Document:

<PAGE>   1
                                                               Exhibit 10(i)(D)3

                    NOTE MODIFICATION AND EXTENSION AGREEMENT

                  This NOTE MODIFICATION AND EXTENSION AGREEMENT (this
"AGREEMENT") dated as of the 27th day of April 2001, between ALEXANDER'S, INC.,
a Delaware corporation ("BORROWER") and FIRST UNION NATIONAL BANK (formerly
known as First Fidelity Bank, National Association) ("LENDER").

                                R E C I T A L S:

                  WHEREAS, Lender is the current holder of that certain
Promissory Note dated March 15, 1995 in the original principal amount of
$20,000,000.00 made by Lender to Borrower (as amended pursuant to that certain
Note Modification and Extension Agreement between Borrower and Lender dated as
of March 29, 1999 and as further amended pursuant to that certain Note
Modification and Extension Agreement between Borrower and Lender dated as of
April 14, 2000 , the "NOTE") which was executed and delivered in substitution
for the Promissory Note dated March 15, 1995 in the original principal amount of
$30,000,000.00, pursuant to the Note and Mortgage Modification and Severance
Agreement dated June 18, 1998 (the "SEVERANCE AGREEMENT") by and among
Alexander's of Fordham Road, Inc., Alexander's, Inc., Alexander's of Third
Avenue, Inc., Alexander's Rego Park Center, Inc., Alexander's of Rego Park II,
Inc., Alexander's of Rego Park III, Inc., Seven Thirty One Limited Partnership,
Alexander's Department Stores of Lexington Avenue, Inc., Alexander's of
Brooklyn, Inc., Alexander's Department Stores of New Jersey, Inc. and First
Union National Bank; and

                  WHEREAS, the Note was made pursuant to the Severance Agreement
and that certain Credit Agreement between Borrower and Lender dated March 15,
1995 (such Credit Agreement, as amended by letter agreement dated March 29, 1995
between Lender and Borrower, as further amended by two letter agreements between
Borrower and Lender, each dated March 24, 1997, as modified and extended by that
certain Modification and Extension of Credit Agreement dated as of March 15,
1998 between Lender and Borrower, as further modified by that certain
Modification of Credit Agreement between Borrower and Lender dated as of June
18, 1998, as further modified and extended by that certain Modification and
Extension of Credit Agreement between Borrower and Lender dated as of March 29,
1999 and as further modified and extended by that certain Modification and
Extension of Credit Agreement between Borrower and Lender dated April 14, 2000
and as further modified and extended by that certain Modification and Extension
of Credit Agreement of even date herewith being hereinafter referred to as the
"CREDIT AGREEMENT"); and

                  WHEREAS, the Note is secured by, inter alia, those certain
Mortgages, Assignments of Leases, Security Agreements and Fixture Filings, each
dated March 15, 1995 (as heretofore amended, collectively, the "MORTGAGES"), in
the original principal amount of $30,000,100.00 (except for the 59th Street
Mortgage) and given by (i) Alexander's, Inc. to Lender and recorded on March 22,
1995 in the Office of the City Register, Bronx County in Reel 1310, Page 1, (ii)
Seven Thirty One Limited Partnership to Lender (original principal amount of
$30,000,000.00) and recorded on March 20, 1995 in the Office of the City
Register, New York County in Reel 2192, Page 1291 (the "59TH STREET MORTGAGE"),
(iii) Alexander's, Inc. to Lender and recorded on March 17, 1995 in the Office
of the City Register, Queens County in Reel 4088, Page 0615, (iv) Alexander's,
Inc. to Lender and recorded on March 17, 1995 in the Office of the City
Register, Queens County in Reel 4088, Page 659 and (v) Alexander's Department
Stores of New Jersey, Inc. to Lender and recorded
<PAGE>   2
on March 17, 1995 in the Office of the County Clerk, Bergen County, New Jersey
in Book 8953, Page 802; and

                  WHEREAS, simultaneously herewith, the parties hereto have
amended the Mortgages to extend the maturity date of the Loan evidenced by the
Note and to make conforming changes therein in accordance with the Modification
and Extension of Credit Agreement of even date herewith between Borrower and
Lender.

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

                  1. The following phrase is added at the end of the second
sentence of the Note Preamble (the sentence beginning with the phrase "As used
in this Note, the term Credit Agreement"): ", as further amended by Modification
and Extension of Credit Agreement dated as of March 29, 1999 between Maker and
the Lender and as further amended by Modification and Extension of Credit
Agreement dated as of April 14, 2000 between Maker and the Lender and as further
amended by Modification and Extension of Credit Agreement dated as of April 27,
2001 ." As used herein, the "Note Preamble" shall mean the paragraph of the Note
beginning with the phrase "FOR VALUE RECEIVED."

