Document:

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                                                                    EXHIBIT 10.2

                       NOTE AND EQUITY PURCHASE AGREEMENT

         THIS NOTE AND EQUITY PURCHASE AGREEMENT (this "Agreement") is made
effective as of March 14, 2003, by and between Montauk Battery Realty LLC, a New
York limited liability company (the "Company"), and New Valley Real Estate
Corporation, a Delaware corporation ("New Valley"), and The Prudential Real
Estate Financial Services of America, Inc., a California corporation ("PREFSA"
and together with New Valley, the "Purchasers").

                                   BACKGROUND

         The Company desires to borrow an aggregate of $19,000,000 from the
Purchasers and each Purchaser is willing to make an Initial Loan to the Company
in the amount set forth in Annex A hereto in consideration of the Company
issuing to such Purchaser a Subordinated Promissory Note evidencing its Initial
Loans in the form attached hereto as Exhibit I (each, a "Note") and a percentage
membership interest in the Company in the amount set forth in Annex B hereto
(each, a "Membership Interest"), on the terms and subject to the conditions set
forth herein.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the Company and the Purchasers agree as
follows:

         1.       SALE OF THE NOTES AND THE MEMBERSHIP INTERESTS.

                  1.1.     ISSUANCE, SALE AND DELIVERY. Subject to the terms and
conditions hereof, at the Closing (as defined in Section 2), the Purchasers
agree to make the Loans to the Company, which Loans shall be evidenced by the
Notes. In consideration therefore, subject to the terms and conditions hereof,
the Company agrees to issue and deliver to each Purchaser a Note and Membership
Interest.

                  1.2.     DETERMINATION OF INITIAL LOAN ISSUE PRICE. Solely for
Federal, state and local income tax purposes (and not for financial accounting
purposes), Purchasers and the Company desire to establish the issue price at
which the Initial Loans would have been issued had they been issued without the
purchase by Purchasers of the Membership Interests in accordance with the
provisions of Treasury Regulations Section 1.1273-2(h) and Section 1273(c)(2) of
the Code, thereby establishing (i) the fair market value of the Membership
Interests, (ii) the "issue price," within the meaning of Section 1273(b) of the
Code, of the Initial Loans, and (iii) the related Federal income tax
consequences to the Purchasers and the Company arising from this Agreement. In
such connection, Purchasers and the Company agree as follows:

                  (a)      the issuance of the Loans and the Membership
         Interests for their respective Loan Amount constitutes an "investment
         unit" within the meaning of Section 1273(b)(2) of the Code;

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                  (b)      the Company and each Purchaser have determined that
         (a) the aggregate "issue price" under Section 1273(d) of the Code of
         each Note is as set forth in Schedule 1.2(a); and (b) the aggregate
         purchase price under Section 1273(b) of the Code of the Membership
         Interests is as set forth in Schedule 1.2(b). Each Purchaser and the
         Company shall prepare and file their respective Tax Returns in a manner
         which is consistent with the allocation of fair market values to each
         Note and Membership Interest pursuant to this Section 1.2. Mr. Ralph
         Cusano (631-549-7401) or his/her successor at the Company will provide
         each Purchaser with information necessary for them to properly report
         their income from this transaction.

         2.       CLOSING. The issuance and delivery of the Notes evidencing the
Initial Loans shall take place on March 14, 2003 at 10 a.m. local time at such
place as the parties may agree, or at such other date and time as may be agreed
upon between the Purchasers and the Company (such transaction being the
"Closing" and such date and time being the "Closing Date"). At the Closing, the
Company shall issue and deliver to each Purchaser its respective Note and
Membership Interest. In exchange for such delivery, each Purchaser shall deliver
to the Company a wire transfer in the amount set forth in Annex A to the account
designated by the Company.

         3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchasers, both as of the date hereof and
as of the Closing Date, as follows:

         3.1      ORGANIZATION AND EXISTENCE. The Company and each Company
Subsidiary is a limited liability company, partnership or corporation duly
organized, validly existing and in good standing under the laws of the State of
its formation with all requisite power to carry on its business as now
conducted. The Company and each Company Subsidiary is qualified to do business
as a foreign entity in each jurisdiction in which the conduct of its business or
the ownership or leasing of properties makes such qualification necessary. The
Company and each Company Subsidiary has full power and authority to own its
property and to carry on its business as now owned and operated (after giving
effect to the acquisitions contemplated by the Purchase Agreement). Copies of
the Company's and each Company Subsidiary's (i) articles of organization,
articles of incorporation or certificate of limited partnership, as applicable,
certified by the Secretary of State of the State of its formation, and (ii)
operating agreement, bylaws, or partnership agreement, as applicable, certified
by the Certifying Person of the Company or Company Subsidiary, each of which
will be delivered to Purchasers at or before the Closing, will be complete and
correct and, from the respective dates of certification thereof through the
Closing Date, there will not be any amendments to any of the foregoing
organizational documents.

         3.2      AUTHORITY OF COMPANY.

                  (a)      The execution and delivery by the Company of this
Agreement and each of the Related Documents to which the Company is a party and
the performance of its obligations hereunder and thereunder: (i) are within the
Company's statutory powers; (ii) are duly authorized by all requisite action;
(iii) are not in contravention of the terms of the

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Company's organizational documents, as amended, or of any indenture, agreement
or undertaking to which the Company is a party or by which it or any of its
property is bound or affected; (iv) do not and will not require the consent,
approval or authorization of or declaration, registration or filing with any
Governmental Entity or any nongovernmental Person; (v) do not and will not
contravene any contractual or governmental restriction binding upon the Company
or any Company Subsidiary; and (vi) will not, except as contemplated herein,
result in the imposition of any Liens on or with respect to any of the Company
or any Company Subsidiary's property or assets.

         3.3      BINDING EFFECT.

                  (a)      This Agreement and the Related Documents have been
fully executed and delivered on behalf of the Company and constitute the legal,
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and by the application of general equitable
principles (regardless of whether such principles are considered in a proceeding
at law or in equity).

         3.4      CAPITALIZATION. Neither the Company nor any Company Subsidiary
has any outstanding securities convertible into or exchangeable for any of its
equity securities and, except as provided in the Kaufman Employment Agreement,
no Person has any right or option to acquire any equity securities of the
Company or any Company Subsidiary or any securities convertible into or
exchangeable for any equity securities of the Company or any Company Subsidiary.

         3.5      FINANCIAL STATEMENTS AND OTHER INFORMATION; FINANCIAL
CONDITION. The Company has furnished to Purchasers copies of the financial
statements listed in Schedule 3.5 attached hereto. All financial statements
referred to in this Section 3.5 are true, complete and correct, have been
prepared in accordance with GAAP and fairly present the financial condition of
the Company and the Company Subsidiaries as at the date thereof and the results
of operations of the Company and the Company Subsidiaries for the period covered
by the statement of income and cash flow contained therein. The Company and the
Company Subsidiaries do not have any material obligations or liabilities,
contingent or otherwise, not fully disclosed by the financial statements.

         3.6      INVENTORIES. The Company and the Company Subsidiaries have no
inventories.

         3.7      TITLE; LIENS AND ENCUMBRANCES. The Company and the Company
Subsidiaries either own or hold under leases all of the material properties used
by their businesses. Each of the Company and each Company Subsidiary has good,
indefeasible and marketable title to all of its property (reflected in the
balance sheets described in Section 3.5), free and clear of all security
interests, liens, encumbrances, restrictions and other burdens, except as set
forth on Schedule 3.7 and as permitted by Section 7.2(d). Except as set forth on
Schedule 3.7, no financing statement (other than any which may have been filed
on behalf of PREFSA) covering any of the Collateral is on file in any public
office applicable thereto (collectively, "Applicable Public Offices"), which
offices are listed on Schedule 3.7. Except for (i) those financing

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statements naming PREFSA as secured party filed with respect to the Long Island
Facilities (which financing statements shall be terminated on or prior to the
Closing Date), (ii) those financing statements naming PREA as secured party
filed with respect to the Franchise Term Note and (iii) any financing statements
naming NFB as secured party filed with respect to the NFB Loan, each of the
financing statements listed in Schedule 3.7 evidence a lien on specific
equipment of B&H given to secure B&H's obligations under an equipment lease or
in connection with equipment lease financing.

         3.8      COMPLIANCE WITH LAWS. The Company and each Company Subsidiary
is in compliance in all material respects with all, and has not received notice
of violation or investigation with respect to any, laws, ordinances, rules or
regulations relating to the operation of its business or affecting any of its
assets.

