AND ASSIGNS; NO ASSIGNMENT. This Agreement
         shall be binding upon and inure to the benefit of the parties hereto
         and their respective Legal Representatives, successors and assigns;
         provided, however, that, except as expressly provided for herein, no
         party hereto may assign this Agreement without the prior written
         consent of 97% in interest of the Members.

                  22.2 CHOICE OF LAW. This Agreement shall be governed by and
         construed in accordance with the laws of the State of New York
         applicable to agreements made and to be performed wholly in such State.
         All parties consent to the jurisdiction of the state and federal courts
         located within the State of New York.

                  22.3 ENTIRE AGREEMENT. This Agreement (together with any
         schedules and exhibits hereto), and those certain letter agreements of
         even date herewith regarding the Company, set forth the entire
         agreement and understanding of the parties in respect of the subject
         matter hereof and supersede all prior agreements, arrangements and
         understandings relating to the subject matter hereof.

                  22.4 AMENDMENT AND MODIFICATION; NO WAIVER. Except as
         otherwise provided herein, this Agreement may be amended or modified
         only by a written instrument executed by a 97% in interest of the
         Members or, in the case of a waiver, by the party waiving compliance,
         provided that no amendment that would adversely affect any Member shall
         be effective with respect to such Member without such Member's written
         consent. The failure of a

                                       56

<PAGE>

         party at any time or times to require performance of any provisions
         hereof shall in no manner affect the party's right at a later time to
         enforce the same. No waiver by any party of the breach of any term
         contained in this Agreement, whether by conduct or otherwise, in any
         one or more instances, shall be deemed to be or construed as a further
         or continuing waiver of any such breach or of the breach of any other
         term of this Agreement.

                  22.5 AMENDMENT AND RENEWAL. Reference to this Agreement herein
         shall include any amendment or renewal hereof.

                  22.6 SEVERABILITY. If any provision of this Agreement shall be
         held to be invalid or unenforceable, such invalidity or
         unenforceability shall attach only to such provision and only to the
         extent such provision shall be held to be invalid or unenforceable and
         shall not in any way affect the validity or enforceability of the other
         provisions hereof, all of which provisions are hereby declared
         severable, and this Agreement shall be carried out as if such invalid
         or unenforceable provision or portion thereof was not embodied herein.

                  22.7 COUNTERPARTS. This Agreement may be executed in several
         counterparts, each of which shall be an original, but all of which
         together shall constitute one and the same agreement. The headings in
         this Agreement are solely for the convenience of the parties, and are
         not intended to and do not limit, construe or modify any of the terms
         and conditions hereof.

                  22.8 HEADINGS. The headings or captions in this Agreement are
         for convenience and reference only and do not in any way modify,
         interpret or construe the intent of the Parties or affect any of the
         provisions of this Agreement.

                  22.9 EQUITABLE RELIEF. The Parties agree that, since an
         interest in the Company or a Member (other than NV, New Valley Mortgage
         or Prefsa) cannot be readily purchased or sold in the open market, and
         since, for that reason among others, the non-defaulting parties will

                                       57

<PAGE>

         be irreparably damaged in the event of a breach or threatened
         breach hereof, this Agreement shall be specifically enforceable. Should
         any dispute arise concerning the transfer of an interest in the Company
         or a Member (other than NV, New Valley Mortgage or Prefsa) an
         injunction may be issued restraining any Disposition pending the
         determination of such controversy.

                  22.10 APPLICABILITY OF PROVISIONS. All of the provisions of
         this Agreement shall apply to all Shares owned by any Shareholder at
         the time of the execution of this Agreement, any Shares hereafter
         issued and exchanged therefor as a result of any reorganization,
         recapitalization or otherwise, and any additional Shares issued to a
         Shareholder by reason of a stock dividend or increase in outstanding
         Shares or otherwise.

                  22.11 ALIENATION. Except as provided in this Agreement, upon
         the alienation by a Member of all its interest in the Company owned or
         held by it in accordance with the provisions hereof, such Member shall
         have no further rights or privileges under this Agreement or otherwise
         be deemed a party hereto or bound hereby.