                  2. Borrower hereby acknowledges and agrees that there is now
owing under the Note the current outstanding principal balance of TWENTY MILLION
and 00/100 DOLLARS ($20,000,000.00). The aforesaid sum is owing by Borrower to
Lender without claim, defense, offset or counterclaim of any kind or nature
whatsoever.

                  3. The phrase "to but excluding March 15, 2001 (the "MATURITY
DATE")," appearing in the second and third line of Section 2 on the first page
of the Note, shall be replaced with the following: "to but excluding MARCH 15,
2002 (the "MATURITY DATE")".

                  4. All references in the Note to the Credit Agreement shall
henceforth be deemed to refer to the Credit Agreement as defined in this
Agreement. Terms not otherwise defined in this Agreement shall have the
respective meanings ascribed to them in the Credit Agreement.

                  5. Except as herein amended, the terms and provisions of the
Note shall, in all other respects, remain unmodified, are hereby ratified and
reaffirmed, and shall remain in full force and effect.

                  6. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original, and all of which
together shall constitute one and the same instrument.

                  7. This Agreement shall be binding upon and shall inure to the
benefit of Borrower and Lender and their respective successors and assigns. This
Agreement shall be governed by the law of the State of New York. This Agreement
may not be modified orally, but only by a writing executed by both parties
hereto.

                                      - 2 -
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                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.

                                        FIRST UNION NATIONAL BANK

                                        By:       /s/ William H. Bermingham
                                                --------------------------------
                                                Name: William H. Bermingham
                                                Title: Vice President

                                        ALEXANDERS, INC.

                                        By:       /s/ Joseph Macnow
                                                --------------------------------
                                                Name: Joseph Macnow
                                                Title: Executive Vice President

                                      - 3 -
<PAGE>   4
STATE OF New York          )
                           )  ss.:
COUNTY OF New York         )

         On the 27th day of April in the year 2001, before me, the undersigned,
a Notary Public in and for said State, personally appeared William H. Bermingham
, personally known to me or proved to me on the basis of satisfactory evidence
to be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity, and that
by his/her signature on the instrument, the individual, or the person upon
behalf of which the individual acted, executed the instrument.

                                         /s/ Lawrence R. Priola
                                     -------------------------------------------
                                              Notary Public
                                              Lawrence R. Priola
                                              Notary Public, State of New York
                                              No. 4841047
                                              Qualified in Suffolk County
                                              Commission Expires March 30, 2003
<PAGE>   5
STATE OF New Jersey        )
                           )  ss.:
COUNTY OF Bergen           )

         On the 20th day of April in the year 2001, before me, the undersigned,
a Notary Public in and for said State, personally appeared Joseph Macnow,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her capacity, and that
by his/her signature on the instrument, the individual, or the person upon
behalf of which the individual acted, executed the instrument.

                                              /s/  Deborah Anthony
                                             --------------------------------
                                             Notary Public
                                             Deborah Anthony
                                             Notary Public of New Jersey
                                             My Commission Expires Feb. 6, 2006.<PAGE>   1
                                                               Exhibit 10(i)(D)4

                 MODIFICATION AND EXTENSION OF CREDIT AGREEMENT
                 ----------------------------------------------

                  THIS MODIFICATION AND EXTENSION OF CREDIT AGREEMENT (this
"AGREEMENT") dated as of the 27th day of April, 2001, between ALEXANDER'S, INC.,
a Delaware corporation, having an address at 210 Route 4 East, Paramus, New
Jersey 07652 ("BORROWER") and FIRST UNION NATIONAL BANK (formerly known as First
Fidelity Bank, National Association), having an address at 550 Broad Street,
Newark, New Jersey 07102 ("LENDER").

                                R E C I T A L S:

                  WHEREAS, Lender is the current holder of that certain
Promissory Note dated March 15, 1995 in the original principal amount of
$20,000,000.00 made by Borrower to Lender (as amended by the Note Modification
and Extension Agreement dated as of March 29, 1999 between Borrower and Lender
as modified by Note Modification and Extension Agreement dated April 14, 2000
and as further modified by Note and Modification Agreement of even date
herewith, referred to herein as the "NOTE"), which was executed and delivered in
substitution for the Promissory Note dated March 15, 1995 in the original
principal amount of $30,000,000.00, pursuant to the Note and Mortgage
Modification and Severance Agreement dated June 18, 1998 by and among
Alexander's of Fordham Road, Inc., Alexander's, Inc., Alexander's of Third
Avenue, Inc., Alexander's Rego Park Center, Inc., Alexander's of Rego Park II,
Inc., Alexander's of Rego Park III, Inc., Seven Thirty One Limited Partnership,
Alexander's Department Stores of Lexington Avenue, Inc., Alexander's of
Brooklyn, Inc., Alexander's Department Stores of New Jersey, Inc. and First
Union National Bank;