         3.9      NO MATERIAL ADVERSE EFFECT. Since the date of the latest
financial statements of the Company and the Company Subsidiaries submitted to
Purchasers, there have been no changes in the condition, financial or otherwise,
of its business, or in its prospects, earnings or properties, whether or not
arising from transactions in the ordinary course of business, that, individually
or in the aggregate, might result in any Material Adverse Effect.

         3.10     FRANCHISES, PATENTS, TRADEMARKS AND OTHER RIGHTS. The Company
and each Company Subsidiary has all franchises, permits, licenses and other
authority as are necessary to enable it to carry on its business as now being
conducted and as proposed to be conducted as of the Closing Date (collectively,
the "Permits"), and is not in default under any Permits which are material to
its respective business, properties, operations or condition, financial or
otherwise. The Company and each Company Subsidiary owns, possesses or has rights
to all the patents, patent applications, trademarks, service marks, trademark
and service mark applications, trade names and copyrights (all of which are
valid and in good standing) that are sufficient for the lawful and efficient
operation of its respective business as presently conducted and as presently
proposed to be conducted as of the Closing Date, without any conflict with the
rights of others. There are no claims, disputes, actions or proceedings pending
by or against the Company or any Company Subsidiary (or any predecessor in
interest to the Collateral) with respect to any of the foregoing items, and, to
the best of the Company's knowledge, none is threatened against the Company or
any Company Subsidiary or its respective business or properties.

         3.11     REAL PROPERTY MATTERS. The Company and the Company
Subsidiaries own no real property. Set forth on Schedule 3.11 attached hereto
are all of the locations at which the Company and the Company Subsidiaries
operate their businesses and maintain the Collateral.

         3.12     PENDING LITIGATION. Except as set forth on Schedule 3.12,
there is no pending or, to the best of the Company's knowledge, threatened
action at law, suit, proceeding or investigation, at law or in equity or
otherwise, in, for or by any court or governmental board, commission, agency,
department or office arising from or relating to the Company, any Company
Subsidiary or any of their respective properties, or to the past, present or
proposed operations of the Company or any Company Subsidiary's business. Neither
the Company nor any Company Subsidiary is subject to, nor does any basis exist
for, any order, judgment, decree or governmental restriction that does or could
adversely affect its prospects, earnings, properties

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or condition, financial or otherwise, or the Company or any Company Subsidiary's
business as now being conducted and as proposed to be conducted as of the
Closing Date. There is no plan, study, litigation, action, proceeding or effort
by any Governmental Entity or private party that in any way challenges, affects,
or would challenge or affect, the prospects, earnings, properties or condition,
financial or otherwise, of the Company or any Company Subsidiary's business.

         3.13     SOLVENCY. After giving effect to this Agreement and the other
Related Documents, and the transactions contemplated hereby and thereby, neither
the Company nor any Company Subsidiary is Insolvent or left with assets or
capital that is unreasonably small in relation to its business or the
Subordinated Obligations. Neither the Company nor any Company Subsidiary intends
to incur, and in connection with this Agreement and the Related Documents, and
the performance of its obligations contemplated hereby and thereby, neither the
Company nor any Company Subsidiary shall incur, debts beyond its ability to pay
them as they mature. The Company has not executed this Agreement and the Related
Documents, nor made any transfer or incurred any obligations thereunder, with
actual intent to hinder, delay or defraud either present or future creditors.
"Insolvent" means, with respect to the Company or any Company Subsidiary, that
(a) determined on the basis of a "fair valuation" or their "fair saleable value"
(whichever is the applicable test under Section 548 and other relevant
provisions of the Bankruptcy Code and the relevant state fraudulent conveyance
or transfer laws), the sum of the Company or such Company Subsidiary's assets is
less than its respective debts, or (b) the Company or such Company Subsidiary is
generally not paying its debts as they become due. The meanings of the terms
"fair valuation" and "fair saleable value" and the calculation of assets and
liabilities shall be determined and made in accordance with the relevant
provisions of the Bankruptcy Code and applicable state fraudulent conveyance or
transfer laws.

         3.14     EMPLOYEE BENEFITS.

                  (a)      All Plans maintained by the Company and any Company
Subsidiary or to which they contributed within the last three years are listed
on Schedule 3.14. All Plans which constitute "employee pension benefit plans" as
defined in Section 3(2) of ERISA are so designated on Schedule 3.14 and all
Plans which constitute "employee welfare benefit plans" as defined in Section
3(1) of ERISA are so designated on Schedule 3.14. Except as set forth on
Schedule 3.14, none of the Plans is a Multiemployer Plan. Except as set forth in
Schedule 3.14, the Plans are qualified under Section 401 of the Code, and any
trust or insurance contract through which the Plans are funded is exempt from
federal income tax under Section 501 of the Code and nothing has occurred which
would cause the loss of such qualification or exemption or the imposition of any
liability, penalty or tax under ERISA with respect to the operation of the
Plans.

                  (b)      Except as set forth on Schedule 3.14, all
contributions required by law to have been made under the Plans (without regard
to any waivers granted under Section 412 of the Code) have been made.

                  (c)      Except as set forth on Schedule 3.14, the actuarial
present value of accumulated benefits (both vested and unvested) of each of the
respective Plans subject to Title IV of ERISA does not exceed the assets of such
Plan based on the actuarial assumptions used in

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funding such Plans as disclosed in the actuarial reports for the Plans, copies
of which have been delivered to Purchasers.

                  (d)      Except as set forth on Schedule 3.14, there has been
no Reportable Event with respect to the Plans subject to Title IV of ERISA, or
any event requiring disclosure under Section 4062(c), 4063(a) or 4041(e) of
ERISA.

                  (e)      Except as set forth on Schedule 3.14, and except for
reporting and disclosure requirements which may be applicable to unfunded
welfare plans and insured welfare plans, there is no violation of ERISA known to
the Company or any Company Subsidiary with respect to the filing of applicable
reports, documents and notices regarding the Plans with the Secretary of Labor
and the Secretary of the Treasury or the furnishing of such documents to the
participants or beneficiaries of the Plans.

                  (f)      With respect to each Plan, complete copies of the
following documents have been delivered to Purchasers: (i) any Plans and related
trust documents and amendments thereto; (ii) Forms 5500, financial statements
and actuarial reports for the last three plan years and any estimates of
projected future liabilities; (iii) the last Service determination letter; and
(iv) summary plan descriptions.

                  (g)      Except as set forth on Schedule 3.14, there are no
pending claims or lawsuits which have been asserted or instituted against the
assets of any of the trusts under the Plans or against the Company or any
Company Subsidiary, or any fiduciary of the Plans with respect to the operation
of the Plans.

                  (h)      Except as set forth on Schedule 3.14, all amendments
required to bring the Plans into conformity in all material respects with all of
the applicable provisions of ERISA have been made.

                  (i)      Except as set forth on Schedule 3.14, any bonding
required with respect to the Plans in accordance with the applicable provisions
of ERISA has been obtained and is in full force and effect.

                  (j)      Except as set forth on Schedule 3.14, and except as
provided above, the Plans have been maintained in all material respects in
accordance with their terms and with the provisions of ERISA (including rules
and regulations thereunder) applicable thereto and neither the Company nor any
Company Subsidiary nor any "party in interest" or "disqualified person" with
respect to the Plans has engaged in a "prohibited transaction" within the
meaning of Section 4975 of the Code or Title I, Part 4 of ERISA.

                  (k)      Except as set forth on Schedule 3.14, neither the
Company nor any Company Subsidiary has incurred any liability to the PBGC.

                  (l)      Except as set forth on Schedule 3.14, no Plan that is
a welfare plan provides for benefit coverage to employees after termination of
employment.

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         3.15     USE OF PROCEEDS OF LOAN. The proceeds of the Loans shall be
used by the Company to fulfill its obligations in accordance with the Purchase
Agreement, to pay off in full the Long Island Facilities and for working capital
purposes. No part of the proceeds of the Loans shall be used, directly or
indirectly, to purchase or carry any margin stock, within the meaning of
Regulation G or X of the Board of Governors of the Federal Reserve System, or to
purchase or carry any equity security of a class which is registered pursuant to
Section 12 of the Securities Act of 1933, as amended, in violation of Regulation
G or X of the Board of Governors.