                  22.12 VOTING. Each Manager agrees that, so long as he or she
         shall be the representative of a holder or owner of any interest in the
         Company entitled to vote, he or she will vote to effectuate and
         implement all of the terms and provisions of this Agreement.

                  22.13 GENDER. All references to the masculine or neuter gender
         shall likewise apply to the other as well as to the feminine gender
         where applicable.

                  22.14 FUTURE OPPORTUNITIES. Any business opportunity coming to
         the Company directly resulting from, or relating to, the business of
         the Company, the Partnership, Hamptons, the business operating as
         Prudential Manhattan Realty, PE or Preferred, or any other entity in
         which the Company has an interest, shall, to the extent not taken
         advantage of by the Company, the Partnership, Hamptons, the business
         operating as Prudential Manhattan Realty, PE

                                       58

<PAGE>

         or Preferred, be made available to each Member in proportion
         to each Member's Capital Percentage Interest (as adjusted from time to
         time in accordance with the terms hereof) provided that each Member
         desiring to participate in such opportunity is willing to commit to his
         proportionate share of the capital requirements for such opportunity as
         determined by a majority of the Members choosing to participate.

                  22.15 SURVIVAL OF REPRESENTATIONS. All representations and
         warranties made in this Agreement, by any party hereto, shall survive
         solely for a period of one year from the date hereof.

                  22.16 TERMINATION OF HERMAN BY THE COMPANY. In the event that
         Herman is not an employee of the Company due to the termination of her
         employment with the Company by the Company, then DTHY and Herman shall
         collectively have the right, at their option, to initiate negotiations,
         in good faith, with the Company to sell their respective interests in
         the Company back to the Company. If DTHY and Herman exercise such right
         and the Company does not offer to buy such interests back at a price
         equal to, or greater than the Agreed Value (calculated pursuant to
         Section 15 hereof) of such interests, with the Valuation Date being the
         date of the closing of such purchase of the interest by the Company
         (the purchase price shall be payable over no more than four years),
         then the restrictive covenant provisions of Article 18 shall no longer
         apply to Herman. Provided that if Herman shall begin to compete with
         the Company, she and her entity (DTHY) shall lose their right to
         designate a manager to the Board and each of Herman and DTHY shall have
         no further rights to participate in any management decisions hereunder,
         whether under Article 8 or otherwise.

         [Rest of Page Intentionally Left Blank; Signature Pages Follow]

                                       59

<PAGE>

                  IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.

                          DTHY REALTY, INC.

                          By:  /s/ Dorothy Herman
                               ______________________________
                                 Dorothy Herman, President

                               /s/ Dorothy Herman
                               ------------------------------
                               Dorothy Herman

                          NEW VALLEY REAL ESTATE CORPORATION

                          By: /s/ Howard Lorber
                              -------------------------------
                              Howard Lorber, President

                          NEW VALLEY MORTGAGE CORPORATION

                          By: /s/ Richard Lampen
                              -------------------------------
                              Richard Lampen, President

                          PRUDENTIAL REAL ESTATE FINANCIAL
                          SERVICES OF AMERICA, INC.

                          By: /s/ Leila Ghoroghchi
                             --------------------------------
                             Leila Ghoroghchi

                          As to the Restrictive Covenant and Non-Solicitation
                          provision and Articles 20, 21 and 22 only

                              /s/ Howard Lorber
                              --------------------------------
                              Howard Lorber

                              /s/ Dorothy Herman
                              --------------------------------
                              Dorothy Herman

                                       60

<PAGE>

                              Richard Lampen
                              --------------------------------
                              /s/ Richard Lampen

                              AS MANAGERS:

                              /s/ Dorothy Herman
                              --------------------------------
                              Dorothy Herman

                              /s/ Howard Lorber
                              --------------------------------
                              Howard Lorber

                              /s/ Richard Lampen
                              --------------------------------
                              Richard Lampen

                              /s/ Leila Ghoroghchi
                              --------------------------------
                              Leila Ghoroghchi

                                       61<PAGE>
                                                                   EXHIBIT 10.7

                              SECOND AMENDMENT TO
                  AMENDED AND RESTATED OPERATING AGREEMENT OF
                           MEDCATH OF TUCSON, L.L.C.