                  WHEREAS, the Note was made pursuant to that certain Credit
Agreement between Borrower and Lender dated March 15, 1995 ("ORIGINAL CREDIT
AGREEMENT"), which Credit Agreement was amended by (i) letter agreement dated
March 29, 1995 between Lender and Borrower, (ii) two letter agreements between
Lender and Borrower, each dated March 24, 1997, (iii) Modification and Extension
of Credit Agreement dated as of March 15, 1998 between Borrower and Lender, (iv)
Modification of Credit Agreement dated as of June 18, 1998 between Borrower and
Lender, (v) Modification and Extension of Credit Agreement dated as of March 29,
1999 and (vi) Modification and Extension of Credit Agreement dated as of April
14 , 2000 (the "2000 CREDIT AGREEMENT MODIFICATION") between Borrower and Lender
(such Original Credit Agreement, as so modified, the "CREDIT AGREEMENT"), which
Note evidences a loan in the original principal amount of $30,000,100.00 (the
"LOAN") made by Lender to Borrower;

                  WHEREAS, the Note is secured by, inter alia, (A) those certain
Mortgages, Assignments of Leases, Security Agreements and Fixture Filings, each
dated March 15, 1995 (as heretofore amended, collectively, the "MORTGAGES"), in
the original principal amount of $30,000,100.00 (except for the 59th Street
Mortgage) and given by (i) Alexander's, Inc. to Lender and recorded on March 22,
1995 in the Office of the City Register, Bronx County in Reel 1310, Page 1, (ii)
Seven Thirty One Limited Partnership ("59TH STREET OWNER") to Lender (original
principal amount of $30,000,000.00) and recorded on March 20, 1995 in the Office
of the City Register, New York County in Reel 2192, Page 1291(the "59TH STREET
MORTGAGE"), (iii) Alexander's, Inc. to Lender and recorded on March 17, 1995 in
the Office of the City Register, Queens County in Reel 4088, Page 615, (iv)
Alexander's, Inc. to Lender and recorded on March 17, 1995 in the Office of the
City Register, Queens County in Reel 4088, Page 659 and (v) Alexander's
Department Stores of New Jersey, Inc. to Lender and recorded on March 17, 1995
in the Office of the County Clerk, Bergen County, New Jersey in Book 8953, Page
802 and (B) those certain Assignments of Leases and Rents,

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each dated March 15, 1995, which are identified on Schedule A annexed hereto and
made a part hereof (the "ASSIGNMENTS OF LEASES AND RENTS"); and

                  WHEREAS, the Note and the Loan are guaranteed by certain
wholly owned subsidiaries of Borrower and the 59th Street Owner pursuant to the
following documents: (i) that certain Guaranty of Payment in favor of Lender
dated as of March 15, 1995 ("1995 GUARANTY") made by Alexander's of Fordham
Road, Inc., Alexander's of Rego Park, Inc., Alexander's of Rego Park II, Inc.,
Alexander's of Rego Park III, Inc., Alexander's of Third Avenue, Inc.,
Alexander's of Flushing, Inc., Alexander's Department Stores of New Jersey, Inc.
and Alexander's Department Stores of Lexington Avenue, Inc. (collectively, the
"1995 GUARANTORS") and the 1998 Released Guarantors (as hereinafter defined) and
(ii) that certain Guaranty dated as of March 29, 1999 made by the 59th Street
Owner (the "1999 GUARANTOR") in favor of Lender (the "1999 GUARANTY" and
together with the 1995 Guaranty and the 1999 Guaranty, collectively, the
"GUARANTY"); and

                  WHEREAS, Alexander's Rego Park Center, Inc. (the "1997
GUARANTOR") executed a Guaranty of Payment in favor of Lender dated March 24,
1997 (the "1997 GUARANTY"), which 1997 Guaranty was later released pursuant to a
letter agreement by and among Borrower, Lender, Alexander's Rego Park Center,
Inc., Alexander's of Rego Park, Inc. and others dated May 12, 1999, which letter
agreement also confirmed the release of Alexander's of Rego Park, Inc. from the
1995 Guaranty (Alexander's Rego Park Center, Inc. and Alexander's of Rego Park,
Inc., collectively, the "1999 RELEASED GUARANTORS");

                  WHEREAS, pursuant to a certain Modification and Reaffirmation
of Guaranty dated as of June 18, 1998, Alexander's of Brooklyn, Inc.,
Alexander's Department Stores of Brooklyn, Inc. and ADMO Realty
Corp.(collectively, the "1998 RELEASED GUARANTORS") were released as guarantors
under the 1995 Guaranty;