         3.16     COLLATERAL.

                  (a)      Except as set forth on Schedule 3.16(a), no financing
statement, mortgage, notice of judgment or any other similar instrument covering
all or any part of the Collateral and naming the Company or any Company
Subsidiary or any predecessor in title with respect to the Collateral as debtor
is on file in any applicable public office except those that may have been filed
by the Company and the Company Subsidiaries in favor of Purchasers pursuant to
this Agreement or those that relate to Permitted Liens.

                  (b)      The Company and the Company Subsidiaries are the sole
and lawful owners of all Collateral, free and clear of any and all Liens, except
for the Liens granted or allowed under this Agreement and Permitted Liens.

                  (c)      Upon appropriate financing statements having been
filed in the jurisdictions listed on Schedule 3.16(c) attached hereto, this
Agreement is and will be effective to create a valid and perfected first
priority Lien on and first priority perfected security interest in (subject to
any Permitted Liens) the Collateral as to which filing is a permitted method of
perfection, securing the payment to Purchasers and performance of the
Subordinated Obligations. Assuming the filing of appropriate financing
statements in the jurisdictions listed on Schedule 3.16(c) attached hereto, all
filings and other actions necessary to perfect and protect Purchasers' security
interests have been duly taken, and those security interests are enforceable
against creditors and purchasers from the Company and the Company Subsidiaries.
The Company agrees to cooperate fully with Purchasers and to take all actions
reasonably necessary to assist Purchasers in the filing and perfection of the
security interests created pursuant to this Agreement.

                  (d)      The Company and each Company Subsidiary's principal
place of business, chief executive office and the place where its records
concerning the Collateral are kept is located at its address as set forth on
Schedule 3.16(d) attached hereto.

                  (e)      The Accounts are bona fide existing obligations
created by the rendition of services to Account Debtors in the ordinary course
of the applicable Borrower's business, unconditionally owed to the Company or
the Company Subsidiary, as applicable, without defenses, disputes, offsets,
counterclaims or rights of return or cancellation that are not generally granted
within the industry of the Company or such Company Subsidiary. Neither the
Company nor any Company Subsidiary has received notice of actual or imminent
bankruptcy, insolvency or material impairment of the financial condition of any
Account Debtor regarding any Account.

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         3.17     BROKER'S OR FINDER'S COMMISSIONS. No broker's or finder's fee
or commission will be payable by the Company or any Company Subsidiary with
respect to the transactions contemplated by this Agreement.

         3.18     LIABILITIES. Other than the liabilities incurred pursuant to
this Agreement, and the unsatisfied liabilities reflected on the balance sheet
of the Company and the Company Subsidiaries described in Section 3.5, the
Company and the Company Subsidiaries have no liabilities (including, without
limitation, contingent liabilities) other than accounts payable incurred in the
ordinary course of their respective businesses. As of the date of this
Agreement, the Company and the Company Subsidiaries have no Indebtedness for
borrowed funds other than as expressly disclosed in Schedule 7.2(c) attached
hereto.

         3.19     FINANCIAL BENEFIT. The Company hereby acknowledges and
warrants it has derived or expects to derive a financial advantage from each
loan or other extension of credit and each renewal, extension, release of
Collateral, or other relinquishment of legal rights, made or granted or to be
made or granted by the Purchasers in connection with the Subordinated
Obligations.

         4.       REPRESENTATIONS AND WARRANTIES OF PURCHASERS. The Purchasers
severally and not jointly, each represent and warrant to the Company, as to
itself, and where so stated, covenants as follows:

                  (a)      ENFORCEABILITY. This Agreement constitutes each
         Purchaser's valid and legally binding obligation, enforceable in
         accordance with its terms. Each Purchaser represents that it has full
         power and authority to enter into this Agreement and to consummate the
         Transactions.

                  (b)      UNREGISTERED SECURITIES. Purchasers understand that
         the Notes and the Membership Interests (collectively, the "Securities")
         have not been registered under the Securities Act in reliance upon an
         exemption from registration for nonpublic offerings. Purchasers further
         recognize that the Securities may not be resold unless they and the
         transaction in which they are to be resold has been registered under
         the Securities Act or an exemption from registration is available for
         such sale. Purchasers accept that the Securities will each bear a
         legend to that effect. Further, Purchasers recognize that the Company
         has made no representations as to registration of the Securities under
         the Securities Act.

                  (c)      INVESTMENT INTENT. Each Purchaser is acquiring the
         Securities for its own account, not as a nominee or agent, for
         investment and not with a view to resale or distribution of any part
         thereof except in compliance with the Securities Act (including
         pursuant to an available exemption from registration thereunder). Each
         Purchaser promises that it will not sell, hypothecate, transfer or
         otherwise dispose of the Securities, or attempt to do so, unless (i)
         they have been registered, to the extent applicable, under the
         Securities Laws or, (ii) an exemption from registration is available.
         Without limiting the foregoing, PREFSA shall be entitled to sell or
         otherwise transfer up to $3,000,000 in principal amount of Notes and
         related Membership Interests (or any portion thereof),

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         without any requirement for consent, to the persons listed on Schedule
         4(c) and/or any other Person who represents that it is an "accredited
         investor" as defined in Rule 501 of Regulation D as promulgated by the
         SEC under the Securities Act so long as any such sale is made pursuant
         to an available exemption from registration or pursuant to Rule 144.

                  (d)      NEGOTIATION; ACCESS TO INFORMATION. The terms of the
         Purchasers' purchase of the Securities were established by negotiations
         between Purchasers and the Company, and in connection therewith, each
         Purchaser was given access to the relevant information it requested
         concerning the Company's condition and operations, and the opportunity
         to ask questions of and receive answers from the Company's
         representatives. Each Purchaser is knowledgeable and experienced in
         financial and business matters and is in a position to make an informed
         investment decision concerning its investment in the Securities and the
         risks attending such investment. Further, in light of its financial
         position, each Purchaser is able to bear the economic risks of
         investment in the Securities.

                  (e)      ACCREDITED INVESTOR. Each Purchaser is an "accredited
         investor" as defined in Rule 501 of Regulation D as promulgated by the
         SEC under the Securities Act, and shall submit to the Company such
         further assurances of such status as may be reasonably requested by the
         Company.

                  (f)      LEGENDS; STOP TRANSFER ORDERS. Each Purchaser hereby
         consents and agrees that the Company may imprint on any certificate
         evidencing the Securities an appropriate legend or notification to the
         effect that such shares are not freely transferable and may be
         transferred only in compliance with applicable securities laws. Except
         as provided in Section 4(c) above, each Purchaser further consents and
         agrees that the Company may give appropriate "stop order" instructions
         in this regard to any transfer agent for the Securities.

                  (g)      COMPLIANCE; INDEMNITY. Each Purchaser hereby
         expressly promises not to offer for sale or sell any of the Securities,
         or any interest therein, except in compliance with the Securities Act,
         and other applicable securities laws and regulations. Purchasers hereby
         promises to indemnify the Company, together with its officers and
         directors, against any and all liabilities, losses, damages and
         expenses (including reasonable attorney fees) arising (directly or
         indirectly) from or in connection with such Purchaser's disposition of
         any of the Securities, or any interest therein, in violation of (or
         allegedly in violation of) applicable securities laws or regulations,
         including all such expenses incurred in connection with the defense
         against any such claim; provided that PREFSA shall not be required to
         indemnify the Company in connection with any disposition of securities
         to either of the persons listed on Schedule 4(c).

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         5.       CONDITIONS TO THE OBLIGATIONS OF PURCHASERS. The obligation of
the Purchasers to make the Loans and receive the related Notes and the
Membership Interests on the Closing Date is, at the option of the Purchasers,
subject to satisfaction in full on or before the Closing Date of the following
conditions, unless the Purchasers shall consent otherwise in writing:

                  (a)      REPRESENTATIONS AND WARRANTIES TO BE TRUE. The
         representations and warranties contained in Section 3 shall be true,
         complete and correct on and as of the Closing Date with the same effect
         as though such representations and warranties had been made on and as
         of such date and the Company shall deliver a certificate of its Chief
         Executive Officer to that effect.

                  (a)      PERFORMANCE. The Company shall have performed and
         complied with all agreements contained herein and required to be
         performed or complied with by it prior to or at the Closing Date.

                  (c)      FEES AND EXPENSES. The Company shall pay the
         reasonable fees and expenses incurred by Purchasers in connection with
         this Agreement and the Transactions.

                  (e)      PROCEEDINGS. All corporate and other proceedings to
         be taken by the Company in connection with the Transactions
         contemplated hereby and all documents incident thereto shall be
         satisfactory in form and substance to the Agent.