         THIS SECOND AMENDMENT (the "Amendment") to the Amended and Restated
Operating Agreement (the "Operating Agreement") of MedCath of Tucson, L.L.C.
(the "Company") is made and entered pursuant to Section 11.2 of the Operating
Agreement.

                                    RECITALS

         WHEREAS, the Members desire to amend the Operating Agreement in
accordance with the terms of this Amendment.

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the Members agree as follows:

         1.       Section 1.4 of the Operating Agreement shall be deleted in
its entirety and the following new Section 1.4 shall be substituted in lieu
thereof:

                  1.4      "Board" shall mean the Board of Directors of the
         Company, which shall manage the Company in accordance with the terms
         hereof. The Board shall consist of nine (9) Board members and shall
         include five (5) members designated from time to time by SAHI, one of
         whom may be the president or chief executive officer of the Company,
         three (3) members designated from time to time by the Investor Members
         one (1) of whom shall be the medical director of the Hospital, and one
         (1) member designated from time to time by CHN. Each Board member may
         be removed and replaced at any time and for any reason by the Member
         or Members who are entitled hereunder to designate such Board member.

         2.       Section 3.1(b) of the Operating Agreement shall be deleted in
its entirety and the following Section 3.1(b) shall be substituted in lieu
thereof:

                  (b)      New Investor Members may make additional Capital
         Contributions of up to an additional Three Hundred Thousand Dollars
         ($300,000.00) to the Company, in which event CHN and SAHI shall,
         within thirty (30) days thereafter also make additional Capital
         Contributions of up to Three Hundred Thousand Dollars ($300,000) with
         CHN contributing thirty percent (30%) of such additional Capital
         Contributions and SAHI contributing seventy percent (70%) of such
         additional Capital Contributions so that CHN and SAHI maintain their
         respective Membership Interests. The Membership Interest of each
         Member shall be determined based upon the percentage of the actual
         Capital Contributions made by each Member relative to the Capital
         Contributions made by all Members subject, however, to any assignments
         of Membership Interests made by any Member in accordance with the
         terms of this Agreement, as amended.

<PAGE>
         3.       The following provision is hereby inserted at the end of
Section 3.1 of the Operating Agreement as subsection (c):

                  (c)      Notwithstanding anything in this Section 3.1,
         Section 1.25 or any other provision of this Agreement, the Membership
         Interests owned by the Members of the Company as of the date the
         Second Amendment to this Agreement becomes effective shall be as
         follows:

                           SAHI                      58.72%

                           CHN                       19.98%

                           Investor Members          21.30%

         4.       Section 3.5(a) of the Operating Agreement shall be deleted in
its entirety and the following new Section 3.5(a) shall be substituted in lieu
thereof:

                  (a)      First, the Company shall use commercially reasonable
         efforts to borrow such funds from a bank or other lender on terms and
         conditions reasonably acceptable to the Company. If the Company is
         unable, within a reasonable time, to borrow such funds from a
         financial institution, SAHI shall loan seventy percent (70%) of such
         funds and CHN shall loan thirty percent (30%) of such funds to the
         Company from time to time at an annual rate of interest equal to the
         Prime Rate plus one percent (1%) per annum. Such loans shall be
         secured by the Company's assets. Interest shall be paid monthly in
         arrears and principal shall be repaid as the Company has funds
         available therefor in accordance with Section 6.1. All loans obtained
         hereunder shall be subject to the approval of the Board, which
         approval shall not be unreasonably withheld or delayed; provided that
         all loans and lease financing made by any third party or Affiliate of
         SAHI prior to the date hereof are hereby deemed approved.

         5.       In the second line of Section 3.6(b) of the Operating
Agreement, the reference to "Schedule C" shall be deleted and its place shall
be inserted "Schedule B".