                  WHEREAS, in connection with the release by Lender of a
mortgage made by Alexander's of Fordham Road, Inc. (the "2000 RELEASED
GUARANTOR"), covering premises at Fordham Road, Bronx, New York, the 2000
Released Guarantor was released as guarantor under the 1995 Guaranty;

                  WHEREAS, the 1995 Guarantors and the 1999 Guarantor, with the
exclusion of the 1998 Released Guarantors, the 1999 Released Guarantors and the
2000 Released Guarantor, are collectively referred to herein as the
"GUARANTORS;" and

                  WHEREAS, Borrower has requested that Lender extend and modify
the Loan as provided in this Agreement and to amend the terms of the Credit
Agreement and Lender is willing, subject to the terms and conditions hereinafter
set forth, to extend and modify the Loan in the manner hereinafter provided; and

                  WHEREAS, as a condition to Lender executing and delivering
this Agreement, Lender has required that Guarantors reaffirm the Guaranty and
amend the Guaranty to cover all obligations of Borrower to Lender, as modified
by this Agreement, and the Guarantors have agreed to reaffirm the Guaranty as
hereinafter provided; and

                                        2
<PAGE>   3
                  WHEREAS, Borrower and Alexander's Department Stores of
Lexington Avenue, Inc. ("ALEX-LEX") executed a certain Pledge Agreement dated as
of March 15, 1995 by and among Borrower, Alex-Lex and Lender (as modified by the
1999 Credit Modification Agreement, the "PLEDGE AGREEMENT"), to further secure
the Note and the Loan;

                  WHEREAS, as a condition to Lender executing and delivering
this Agreement, Lender has required that Alex-Lex and Borrower reaffirm the
Pledge Agreement and Alex-Lex and Borrower have agreed to reaffirm and amend the
Pledge Agreement as hereinafter provided;

                  WHEREAS, Borrower and 59th Street Owner executed a Pledge and
Security Agreement for Transferrable Development Rights dated as of April 14,
2000, by and among Borrower, 59th Street Owner and Lender ("PLEDGE OF
DEVELOPMENT RIGHTS AGREEMENT") to further secure the Note and the Loan; and

                  WHEREAS, as a condition to Lender executing and delivering
this Agreement, Lender has required that 59th Street Owner and Borrower reaffirm
the Pledge of Development Rights Agreement and 59th Street Owner and Borrower
have agreed to reaffirm the Pledge of Development Rights Agreement as
hereinafter provided.

                  WHEREAS as a condition to Lender executing and delivering this
Agreement, Lender has required that Vornado Lending L.L.C. and Vornado Realty
Trust enter into with Lender a Modification of Subordination and Intercreditor
Agreement of even date herewith (the "2001 INTERCREDITOR AGREEMENT
MODIFICATION");

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

         1.       EXTENSION OF MATURITY DATE The definition of "Maturity Date"
appearing on page 8 of the Original Credit Agreement is hereby deleted in its
entirety and replaced by the following definition:

                  "'Maturity Date' means MARCH 15, 2002."

         2.       INTEREST RATE.

                  References to the "Maturity Date" in Paragraph 2 of the 2000
Credit Agreement Modification (which is hereby incorporated herein by this
reference), including, without limitation, in the definition of the "2000
Modification Interest Period" as set forth therein shall mean the "Maturity
Date" as defined above, that is, March 15, 2002. The Note shall continue to earn
interest at the "2000 Modification LIBOR-Based Rate" as defined in the 2000
Credit Agreement Modification until the Maturity Date (March 15, 2002), subject
to the provisions of the Credit Agreement and the other Loan Documents as to the
interest rate in effect from and after a default.

         3. PAYMENT OF ACCRUED INTEREST; BORROWER'S ESTOPPEL. Borrower shall pay
to Lender on the date hereof all accrued and unpaid interest to the date hereof
(collectively, the "ACCRUED INTEREST") on the Note (as modified by this
Agreement). Borrower hereby acknowledges and agrees that, after giving credit
for such payment, there is now owing under the Note and the Loan the outstanding
principal balance of TWENTY MILLION and 00/100 DOLLARS ($20,000,000.00).

                                        3
<PAGE>   4
The aforesaid sum is owing by Borrower to Lender without claim, defense, offset
or counterclaim of any kind or nature whatsoever.

         4.       LOAN FEE FOR EXTENSION AND MODIFICATION OF LOAN.
Simultaneously with the execution and delivery of this Agreement, Borrower shall
pay to the Lender, in consideration for Lender agreeing to extend and modify the
Loan in accordance with the terms of this Agreement, a fee equal to $60,000.00.