                  (f)      INSIGNIA ACQUISITION AND SENIOR LOAN. The Company
         shall, simultaneously with the Closing, have entered into the PREFSA
         Loan Agreement and consummated the Insignia Acquisition.

         6.       CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to issue the Notes and the Membership Interests on the Closing
Date is subject to satisfaction on or before the Closing Date of the following
condition:

                  (a)      REPRESENTATIONS AND WARRANTIES TO BE TRUE. The
         representations and warranties of the Purchasers contained in Section 4
         shall be true, complete and correct on and as of the Closing Date with
         the same effect as though such representations and warranties had been
         made on and as of such date.

                  (b)      CONSENTS AND WAIVERS RECEIVED. The Company shall have
         obtained any requisite consents and waivers to the Transactions
         contemplated hereby.

         7.       COVENANTS OF THE COMPANY.

         The Company hereby covenants and agrees as follows:

                  7.1      AFFIRMATIVE COVENANTS. From and after the time that
the Superior Debt is paid in full and continuing as long as any of the
Subordinated Obligations shall remain unpaid:

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                  (a)      EXISTENCE. The Company shall maintain its existence
and the existence of each of its Subsidiaries, the qualification of good
standing of the Company and each Subsidiary in their respective State of
formation and in each state in which such Borrower or any such Subsidiary has a
real estate brokerage office, and, except where the failure to do so does not
result in a Material Adverse Effect, the Company and each Subsidiary's
qualification and good standing in all states in which such qualification and
good standing are necessary in order for the Company and each Subsidiary to
conduct its businesses and own its property.

                  (b)      COMPLIANCE WITH LAWS AND REGULATIONS. The Company
shall comply, and cause each Subsidiary to, comply in all material respects with
all laws, statutes, rules, regulations, ordinances, judgments, writs, decrees
and orders of any Governmental Entity applicable to the Company or any
Subsidiary and the Company and its Subsidiaries shall obtain or maintain any
license (including, without limitation, any real estate brokerage license),
permit or other authorization which may be or become necessary in order for them
to conduct their businesses, own their properties and perform their obligations
under this Agreement or the Related Documents.

                  (c)      TAX OBLIGATIONS.

                           (i)      The Company shall, and shall cause each
Subsidiary to, file all Tax Returns required by and prepared in accordance with
applicable law and shall pay or cause to be paid all assessed against the
Company or any Subsidiary, or payable by such the Company or any Subsidiary, at
such times and in such manner as to prevent any penalty from accruing or any
Lien or charge from attaching to property of the Company or any Subsidiary,
provided that the Company and each Subsidiary shall have the right to contest in
good faith, by an appropriate proceeding promptly initiated and diligently
conducted, the validity, amount or imposition of any such Tax, and upon good
faith contest to delay or refuse payment thereof, provided, that (A) in the case
of a delay or refusal of payment the proceedings shall cause the suspension of
the collection of the applicable amount from the Company, any Subsidiary or the
Collateral, (B) the contest shall have the effect of staying or postponing any
sale, forfeiture or loss of the Collateral, (C) the Company or Subsidiary shall
have set aside on its books adequate reserves with respect thereto, and shall
have furnished whatever security is reasonably requested by Agent including a
letter of credit, title insurance or bond and (D) the contest does not have a
Material Adverse Effect.

                           (ii)     The Company shall notify the Agent promptly
(and in no event later than ten days after becoming aware of the intent of the
Service to assert a deficiency with respect to it or any of its Subsidiaries),
and shall promptly (and in no event later than 20 days following receipt of any
notice of deficiency) inform the Agent of the proposed deficiency and deliver to
Agent a copy of any notices of deficiency received from the Service. If the
Agent so requests and if there is a reasonable legal basis therefor, the Company
or such Subsidiary may elect to contest the claim of deficiency or to pay the
Service in settlement of the claim of deficiency. If the Company or such
Subsidiary elects to contest the claimed deficiency, the contest shall be
conducted by outside tax -counsel reasonably acceptable to the Agent, and the
Company or such Subsidiary (as the case may be) shall direct counsel to consult
with and to provide the Agent with periodic status reports and assessments of
the legal merits of the contest.

                                       11

<PAGE>

The contest shall continue through the appropriate administrative and court
procedures, including appeals, until the outside tax counsel informs the Agent
that further contest would be inadvisable taking into account all factors
(including any proposed settlement or compromise by the Service). If the Company
or any Subsidiary thereafter fails to pay or consent to the claimed deficiency,
in the event that PREFSA fails to pay such amount as Lender under the PREFSA
Loan Agreement, the Agent shall be entitled to pay the amount of the claimed
deficiency, which amount shall then be added to the Subordinated Obligations,
and the Company shall pay that amount to the Agent immediately upon demand, with
interest at the interest rate then prevailing under the Notes.

                  (d)      MAINTENANCE OF PROPERTIES. The Company shall keep,
and cause each of its Subsidiaries to keep, such Company's and such Subsidiary's
property which is materially useful or necessary in its business in good working
order and condition and maintain the insurance thereon required by this
Agreement and the Related Documents.

                  (e)      MAINTENANCE OF RECORDS. The Company will maintain,
and will cause each Subsidiary to maintain, adequate books, accounts and records
in order to provide financial statements in accordance with GAAP and, if
requested by the Agent, permit employees or representatives of the Agent at any
reasonable time and upon reasonable notice to inspect and audit their
properties, and to examine or audit their books and records and make copies and
memoranda thereof.

                  (f)      LABOR RELATIONS. The Company shall notify the Agent
of any material labor dispute to which the Company or any Subsidiary may be a
party and which involves any group of employees of the Company or any
Subsidiary, no later than ten days after the occurrence of the dispute.

                  (g)      INSURANCE. The Company shall, and shall cause each
Subsidiary to, carry and maintain in full force and effect at all times with
insurers rated A minus or better by A.M. Best and Company:

                           (i)      all workers' compensation or similar
insurance as may be required under the laws of any jurisdiction where the
Company or any Subsidiary conducts business;

                           (ii)     commercial general liability insurance (on
an occurrence basis) against claims for personal injury, death or property
damage suffered upon, in or about any premises owned or occupied by it or
occurring as a result of the ownership, maintenance or operation by it of any
automobile, truck or other vehicle or as a result of any residential real estate
services rendered by it;

                           (iii)    insurance against loss or damage by fire,
theft, explosion, spoilage or other casualty, with a replacement value and
agreed amount endorsement;

                           (iv)     errors and omissions insurance covering all
officers, directors, sales agents and employees of the Company or any
Subsidiary;

                                       12

<PAGE>

                           (v)      fidelity insurance or bond for any employees
who handle the funds of the Company or any Subsidiary; and

                           (vi)     insurance against such other risks as are
usually insured against by Persons of established reputation engaged in the same
or similar businesses and similarly situated as the Company and its Subsidiaries
or as may be reasonably required by the Agent. Insurance specified in the
foregoing clauses (i), (ii), (iii), (iv) and (v) shall be maintained in such
form and in such amounts as the Agent may from time to time require, including a
provision requiring that coverage shall not be terminated or materially modified
without 30 days' prior written notice to the Agent and a provision requiring
that no claims in excess of $25,000 shall be paid thereunder without ten days'
advance written notice to the Agent. The Company shall provide to the Agent
certificates of insurance each year with respect to each policy in connection
with the annual renewal thereof (at such time so that the Agent shall have at
all times a current certificate of insurance for the insurance then in effect),
which certificate shall show the Agent as a loss payee.

                  (h)      FURTHER ASSURANCE. The Company and each Subsidiary
shall at any time or from time to time execute and deliver such further
instruments and take such further action as may reasonably be requested by the
Agent to carry out to the Agent's satisfaction the transactions contemplated by
this Agreement and the Related Documents. In particular, and without limiting
the generality of the foregoing, the Company and each Subsidiary will from time
to time, take all actions reasonably requested by the Agent to obtain, execute,
deliver or file financing statements and other notices and amendments and
renewals thereof, and take any and all steps and observe formalities requested
by the Agent in order to create, perfect, protect and maintain valid continuing
liens and security interests in the Collateral as contemplated by Section 9. All
charges, expenses and fees that may be incurred by the Agent in connection with
any of the foregoing, and any local taxes relating thereto, shall be charged to
the Company's account and added to the Subordinated Obligations and shall be
paid to the Purchasers immediately upon demand therefor with interest at the
rate then in effect under the Notes.