         6.       Section 3.7 of the Operating Agreement shall be deleted in
its entirety and the following new Section 3.7 shall be substituted in lieu
thereof:

                  3.7      CHN Guarantees. CHN agrees to guarantee, on a
         several basis, thirty percent (30%) of loans or lease financing first
         incurred by the Company after July 31, 1999 (excluding any existing
         obligation of the Company that is refinanced after July 31, 1999), and
         to provide security for such guarantees, on the same terms and
         conditions as guarantees and collateral are hereafter agreed to from
         time to time by SAHI or its Affiliates, it being the intent of the
         parties hereto that SAHI and its Affiliates be responsible for seventy
         percent (70%) of the obligations and liabilities for all such
         guarantees and such collateral and CHN and its Affiliates be
         responsible for thirty percent (30%) of the obligations and

                                       2
<PAGE>

         liabilities for all such guarantees and such collateral and to receive
         proportionately equal compensation therefor pursuant to Section
         5.6(b)(ii). CHN and its Affiliates agree to provide financial
         statements from time to time and such other information as are
         reasonably requested by any party providing loans or leasing to the
         Company and agree to promptly execute such additional documents and
         agreements as SAHI shall reasonably request that CHN execute for
         purposes of fulfilling the intent of this Section 3.7.

         7.       In the fourth line of Section 3.8 of the Operating Agreement,
the phrase "five percent" shall be deleted and in its place shall be inserted
"three percent (3%)".

         8.       The following provision shall be inserted as the second
paragraph of Section 5.9(d) of the Operating Agreement:

                           Notwithstanding the terms of this Section 5.9(d) or
                  any other provision herein to the contrary, CHN and its
                  Affiliates shall be entitled from time to time to provide at
                  St. Mary's and St. Joseph's in Tucson, Arizona only (i)
                  medical care required for each of the following: routine
                  cardiac care, treatment for arrhythmias, treatment for acute
                  myocardial infarctions and treatment for unstable angina,
                  exclusive, however, of any cardiac surgical procedures; (ii)
                  pacemaker and defibrillation insertions; (iii) diagnostic
                  cardiac catheterizations; (iv) high risk emergency PTCA; and
                  (v) low risk elective angioplasties (patients must have 20%
                  or less myocardium involvement and single vessel disease).
                  Other than those services set forth in (i) through (v) of
                  this Section 5.9(d), CHN and its Affiliates may not provide
                  any cardiac surgery, high risk elective PTCA (patients having
                  greater than 20% myocardium involvement and/or multiple
                  vessel disease), and the placement of stents in patients
                  provided however that CHN and its Affiliates shall not permit
                  physicians at St. Mary's and St. Joseph's to place stents in
                  patients unless, while angioplasties are being performed on
                  such patients, the placement of stents during such procedures
                  becomes medically necessary as determined by the attending
                  physician. In order to monitor CHN's compliance with the
                  terms of this Section 5.9(d), the Company shall be entitled
                  to reasonable access at least quarterly to appropriate and
                  applicable records of CHN and to appropriate management
                  personnel of CHN and physicians on the medical staffs of St.
                  Mary's and St. Joseph's. CHN shall develop written
                  guidelines, which shall be reviewed and approved by the
                  Company (which approval will not be unreasonably withheld),
                  to be provided to management personnel of CHN and physicians
                  on the medical staffs of St. Mary's and St. Joseph's in order
                  to ensure their compliance with the terms of this Section
                  5.9.

         9.       Section 5.14(e) of the Operating Agreement shall be deleted
in its entirety and the following new Section 5.14(e) shall be substituted in
lieu thereof:

                                       3
<PAGE>

                  (e)      Any action taken by the Board shall require the
         affirmative vote of at least a majority of the Board members present
         at a meeting at which a quorum is present; however, any of the
         following actions taken by the Board shall also require the
         affirmative vote of the Board member appointed by CHN and at least one
         Board member appointed by SAHI:

                           (i)      The approval of the annual budget of the
                  Company for both operations and capital expenditures;

                           (ii)     Any capital expenditure not included in the
                  approved annual budget which is in excess of Twenty-Five
                  Thousand Dollars ($25,000.00);

                           (iii)    Any change in the purposes of the Company
                  or in its statement of philosophy and values, as set forth in
                  Sections 2.3 and 2.6 respectively; and

                           (iv)     Any loan by SAHI and CHN under Section
                  3.5(a) or any guaranty by CHN under Section 3.7.