         5.       REAFFIRMATION OF GUARANTY.   By signing below under the words
"CONFIRMED AND AGREED TO", each of the Guarantors:

                  a. agrees that the term "Loan Documents" as used in the
Guaranty shall henceforth mean (i) all of the "Loan Documents", as defined in
the Original Credit Agreement (as such documents may have heretofore been
modified), (ii) the Note (as heretofore modified and as modified by the Note
Modification and Extension Agreement of even date herewith) (iii) the Mortgages
(as heretofore modified and as modified by the Mortgage Modification and
Extension Agreement of even date herewith), (iv) the Assignments of Lease and
Rents (as modified by amendment of even date herewith), (v) the Credit Agreement
as modified by this Agreement, (vi) the Transferrable Development Rights
Security Agreement (as defined in the 2000 Credit Agreement Modification), (vii)
all other agreements modifying, extending or reaffirming the Loan Documents,
including, without limitation, those documents being executed in connection with
the execution and delivery of this Agreement and (viii) all other documents and
agreements executed or delivered in connection with any of the foregoing
documents and pertaining to the Loan or collateral therefor (all of the
foregoing, collectively referred to herein as the "LOAN DOCUMENTS");

                  b. acknowledges the continuing validity of the Guaranty to
Lender and represents, warrants and confirms the non-existence of any offsets,
defenses or counterclaims to any of its obligations thereunder, and waives any
right to assert any set-off, counterclaim or cross claim of any nature
whatsoever in any litigation relating to the Loan or any of the Loan Documents,
the Guaranty or otherwise with respect to the Loan;

                  c. acknowledges that its execution of this Agreement
constitutes a reaffirmation of its liability under the Guaranty for the
performance of (x) all of Borrower's obligations to Lender under the Loan
Documents, (y) all of the obligations of Borrower and the other mortgagors under
the Mortgages and (z) and any and all obligations of Borrower of any kind and
description, whether now existing or hereafter arising, under or in connection
with swap agreements (as defined in 11 U.S.C. Section 101) between Borrower and
Lender (or an affiliate of Lender);

                  d. represents to Lender that all corporate action necessary to
authorize the execution and delivery of this Agreement by such Guarantor has
been duly and properly taken;

                  e. represents to Lender that such Guarantor is in good
standing under the laws of the state of its incorporation;

                  f. irrevocably and unconditionally waives any and all rights
to trial by jury in any action, suit or counterclaim arising in connection with,
out of or otherwise relating to this Agreement, the Guaranty or any other Loan
Document; and

                                        4
<PAGE>   5
                  g. represents and warrants to Lender that such Guarantor owns
the fee estate with respect to the respective premises set forth opposite the
name of such Guarantor on Schedule B annexed hereto (as such premises are so
identified on Schedule IX of the Original Credit Agreement) and hereby assumes
all of the obligations of the mortgagor(s) under the Mortgage covering such
premises (if such Guarantor did not originally execute such Mortgage as
mortgagor).

         6.       REAFFIRMATION OF PLEDGE AGREEMENT.

                  a.       Borrower and Alex-Lex hereby represent and warrant to
Lender as follows:

                           i. Borrower owns a 1.0% interest (843.50 Units) as a
limited partner in 59th Street Owner (the "ALEX LIMITED PARTNER INTEREST").

                           ii. Alex-Lex owns a 49.0% interest (41,331.50 Units)
as a general partner in 59th Street Owner (the "ALEX-LEX GENERAL PARTNER
INTEREST") and a 50.0% interest (42,175 Units) as a limited partner in 59th
Street Owner (the "ALEX-LEX LIMITED PARTNER INTEREST").

                           iii. The Alex Limited Partner Interest, the Alex-Lex
General Partner Interest and the Alex-Lex Limited Partner Interest constitute in
the aggregate one hundred percent (100%) of the partnership and equity interests
in 59th Street Owner, including, without limitation, all of the interest of the
general partners and limited partners in 59th Street Owner.

                           iv. Borrower continues to own all of the issued and
outstanding capital stock of the Guarantors and Lender has a first priority and
perfected security interest therein.

                  b.       Borrower and Alex-Lex further agree as follows:

                           i. agree that the term "Loan Documents" as used in
the Pledge Agreement shall henceforth mean the "Loan Documents" as such term is
defined in this Agreement.

                           ii. acknowledges the continuing validity of the
Pledge Agreement and represent, warrant and confirm the non-existence of any
offsets, defenses or counterclaims to any of its obligations thereunder, and
waives any right to assert any set-off, counterclaim or cross claim of any
nature whatsoever in any litigation relating to the Loan or any of the Loan
Documents, the Pledge Agreement or otherwise with respect to the Loan;

                           iii. acknowledge that their execution of this
Agreement constitutes a reaffirmation of their obligations under the Pledge
Agreement and that the pledge and security interest granted by Borrower therein
(including, without limitation, the "Shares", as defined in the Pledge
Agreement, and the Alex Limited Partner Interest) and by Alex-Lex (including,
without limitation, the Alex-Lex General Partner Interest and the Alex-Lex
Limited Partner Interest) shall secure, without limitation, the performance of
(x) all of Borrower's obligations to Lender under the Loan Documents, (y) all of
the obligations of Borrower and the other mortgagors under the Mortgages and (z)
and any and all obligations of Borrower of any kind and description, whether now
existing or hereafter arising, under or in connection with swap agreements (as
defined in 11 U.S.C. Section 101) between Borrower and Lender (or an affiliate
of Lender).