                  (i)      INDEMNIFICATION. The Company shall indemnify, defend
and hold harmless the Agent and each holder of the Notes and their officers,
stockholders, partners, members, Affiliates, directors, agents and employees
from and against all losses, costs, fines, liabilities, judgments, actions,
penalties, damages, injuries, claims, demands, disbursements and expenses,
including attorneys' fees and costs, arising out of (i) claims by or on behalf
of any brokers, finders or investment bankers; (ii) the failure of the Company
or any Subsidiary to perform any obligations as and when required by this
Agreement or the Related Documents; (iii) the operation or maintenance of any of
the Collateral (except Collateral held by the Agent); (iv) the enforcement of
this Agreement or the Related Documents; (v) the execution or consummation of
this Agreement or the Related Documents; (vi) any aspect of, or any transaction
contemplated by or referred to in, or any matter related to, this Agreement, in
each case whether or not the Purchasers or a Note holder is a party thereto; or
(vii) claims arising out of the Company's or any Subsidiary's business
operations (including any arising out of any actions or inactions of employees,
selling agents and managers); except to the extent those losses, costs, fines,
liabilities, judgments, actions, penalties, damages, injuries, claims, demands,
disbursements and expenses are caused by the Agent's gross negligence or willful
misconduct;

                                       13

<PAGE>

provided that the Company's indemnification obligations under this Section
7.1(i) are intended to be limited to those obligations arising out of claims
relating to the Loans or the Purchasers' making of the Loans (and not as a
result of any equity interest in the Company owned by a Purchaser). The Company
shall assume the settlement of and the defense of any suit or other legal
proceeding brought to enforce any of the foregoing, and shall pay all judgments
entered in any such suit or legal proceeding. The indemnities and assumptions of
liabilities and obligations herein provided for shall continue in full force and
effect notwithstanding the termination of this Agreement. The provisions of this
Section 7.1(i) shall survive the term of this Agreement and the repayment by the
Company of all Subordinated Obligations.

                  (j)      LANDLORD CONSENTS. Upon the request of the Agent, the
Company shall use its best efforts to obtain a Landlord Consent in form and
substance reasonably acceptable to the Agent from the lessor of that certain
property occupied by the Company located at 110 Walt Whitman Road, South
Huntington, New York 11746.

                  (k)      LIFE INSURANCE ASSIGNMENT. Upon payment in full of
the Superior Debt Obligations, the Company shall use its best efforts to obtain
the life insurance described in the definition of Life Insurance Assignment, and
to deliver to the Company a fully-executed original of the Life Insurance
Assignment in a form satisfactory to the Agent.

         7.2      NEGATIVE COVENANTS. From and after the time that the Superior
Debt is paid in full and continuing as long as any of the Subordinated
Obligations remains unpaid:

                  (a)      CONDUCT OF BUSINESS. No Franchisee shall at any time
cease to conduct continuously and exclusively the residential real estate
brokerage business. The Company shall not engage, directly or indirectly, or
permit any Subsidiary to engage, directly or indirectly, in any line of business
other than providing (i) residential real estate brokerage services in the
Borough of Manhattan, New York, Nassau County, New York and Suffolk County, New
York areas or any other areas expressly permitted by the Franchise Agreement,
(ii) subject to the terms of the Franchise Agreement, commercial real estate
brokerage services in the Borough of Manhattan, New York, Nassau County, New
York and Suffolk County, New York areas or any other areas expressly permitted
by the Franchise Agreement, (iii) mortgage brokerage and/or mortgage banking
services, (iv) property management services, (v) title company services, (vi)
home inspection services, (vii) escrow services, (viii) multiple listing
services, (ix) insurance services as permitted in the Franchise Agreement and
(x) similar real estate-related ancillary businesses. No Franchisee shall change
its name, identity or structure or use or permit any of its Subsidiaries to
operate its business under any names or trade names other than those provided in
the Franchise Agreement.

                  (b)      TRANSACTIONS WITH AFFILIATES; FEES. Except for any
transaction permitted by the terms of the Operating Agreement and except for
Intercompany Loans, the Company shall not enter into (or renew or amend),
directly or indirectly, nor permit any of its Subsidiaries to enter into (or
renew or amend), directly or indirectly, any transaction (including without
limitation payment of salaries to employees who are also Affiliates of the
Company) with any officer, director, employee, member, partner or Affiliate of
the Company, or any relative of any officer, director, member, partner or
Affiliate of the Company, except as disclosed on Schedule

                                       14

<PAGE>

7.2(b) attached hereto and except transactions made in the ordinary course of
business and upon fair and reasonable terms which are no less favorable to the
Company than would be obtained in a comparable arm's-length transaction with a
Person not an Affiliate of the Company and are fully disclosed to the Purchasers
in advance; nor pay, or permit any of its Subsidiaries to pay, compensation or
fees (including, without limitation, management fees) to any officer, director,
shareholder, member, partner or Affiliate, or any relative of any officer,
director, shareholder, member, partner or Affiliate, of the Company, except to
the extent permitted pursuant to Section 7.2(j).

                  (c)      INDEBTEDNESS. Neither the Company nor any of its
Subsidiaries shall incur, create, suffer to exist or assume any Indebtedness or
sell or discount with recourse any accounts receivable or any debt instruments
owned by it, or enter into any other arrangement which has the effect of
guaranteeing a represented result or assuring a creditor of a Person against
loss (including arrangements to purchase or repurchase property or obligations,
pay for property, goods or services whether or not delivered or rendered,
maintain working capital, equity capital or other financial statement condition
of, or lend or contribute to or invest in, any Person), except the following:

                           (i)      Subordinated Obligations incurred hereunder;

                           (ii)     the Superior Debt;

                           (ii)     liability arising from the endorsement of
                                    negotiable instruments for deposit and
                                    collection received in the ordinary course
                                    of the Company's or such Subsidiary's
                                    business;

                           (iii)    capital leases and/or financing for Capital
                                    Expenditures not to exceed $1,200,000 at any
                                    one time in the aggregate;

                           (iv)     the PREA Secured Obligations;

                           (v)      the NFB Loan;

                           (vi)     accounts payable incurred in the ordinary
                                    course of business of the Company and its
                                    Subsidiaries. For purposes hereof, the term
                                    "accounts payable" shall in no event include
                                    any Indebtedness arising from the borrowing
                                    of money;

                           (vii)    auto leases or auto financing entered into
                                    in the ordinary course of business;
                                    provided, however, that the monthly payments
                                    due under such obligations shall not exceed
                                    $7,500 per month in the aggregate;

                           (viii)   Indebtedness for business acquisitions not
                                    to exceed $500,000 in the aggregate at any
                                    time (provided, that Indebtedness for
                                    business acquisitions consented to in
                                    writing by PREFSA under the

                                       15

<PAGE>

                                    PREFSA Loan Agreement and, after the payment
                                    in full of the Superior Debt Obligations,
                                    the Agent hereunder, shall not count towards
                                    said $500,000 limit);

                           (ix)     Intercompany Loans;

                           (x)      the existing $494,656 loan from DTHY to the
                                    Company, which loan constitutes a Member
                                    Loan (as defined in the Operating Agreement)
                                    and which loan shall not be amended or
                                    modified after the date hereof;

                           (xi)     the Montauk Guaranty; or

                           (xii)    miscellaneous other Indebtedness not to
                                    exceed $50,000 in the aggregate at any time.

                  (d)      LIENS. The Company shall not create or suffer to
exist, nor permit any of its Subsidiaries to create or allow to exist, any Lien
on or with respect to their respective properties, whether now owned or
hereafter acquired, or assign any right to receive income, in each case to
secure any Indebtedness of any Person, except (i) Liens in favor of the
Purchasers; (ii) Liens in favor of the PREFSA or PREA; (iii) Permitted Liens
securing Taxes, provided the payment thereof is not at the time required by
Section 7.1(c); (iv) Liens that arise in the ordinary course of business and not
created in connection with the borrowing of money or the obtaining of credit,
which do not detract materially from the value or reduce the ability to use the
property on which there is a Lien, so long as the obligations supported by the
Lien (x) are not overdue or (y) if overdue, are being contested continuously and
in good faith by appropriate proceedings; (v) Liens relating to final judgments
or awards or attachments remaining undischarged or unstayed for not longer than
30 days from incurrence; (vi) purchase money Liens securing Indebtedness
permitted under Section 7.2(c)(iii) hereof; (vii) purchase money Liens securing
Indebtedness permitted under Sections 7.2(c)(vii) and (viii) hereof; and (viii)
Liens securing the NFB Loan (the Liens described in clauses (i) through (viii)
above are referred to herein as "Permitted Liens").