                  In the case of (i), (ii) and (iv) above, the affirmative vote
         of the Board member appointed by CHN shall not be unreasonably
         withheld.

         10.      In the second line of Section 6.1(b) of the Operating
Agreement, the reference to "3.6(b)" shall be deleted and in its place shall be
inserted "3.8".

         11.      The following is hereby inserted as the second and third
paragraphs of Section 6.1(c) of the Operating Agreement:

                           From time to time, the Company may receive
                  short-term working capital advances from SAHI or its
                  Affiliates and CHN or its Affiliates in anticipation of the
                  collection of accounts receivable, which advances shall be
                  promptly repaid by the Company upon collection of its
                  accounts receivable. The Members acknowledge and agree that
                  any such short-term advances made by SAHI, CHN or their
                  Affiliates shall not be considered loans under this Section
                  6.1 and shall not be subject to the allocation and
                  distribution requirements set forth in this Section 6.1.

         12.      The following provision is hereby inserted at the end of
Section 6.2(a):

                  , provided that the Capital Accounts and Capital
                  Contributions of each of SAHI, CHN and the Investor Members
                  (in the aggregate with respect to the Investor Members) was
                  $966,364 as of July 31, 1999 for purposes of calculating all
                  distributions, allocations and all other allocations of
                  Income or Loss under this Agreement; provided further that
                  Capital Accounts shall be further adjusted to reflect events
                  subsequent to July 31, 1999 including,

                                       4
<PAGE>

                  without limitation, assignments of Membership Interests made
                  in accordance with the terms of this Agreement, as amended.

         13.      The following provision is hereby inserted at the end of
Section 12.11 of the Operating Agreement as subsection (c):

                  (c)      In the event that the Ethical and Religious
         Directives for Catholic Healthcare Services as promulgated by the
         United States Catholic Conference are hereafter finally amended so as
         to prohibit CHN's continued ownership in the Company, and a qualified
         independent canon lawyer concludes in writing that CHN is required to
         withdraw from the Company for such reasons, then CHN shall be
         permitted to terminate its membership in the Company. If CHN
         terminates its membership in the Company under this Section 12.11(c),
         the Board (excluding CHN's representative) shall cause the Company to
         either (i) purchase CHN's Membership Interest for a purchase price
         equal to the greater of (x) the Formula Purchase Price (to be paid in
         accordance with the Payment Method) or (y) the amount of the
         unreturned Capital Contributions (counting all prior distributions by
         the Company as a return of Capital Contributions and adjusted for
         assignments of Membership Interests made in accordance with the terms
         of this Agreement, as amended) made by CHN with respect to its
         Membership Interest (to be paid in accordance with the Payment
         Method), in which event CHN shall be bound by the provisions of
         Section 5.9 for a period of five (5) years after such purchase or (ii)
         allow CHN to withdraw as a Member (without a return of any Capital
         Contributions after the date of withdrawal), in which event CHN shall
         thereafter be bound by the restrictions of Section 5.9 for a period to
         two (2) years after withdrawal.

         14.      All terms not defined herein shall have the meaning provided
therefor in the Operating Agreement.

         15.      Except as expressly provided herein, all terms and conditions
of the Operating Agreement shall remain in full force and effect.

         16.      This Amendment shall be effective only (i) when approved by
the Members in accordance with Section 11.2 of the Operating Agreement, and
(ii) if both the transaction contemplated by that certain Securities Exchange
Agreement between MedCath Corporation and CHN dated April 20, 2001 and the
initial public offering of common stock of MedCath Corporation are completed.

                    [remainder of page intentionally blank]

                                       5
<PAGE>

         IN WITNESS WHEREOF, the Members have approved and consented to this
Amendment as of the 27th day of July, 2001.

[***]

[***] These portions of this exhibit have been omitted and filed separately
with the Commission pursuant to a request for confidential treatment.

                                       6

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00046-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00046-of-00352.parquet"}]]