                                        5
<PAGE>   6
                  c.       Alex-Lex represents to Lender (i) that all corporate
action necessary to authorize the execution and delivery of this Agreement by
Alex-Lex has been duly and properly taken and Alex-Lex is in good standing under
the laws of the state of its incorporation; and

                  d.       Borrower and Alex-Lex irrevocably and unconditionally
waive any and all rights to trial by jury in any action, suit or counterclaim
arising in connection with, out of or otherwise relating to this Agreement, the
Pledge Agreement or any other Loan Document.

         7.       REAFFIRMATION OF PLEDGE OF DEVELOPMENT RIGHTS AGREEMENT

                  a.       Borrower and 59th Street Owner agree as follows:

                           i. acknowledges the continuing validity of the Pledge
of Development Rights Agreement and represent, warrant and confirm the
non-existence of any offsets, defenses or counterclaims to any of its
obligations thereunder, and waives any right to assert any set-off, counterclaim
or cross claim of any nature whatsoever in any litigation relating to the Loan
or any of the Loan Documents, the Pledge of Development Rights Agreement or
otherwise with respect to the Loan;

                           ii. acknowledge that their execution of this
Agreement constitutes a reaffirmation of their obligations under the Pledge of
Development Rights Agreement and that the pledge and security interest granted
by Borrower therein shall secure, without limitation, the performance of (x) all
of Borrower's obligations to Lender under the Loan Documents, (y) all of the
obligations of Borrower and the other mortgagors under the Mortgages and (z) and
any and all obligations of Borrower of any kind and description, whether now
existing or hereafter arising, under or in connection with swap agreements (as
defined in 11 U.S.C. Section 101) between Borrower and Lender (or an affiliate
of Lender).

                  b. 59th Street Owner represents to Lender (i) that all
corporate action necessary to authorize the execution and delivery of this
Agreement by 59th Street Owner has been duly and properly taken and 59th Street
Owner is in good standing under the laws of the state of its incorporation; and

                  c. Borrower and 59th Street Owner irrevocably and
unconditionally waive any and all rights to trial by jury in any action, suit or
counterclaim arising in connection with, out of or otherwise relating to this
Agreement, the Pledge of Development Rights Agreement or any other Loan
Document.

         8.       PAYMENT OF ACCRUED INTEREST AND CLOSING EXPENSES.

                  a. Simultaneously with the execution and delivery of this
Agreement, Borrower shall pay, in addition to the Accrued Interest, all of the
costs, fees and expenses incurred by the Lender in connection with this
Agreement and the transactions described herein or contemplated hereby,
including, without limitation, (a) all fees and charges incurred or to be
incurred in connection with the recording and/or filing of the documents
executed in connection with the execution of this Agreement and the loan
modification and extension which is the subject of this Agreement and all fees
for the examination of title and updated title searches, Uniform Commercial Code
searches, related charges and all other charges of TitleServ Agency of New York
City, Inc. (collectively,

                                        6
<PAGE>   7
"TITLE EXPENSES") and (b) the fees and disbursements of Lender's counsel,
Herrick, Feinstein LLP, incurred in connection with this transaction ("LENDER'S
LEGAL FEES").

                  b. Notwithstanding anything to the contrary, expressed or
implied, contained in this Agreement or any prior or contemporaneous
correspondence or other communications between Borrower and Lender, at the
option of Lender the extension of the loan contained in this Agreement shall not
be or become effective until Borrower has paid the Accrued Interest, the Title
Expenses and the Lender's Legal Fees.

         9. REAFFIRMATION OF REPRESENTATIONS. Except with respect to Sections
4.01(g) and 4.01(h) of the Original Credit Agreement, Borrower hereby reaffirms
and makes again to Lender, as of the date hereof, all of the representations and
warranties contained in the Credit Agreement and hereby further represents and
warrants to Lender as follows:

                           (a) Borrower is a corporation duly organized and
validly existing under the laws of the State of Delaware and has full power and
authority to execute, deliver and perform its obligations under this Agreement
and any other documents and instruments executed by Borrower in connection with
this Agreement;

                           (b) All corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and any other documents
and instruments executed by Borrower and each Guarantor in connection with this
Agreement, have been duly and properly taken; and

                           (c) Borrower is in good standing under the laws of
the State of Delaware.