                  (e)      DIVIDENDS; REDEMPTIONS; DISTRIBUTIONS TO
EQUITYHOLDERS. The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare or pay any dividends, or
purchase or otherwise acquire for value any of its equity interests now or
hereafter outstanding, or make any distribution of assets to its equityholders
prior to the repayment in full and termination of the Loans, except that any
wholly-owned Subsidiary may pay dividends and make distributions to, or purchase
its outstanding equity interests from, the Company or any other wholly-owned
Subsidiary, and excepting Permitted Tax Distributions.

                  (f)      CONSOLIDATION, MERGER OR DISPOSITION OF ASSETS. The
Company shall not enter into, nor permit any of its Subsidiaries to enter into,
any transaction of merger or consolidation, and will not, and will not cause or
permit any Subsidiary to, liquidate, wind up or dissolve itself (or permit any
liquidation or dissolution), or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any part of
its business,

                                       16

<PAGE>

property or assets (including, without limitation, sale and leaseback
arrangements and the sale or discount of its accounts receivable), whether now
owned or hereafter acquired, or, except for the acquisition contemplated by the
Purchase Agreement, acquire by purchase or otherwise all or substantially all of
the business, property or assets of, or any shares or other evidence of
beneficial interest in, any Person; provided that the Company and its
Subsidiaries may (i) sell or otherwise dispose of obsolete or worn-out property
in the ordinary course of business and fixtures and furnishings of its offices
which may be closed in the ordinary course of business, and (ii) enter into a
business acquisition permitted pursuant to Section 7.2(p) hereof.

                  (g)      SUBSIDIARIES. The Company shall not create (through
acquisition or otherwise), nor permit any of its Subsidiaries to create (through
acquisition or otherwise), any Subsidiary not existing on the date hereof,
without the Agent's consent (not to be unreasonably withheld), other than the
acquisition of IDE and IRG as contemplated by the Purchase Agreement. If the
Agent agrees at any time to waive this covenant, the Company shall, at that
time, (i) cause any newly-created Subsidiary to grant to the Agent, on behalf of
the Purchasers, a security interest in all tangible and intangible property
(including all accounts receivable) then owned or thereafter acquired by that
Subsidiary as further security for the Subordinated Obligations, pursuant to a
security agreement containing provisions substantially similar to the provisions
of this Agreement relating to security interests and otherwise satisfactory in
form and substance to the Agent, (ii) pledge all of the outstanding securities
of that Subsidiary to the Agent, on behalf of the Purchasers, as additional
security for the Subordinated Obligations pursuant to pledge agreements
satisfactory in form and substance to the Agent, and (iii) cause any
newly-created Subsidiary to join in this Agreement and the other Related
Documents as a borrower under the Loans.

                  (h)      INVESTMENTS OR LOANS. The Company shall not make or
permit to exist, or permit any Subsidiary to make or permit to exist, loans to
any Person or investments in any Person, except (i) investments in direct
obligations of the United States Government maturing not more than six months
after acquisition thereof, (ii) investments in certificates of deposit, bankers
acceptances and other obligations, each maturing not more than six months after
acquisition thereof, issued by a domestic bank which is a member of the Federal
Reserve System and has total capital and surplus and undivided profits in excess
of $500,000,000, (iii) investments in commercial paper maturing not more than
six months after the date of acquisition thereof assigned the highest credit
rating by Moody's Investors Service, Inc. or Standard and Poor's Corporation,
(iv) loans to its real estate agents as an advance against commissions owed to
any such agent, but only to the extent made in the ordinary course of the
Company's or such Subsidiary's business and not to exceed $500,000 (exclusive of
advances made to its real estate agents in the ordinary course for the purpose
of paying premiums for their errors and omissions (E&O) insurance coverage)
outstanding in the aggregate at any time, (v) loans to its employees (other than
any principal of DTHY or New Valley) made in the ordinary course of the Company
or any Subsidiary's business and not to exceed $25,000 outstanding in the
aggregate at any time, or (vi) Intercompany Loans.

                  (i)      CHANGE OF LOCATION. The Company and its Subsidiaries
shall not at any time (i) change the location of their chief executive offices
(as set forth in Schedule 7.2(i)) or (ii) change the locations where their
records or books of account are kept without, in each case,

                                       17

<PAGE>

giving at least 30 days' prior written notice to the Agent specifying the new
address of the office or location (including, without limitation, the county and
state in which the office or location is situated).

                  (j)      COMPENSATION. The Company shall not, directly or
indirectly, pay Compensation to any officer, director, partner, manager or
member of any the Company or any Subsidiary, regardless of the capacity for
which such individual is being compensated, other than in accordance with the
Employment Agreements or any other employment agreements approved in writing by
the Agent or other than in accordance with the terms of the Operating Agreement
to the extent approved by the requisite members thereunder (it being understood
that in no event shall any interested member thereunder be entitled to vote to
approve such matters).

                  (k)      CAPITAL EXPENDITURES. The Company and its
Subsidiaries shall not make Capital Expenditures in the aggregate for all of
them, either by purchase or lease, in any Fiscal Year in excess of the amount
set forth below opposite such Fiscal Year:

<TABLE>
<CAPTION>
Fiscal Year         Amount of Capital Expenditures
-----------         ------------------------------
<S>                 <C>
  2003                       $1,900,000
  2004                       $3,800,000
  2005                       $2,850,000
  2006                       $2,200,000
  2007                       $2,800,000
  2008                       $2,300,000
  2009                       $2,350,000
  2010                       $2,900,000
  2011                       $2,500,000
</TABLE>

provided, that if the Company and its Subsidiaries incur capital expenditures
during a Fiscal Year in an amount less than the permitted amount for such Fiscal
Year, the difference between such capital expenditure amount and such permitted
amount shall be added to the amount of permitted capital expenditures for the
following Fiscal Year; and provided, further, that in no event shall such
additional amount exceed $400,000.

                  (l)      AMENDMENTS. Except as expressly contemplated in this
Agreement, the Company shall not, nor shall it permit any of its Subsidiaries
to, request, permit or consent to any amendment to their respective charters,
bylaws, articles of organization, operating agreements or partnership agreements
or to any agreement, document or instrument to which it is a party or is
otherwise bound or to which its assets or properties is subject, which amendment
would be adverse to the Purchasers' interests as a Lender to the Company.

                  (m)      ISSUANCE OF ADDITIONAL SECURITIES. Except (i) as
provided in Section 17 (entitled "Bonus Distribution") of the Operating
Agreement, (ii) for the Membership Interests and (iii) as required under the
Kaufman Employment Agreement, the Company shall not, nor permit any Subsidiary
to, issue any shares of capital stock or any other equity securities or
interests or any securities or interests convertible into or exchangeable for
equity securities or interests (including, without limitation, options or
warrants).

                                       18

<PAGE>

                  (n)      NO PROHIBITED TRANSACTIONS UNDER ERISA. The Company
shall not directly or indirectly:

                           (i)      engage, or permit any Subsidiary to engage,
in any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the Code for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;

                           (ii)     permit to exist with respect to any Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the Code), whether or not waived;

                           (iii)    fail, or permit any Subsidiary to fail, to
pay timely required contributions or annual installments due with respect to any
waived funding deficiency to any Plan;

                           (iv)     terminate, or permit any Subsidiary to
terminate, any Plan where the event would result in any liability of the
Company, any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;

                           (v)      fail, or permit any Subsidiary to fail, to
make any required contribution or payment to any Multiemployer Plan;

                           (vi)     fail, or permit any Subsidiary to fail, to
pay any required installment or any other payment required under Section 412 of
the Code on or before the due date for the installment or other payment;

                           (vii)    amend, or permit any Subsidiary to amend, a
Plan resulting in an increase in current liability for the plan year such that
the Company, any Subsidiary or any ERISA Affiliate is required to provide
security to the Plan under Section 401(a)(29) of the Code; or

                           (viii)   withdraw, or permit any Subsidiary to
withdraw, from any Multiemployer Plan where the withdrawal is reasonably likely
to result in any liability under Title IV of ERISA.

                  (o)      TRADE CREDIT. The Company and its Subsidiaries shall
not allow, in the aggregate, more than $150,000 of trade accounts payable (net
of commissions due) to be more than 60 days past due at any time.