         10. BORROWER'S RELEASE OF LENDER. Borrower and each Guarantor hereby
release all claims, demands, and causes of action of any kind or nature against
the Lender which Borrower or such Guarantor, as the case may be, now has or may
have by reason of any matter, cause or thing relating to or arising out of the
Loan or the Loan Documents, to the date of this Agreement.

         11. INTERCREDITOR AGREEMENT Borrower consents and agrees to the 2001
Intercreditor Agreement Modification and the Intercreditor Agreement (as defined
therein) as amended thereby. Borrower agrees not to make any payments under any
Subordinate Indebtedness (as defined in the Intercreditor Agreement as so
amended) to the extent prohibited under the terms of such Intercreditor
Agreement as amended by the 2001 Intercreditor Agreement Modification.

         12. MISCELLANEOUS.

                  a. Terms not otherwise defined in this Agreement shall be
deemed to have the meanings ascribed to them in the Credit Agreement.

                  b. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original, and all of which
together shall constitute one and the same instrument and agreement.

                  c. Except as herein amended, the terms and provisions of the
Credit Agreement shall, in all other respects, remain unmodified, are hereby
ratified and reaffirmed, and shall remain in full force and effect.

                                        7
<PAGE>   8
                  d. This Agreement shall be binding upon and shall inure to the
benefit of Borrower, Lender and their respective successors and assigns. This
Agreement shall be governed by the law of the State of New York. This Agreement
may not be modified orally, but only by a writing executed by Borrower and
Lender.

                                        8
<PAGE>   9
                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.

                                     FIRST UNION NATIONAL BANK

                                     By:        /s/ William H. Bermingham
                                              ----------------------------------
                                              Name: William H. Bermingham
                                              Title: Vice President

                                     ALEXANDER'S, INC.

                                     By:        /s/ Joseph Macnow
                                              ----------------------------------
                                              Name: Joseph Macnow
                                              Title:   Executive Vice President

CONFIRMED AND AGREED TO:

ALEXANDER'S, INC.,
ALEXANDER'S OF FLUSHING, INC.,
ALEXANDER'S OF THIRD AVENUE, INC.,
ALEXANDER'S OF REGO PARK II, INC.,
ALEXANDER'S OF REGO PARK III, INC.,
ALEXANDER'S DEPARTMENT STORES OF LEXINGTON AVENUE, INC.,
ALEXANDER'S DEPARTMENT STORES OF NEW JERSEY, INC.

By:         /s/ Joseph Macnow
         -------------------------------
         Name: Joseph Macnow
         Title:   Executive Vice President of each of the above entities

SEVEN THIRTY ONE LIMITED PARTNERSHIP

By:   Alexander's Department Stores of Lexington
      Avenue, Inc., General Partner

         By:        /s/ Joseph Macnow
                  ---------------------------------
                  Name: Joseph Macnow
                  Title:   Executive Vice President
<PAGE>   10
STATE OF New York               )
                        )  ss.:
COUNTY OF New York              )

                  On the 27 day of April in the year 2001, before me, the
undersigned, a Notary Public in and for said State, personally appeared William
H. Bermingham , personally known to me or proved to me on the basis of
satisfactory evidence to be the individual whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her capacity, and that by his/her signature on the instrument, the
individual, or the person upon behalf of which the individual acted, executed
the instrument.

                                                  /s/ Lawrence R. Priole
                                                --------------------------------
                                                Notary Public

                               Lawrence R. Priole
                        Notary Public, State of New York
                                   No. 4841047
                           Qualified in Suffolk County
                        Commission Expires March 30, 2003

STATE OF New Jersey                )
                                   )  ss.:
COUNTY OF Bergen                   )

                  On the 20th day of April in the year 2001, before me, the
undersigned, a Notary Public in and for said State, personally appeared Joseph
Macnow , personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her capacity, and
that by his/her signature on the instrument, the individual, or the person upon
behalf of which the individual acted, executed the instrument.

                                                  /s/ Deborah Anthony
                                                --------------------------------
                                                Notary Public

                                 Deborah Anthony
                           Notary Public of New Jersey
                       My Commission Expires Feb. 6, 2006

                                       10
<PAGE>   11
STATE OF New Jersey                 )
                                    )  ss.:
COUNTY OF Bergen                    )

                  On the 20th day of April in the year 2001, before me, the
undersigned, a Notary Public in and for said State, personally appeared Joseph
Macnow , personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he/she executed the same in his/her capacity, and
that by his/her signature on the instrument, the individual, or the person upon
behalf of which the individual acted, executed the instrument.

                                                  /s/ Deborah Anthony
                                                --------------------------------
                                                Notary Public

                                 Deborah Anthony
                           Notary Public of New Jersey
                       My Commission Expires Feb. 6, 2006
<PAGE>   12
                                   SCHEDULE A

                         ASSIGNMENTS OF LEASES AND RENTS

1.       Assignment of leases and rents made by ALEXANDER'S, INC., as assignor,
         dated as of March 15, 1995 in favor of FIRST FIDELITY BANK, NATIONAL
         ASSOCIATION, as assignee, recorded March 22, 1995 in Reel 1310, Page 48
         in the New York City Register's Office, Bronx County, as modified by
         the Modification of Assignment of Leases and Rents, dated June 18,
         1998, recorded on September 16, 1998, at Reel 1576, Page 2079 in the
         New York City Register's Office, Bronx County, as amended by
         Modification of Assignment of Leases and Rents dated as of March 29,
         1999, recorded on September 30,1999 in Reel 1693, Page 1647 in the New
         York City Register's Office, Bronx County, as amended by Modification
         of Assignment of Leases and Rents dated as of April 14, 2000, recorded
         on September 22, 2000 in Reel 1805, Page 837 in the New York City
         Register's Office, Bronx County.

2.       Assignment of leases and rents made by SEVEN THIRTY ONE LIMITED
         PARTNERSHIP, as assignor, and ALEXANDER'S DEPARTMENT STORES OF
         LEXINGTON AVENUE, INC., as general partner, dated as of March 15, 1995
         in favor of FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as assignee,
         recorded March 20, 1995 in Reel 2192, Page 1334 in the New York City
         Register's Office, New York County, as modified by the Modification of
         Assignment of Leases and Rents, dated June 18, 1998, recorded on
         September 10, 1998, in Reel 2703, Page 1753 in the New York City
         Register's Office, New York County, as amended by Modification of
         Assignment of Leases and Rents dated as of March 29, 1999 and recorded
         April 20, 1999 in Reel 2859, Page 212 in the New York City Register's
         Office, New York County, as amended by Modification of Assignment of
         Leases and Rents dated as of April 14, 2000, recorded on April 3, 2001
         in Reel 3264, Page 1845 in the New York City Register's Office, New
         York County.

3.       Assignment of leases and rents made by ALEXANDER'S, INC., as assignor,
         dated as of March 15, 1995 in favor of FIRST FIDELITY BANK, NATIONAL
         ASSOCIATION, as assignee, recorded March 17, 1995 in Reel 4088, Page
         705 in the New York City Register's Office, Queens County, as modified
         by the Modification of Assignment of Leases and Rents, dated June 18,
         1998, recorded on July 21, 1998, at Reel 4920, Page 1699 in the New
         York City Register's Office, Queens County and also recorded on July
         21, 1998 at page 1690 and 1708 in Queens County, as amended by
         Modification of Assignment of Leases and Rents dated as of March 29,
         1999, recorded on May 14, 1999 in Reel 5233, Page 1867 in New York City
         Register's Office, Queens County, as amended by Modification of
         Assignment of Leases and Rents dated as of April 14, 2000, recorded on
         August 25, 2000 in Reel 5666, Page 137 in New York City Register's
         Office, Queens County.

4.       Assignment of leases and rents made by ALEXANDER'S DEPARTMENT STORES OF
         NEW JERSEY, INC., as assignor, dated as of March 15, 1995 in favor of
         FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as assignee, recorded March
         17, 1995 in Mortgage Book 8953 Page 849 in the Office of the County
         Clerk, Bergen County, as amended by Modification of Assignment of
         Leases and Rents dated as of
<PAGE>   13
         March 29, 1999, recorded on April 9, 1999 in Mortgage Book 937, page
         161 in the Office of the County Clerk, Bergen County as amended by
         Modification of Assignment Leases and Rents dated as of April 14, 2000,
         recorded on August 11, 2000 in Mortgage Book 949, Page 604 in the
         Office of the County Clerk, Bergen County.

                                        2
<PAGE>   14
                                   SCHEDULE B

                    PROPERTIES OWNED BY RESPECTIVE GUARANTORS
<TABLE>
<CAPTION>
      NAME OF GUARANTOR                                    PROPERTY OWNED
      -----------------                                    --------------
<S>                                                    <C>
Alexander's of Rego Park II, Inc.                      Rego Park II Property

Alexander's of Rego Park III, Inc.                     Rego Park III  Property

Alexander's of Third Avenue, Inc.                      Third Avenue Property

Alexander's of Flushing, Inc.                          ground lease position with respect to 136-20
                                                       through 136-30 Roosevelt Avenue, Flushing,
                                                       New York (Block 5019, Lot 5)

Alexander's Department Stores of New                   Paramus Property
       Jersey, Inc.

Alexander's Department Stores of                       N/A
       Lexington Avenue, Inc.

Seven Thirty One Limited Partnership                   59th Street Property
</TABLE>

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