                  (p)      BUSINESS ACQUISITIONS. Upon the satisfaction in full
of the Superior Debt Obligations, the Agent's prior written consent shall be
required in connection with any acquisition of a business by the Company or any
Subsidiary; provided, however, that the Company may, directly or indirectly,
acquire a business without such consent if the acquisition price for the
acquisition of such business is less than $250,000.

                                       19

<PAGE>

                  (q)      LEASES. Without the Agent's prior written consent,
the Company shall not, nor shall it permit any Subsidiary to, enter into, renew,
replace or extend any lease for any real or personal property if such action
would cause the aggregate lease obligations of the Company and its Subsidiaries
on a consolidated basis to exceed the aggregate lease obligations of the Company
and its Subsidiaries (giving effect to the acquisition contemplated by the
Purchase Agreement on a pro forma basis as if IRG and IDE had been Subsidiaries
of the Company as of December 31, 2002) on a consolidated basis existing as of
December 31 of the prior Fiscal Year by more than $500,000. For purposes of this
Section 7.2(q), the term "lease obligations" shall mean the aggregate rental
payments due under all leases during the applicable Fiscal Year.

                  (r)      NO ACQUISITIONS OF REAL PROPERTY. Notwithstanding
anything to the contrary herein, neither the Company nor any Subsidiary shall
acquire any real property without the prior written consent of Agent (which
consent Agent may withhold in its sole and absolute discretion). In the event
Agent grants such consent, the Company or such Subsidiary, as the case may be,
shall not acquire the real property unless the Company or such Subsidiary, as
the case may be, executes all documents and mortgages required by the Agent, in
form and substance satisfactory to the Agent, which are necessary to perfect the
Agent's security interest in the real property. Upon the request of the Agent,
the Company or any such Subsidiary shall execute and deliver or cause to be
executed and delivered to the Agent, in due form for filing or recording (and
pay the cost of filing or recording the same in all public offices deemed
necessary by the Agent) assignments, security agreements, mortgages, deeds of
trust, financing statements and other documents and do acts and things,
reasonably requested by the Agent from time to time to establish and maintain to
the Agent's satisfaction, a valid perfected lien on and security interest in the
real property of the Company or such Subsidiary, now or hereafter owned, free
and clear of all Liens whatsoever, except for Permitted Liens. In addition to
the foregoing, prior to acquiring any real property, the Company or such
Subsidiary, as the case may be, shall undertake appropriate environmental due
diligence to ensure that the real property is not in violation of any applicable
environmental law, regulation, ordinance or order of any federal, state, or
local government entity, dealing with "Superfund," water pollution, air
pollution, solid and hazardous waste, underground storage tanks, "sanitary
landfills" and "open dumps," injection and drywells, or any other federal, state
or local laws relating to contamination of or adverse effects on the environment
and provide evidence thereof to the satisfaction of the Agent in its sole
discretion.

                  (s)      NO AMENDMENT OF NFB LOAN. Without the prior written
consent of the Agent, the Company shall not, nor shall it permit any of its
Subsidiaries to, permit or consent to any amendment to or modification of the
NFB Loan; provided that the NFB Loan may be refinanced or extended at the end of
its 3-year term so long as such refinancing or extension is made on
substantially the same terms or more favorable terms (from the viewpoint of the
Agent) as the existing NFB Loan (including, without limitation, without any
increase in the rate of interest (or spread, as applicable) accruing on or
principal of the NFB Loan).

         7.3      FINANCIAL COVENANTS. From and after the time that the Superior
Debt is paid in full and continuing as long as any of the Subordinated
Obligations remains unpaid:

                                       20

<PAGE>

                  (a)      MINIMUM FIXED CHARGES COVERAGE RATIO. The Company
will not permit the ratio of (x) EBITA for the period set forth below ending as
of the date of determination to (y) the sum of all payments of principal
(excluding Excess Cash Flow payments under Section 2.4(a) of the PREFSA Loan
Agreement and under Section 3.3 of the Notes) and interest under the PREFSA
Loans, the Loans and the NFB Loan for the period set forth below ending as of
the date of determination, as determined at the end of each Fiscal Quarter of
the Company and its Subsidiaries, commencing with the quarter ending December
31, 2003, to be less than the ratio shown below for the period ending as of the
date of determination.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------
  Period Ending as of Date of Determination                  Minimum Ratio
--------------------------------------------------------------------------
<S>                                                          <C>
12-month period ending as of the end of each                    1.5:1.0
Fiscal Quarter
--------------------------------------------------------------------------
</TABLE>

                  (b)      MAXIMUM DEBT TO EBITA. Beginning with the Fiscal
Quarter ending June 30, 2003 and as of the end of each Fiscal Quarter
thereafter, the Company and its Subsidiaries will not permit their Consolidated
Debt Ratio at such time to exceed the amount set forth below:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Date of Determination                                       Maximum Consolidated
                                                                 Debt Ratio
--------------------------------------------------------------------------------
<S>                                                         <C>
Each Fiscal Quarter ending 6/30/2003 through                     4.0:1.0
12/31/2004 (inclusive)
--------------------------------------------------------------------------------
Each Fiscal Quarter ending 3/31/2005 through                     3.5:1.0
12/31/2006 (inclusive)
--------------------------------------------------------------------------------
Each Fiscal Quarter ending 3/31/2007 through                     3.0:1.0
12/31/2008 (inclusive)
--------------------------------------------------------------------------------
Each Fiscal Quarter ending 3/31/2009 through
3/31/2011
--------------------------------------------------------------------------------
</TABLE>

                  (c)      MINIMUM INTEREST COVERAGE RATIO. The Company will not
permit the ratio of (x) EBITA for the period set forth below ending as of the
date of determination to (y) Consolidated Interest Charges for the period set
forth below ending as of the date of determination, as determined at the end of
each Fiscal Quarter of the Company and its Subsidiaries, commencing with the
quarter ending June 30, 2003, to be less than the ratio shown below for the
period ending as of the date of determination:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Period Ending as of Date of Determination                      Minimum Ratio
--------------------------------------------------------------------------------
<S>                                                            <C>
3-month period ending as of each of 6/30/2003,                    2.0:1.0
9/30/2003 and 12/31/2003
--------------------------------------------------------------------------------
12-month period ending as of the end of each                      2.0:1.0
Fiscal Quarter in Fiscal Year 2004
--------------------------------------------------------------------------------
12-month period ending as of the end of each                      2.75:1.0
Fiscal Quarter in Fiscal Years 2005 and 2006
</TABLE>

                                       21

<PAGE>

<TABLE>
--------------------------------------------------------------------------------
<S>                                                            <C>
12-month period ending as of the end of each                      4.5:1.0
Fiscal Quarter thereafter
--------------------------------------------------------------------------------
</TABLE>

         7.4      FINANCIAL REPORTING/INFORMATION. From and after the Closing
Date and for so long as any Subordinated Obligations remain unpaid, the Company
will furnish to the Agent the following, all of which shall be prepared in
accordance with GAAP (where applicable):

                  (a)      MONTHLY STATEMENTS. As soon as available and in any
event within 20 days after the end of each month, a consolidated balance sheet
of the Company and its Subsidiaries as of the end of the month, together with a
consolidated statement of income and cash flows of the Company and its
Subsidiaries (if any) for that month and for the period from the beginning of
the applicable Fiscal Year to the end of that month, of the Company and its
Subsidiaries, all certified by the Chief Financial Officer of the Company; the
foregoing shall be accompanied by a certificate signed by such Chief Financial
Officer stating that no Default or Event of Default has occurred or then exists,
or if the signer is aware of any Default or Event of Default, the signer shall
disclose in the statement the nature thereof and what action the Company
proposes to take with respect thereto and the certificate shall also set forth
(in whatever detail the Agent requests) the calculations demonstrating
compliance by the Company during that month with all the covenants in Section
7.3 hereof.

                  (b)      ANNUAL STATEMENTS. As soon as available and in any
event within 120 days after the end of each Fiscal Year of the Company, a copy
of the annual audited consolidated balance sheets and statements of income and
retained earnings and cash flows for that year for the Company and its
Subsidiaries (the "Financials"), certified in a manner acceptable to the Agent
by independent public accountants acceptable to the Agent and accompanied by an
opinion thereon of the independent public accountants to the effect that the
financial statements have been prepared in accordance with GAAP (except for
changes in which the accountants concur), that the financial statements present
fairly the consolidated financial condition of the Company and its Subsidiaries
as of the date of the Financials and for the Fiscal Year covered thereby and
that the examination of the accountants in connection with the Financials has
been made in accordance with generally accepted auditing standards and
accordingly, includes tests of the accounting records and other auditing
procedures considered necessary in the circumstances and accompanied by a
certificate signed by the Chief Financial Officer of the Company stating that no
Default or Event of Default has occurred or then exists. By its delivery of the
Financials to the Agent, the Company shall be deemed to represent and warrant
that the Financials fairly present the Company's and all of its Subsidiaries'
assets, liabilities and financial condition and the results of their operations
as of the date thereof and for the period covered thereby and that there are no
omissions from the Financials or other facts or circumstances not reflected in
the Financials which are required to be stated therein in accordance with GAAP.
The Financials shall be accompanied by a certificate signed by the Chief
Financial Officer of the Company setting forth the calculations demonstrating
compliance by the Company at the end of that Fiscal Year with the covenants set
forth in Section 7.3 hereof, setting forth the calculations made by the Company
to determine the Excess Cash Flow for such Fiscal Year and stating that the
Company's determination of Excess Cash Flow for such Fiscal Year is correct.

                                       22

<PAGE>

                  (c)      PROJECTIONS. As soon as available and in any event no
later than 45 days prior to the end of each Fiscal Year of the Company, the
Company will deliver consolidated Projections of the Company and its
Subsidiaries for the forthcoming twelve months on a month-to-month basis.

                  (e)      MONTHLY REPORT OF AGENTS, LISTINGS, CLOSINGS, SALES
PRICES, ETC. Within 20 days after the end of each month, the Company shall
provide to the Agent copies of internally generated management reports of the
Company and its Subsidiaries as are necessary to show the following:

                           (i)      the number of agents currently engaged by
the Company and its Subsidiaries;

                           (ii)     the number of desks in the residential real
estate brokerage offices of Company and its Subsidiaries;

                           (iii)    the number of currently active listings of
the Company and its Subsidiaries;

                           (iv)     the number of listings taken since the date
of the last report;

                           (v)      the number of closings since the date of the
last report;

                           (vi)     the average sales price of homes, co-ops and
condominiums closed since the date of the last report;

                           (vii)    reports showing office by office
profitability and productivity;

                           (viii)   an aged trial balance of all then existing
accounts payable; and

                           (ix)     any other information requested by the Agent
with respect to the business of the Company and its Subsidiaries in form and
detail acceptable to the Agent.

                  (f)      NOTICES.

                           (i)      Within five days of occurrence, written
notice of the commencement of all litigation, arbitration proceedings, or any
adverse proceedings before a Governmental Entity, and any material development
therein affecting the Company or any of its Subsidiaries where the amount
claimed either (A) is not covered by insurance and is for an amount of $50,000
or more, or (B) exceeds the insurance coverage by $50,000 or more, or where the
insurance carrier has denied its responsibility as to an amount claimed which
exceeds $50,000; in each case together with a certificate from an appropriate
representative of the Company describing the nature and status of such matters
and what action the Company is taking or propose to take with respect thereto;

                                       23

<PAGE>

                           (ii)     Within five days of occurrence, written
notice of any Default or Event of Default, specifying the nature and the period
of existence thereof and the action the Company has taken or proposes to take
with respect thereto;

                           (iii)    Within five days of occurrence, written
notice of all claims filed against the Company or any of its Subsidiaries or
against any property owned by the Company or any such Subsidiaries, which, if
adversely determined, could, individually or in the aggregate, have a Material
Adverse Effect, in each case together with a certificate from an appropriate
representative of the Company describing the nature and status of those matters
and what action the Company is taking or proposes to take with respect thereto;

                           (iv)     Within five days of occurrence, written
notice of any other event which might have a Material Adverse Effect, including,
without limitation, the loss of any Permit;

                           (v)      Within five days of occurrence, written
notice of the occurrence of any Reportable Event with respect to any Plan for
which the required report has not been waived by the PBGC, any decision to
terminate or withdraw from a Plan, any finding made with respect to a Plan by
the PBGC under Section 9041(c) of ERISA, any notice of noncompliance issued by
the PBGC with respect to a Plan under Section 4041(c) of ERISA, the commencement
of any proceeding with respect to a Plan under Section 4041(b) of ERISA, or any
material increase in the actuarial present value of unfunded vested benefits
under all Plans over the preceding year;

                           (vi)     At least 30 days advance written notice of
any change of name or of any new trade name or fictitious business name. The
Company or any Subsidiary's use of any trade name or fictitious business name
will be in compliance with all laws;

                           (vii)    At least 30 days advance written notice of
any change in the principal place of business or chief executive office of the
Company or any Subsidiary, or any change in the location of its books and
records or the Collateral or of any new location for its books and records or
the Collateral;

                           (viii)   Prompt advance written notice of any new
bank accounts the Company or any of its Subsidiaries intends to establish; and

                           (ix)     Within fifteen (15) days after submission to
the applicable Governmental Entity, copies of all Tax returns filed by the
Company and its Subsidiaries.

                  (g)      LEASES, ETC. Within fifteen (15) days after execution
or concurrent with delivery of the next monthly reports due pursuant to Section
7.4 (whichever is later), abstracts of any real property lease, or material
amendments, modifications or extensions of any real property leases, entered
into by the Company or any Subsidiary after the date of this Agreement.

                  (h)      OTHER INFORMATION. Other information respecting the
condition or operations, financial or otherwise, of the Company or any
Subsidiary, the Collateral and other matters reasonably requested by the Agent
from time to time. Commencing with the first report

                                       24

<PAGE>

required to be made to the Agent in the Company's Fiscal Year ending in 2002 and
for each period from and after the end of the Company's first Fiscal Year for
which reports and other financial information are required in accordance with
Sections 7.4(a) and (b), the Company shall provide to the Agent comparisons of
the then current reports and information for like periods in the Company's then
immediately preceding Fiscal Year.

         7.5      INSPECTION. As long as any of the Subordinated Obligations
shall remain unpaid, the Company will permit the Agent, or any Person designated
by the Agent in writing, from time to time hereafter upon reasonable notice to
the Company, to call at the Company's or any Subsidiary's place or places of
business (or any other place where the Collateral or any information relating
thereto is kept or located) during reasonable business hours, and, without
hindrance or delay, to (i) inspect, audit, check and make copies of and extracts
from the Company's or any Subsidiary's books, records (including minute books),
journals, orders, receipts and any correspondence and other data relating to the
Company or such Subsidiary's businesses or to any transactions between the
parties hereto, (ii) make such verification concerning the Collateral as the
Agent may consider reasonable under the circumstances and (iii) discuss the
affairs, finances and businesses of the Company or any Subsidiary with any of
their respective officers, employees, directors or outside auditors.

         8.       EVENTS OF DEFAULT. Upon the occurrence of any of the following
events (each an "Event of Default"):

                  (a)      The Company shall fail to pay when due the principal
of any Note; or

                  (b)      The Company shall fail to pay within 5 days of its
due date any interest under a Note; or

                  (c)      The Company shall default in the observance or
performance of any of its agreements set forth in Sections 7.2 or 7.3 hereof; or

                  (d)      The Company shall default in the observance or
performance of any other agreement contained in this Agreement and such default
shall continue unremedied for a period of thirty (30) days after written notice
thereof is given to the Company by the Agent; or

                  (e)      With respect to any Indebtedness for borrowed money,
which Indebtedness is in an outstanding principal amount in excess of Two
Hundred Fifty Thousand and 00/100 ($250,000.00) Dollars (other than any Note),
the Company or any Subsidiary shall (i) default in any payment of any such
Indebtedness beyond the grace period, if any, provided in the instrument or
agreement under which such Indebtedness was created; or (ii) default in the
observance or performance of any other agreement or condition relating to any
such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto or any event shall occur or condition exist, in
each case the effect of which default or other event or condition is to entitle
the holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause such Indebtedness to become due prior to its
stated maturity; or

                                       25

<PAGE>

                  (f)      (i) The Company or any Subsidiary shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Company or any
Subsidiary shall make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against the Company or any Subsidiary any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
sixty (60) days; or (iii) there shall be commenced against the Company or any
Subsidiary any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall have not been vacated, discharged, or stayed or bonded
pending appeal within twenty (20) days from the entry thereof; or (iv) the
Company or any Subsidiary shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii) or (iii) of this Section 8(f); or (v) the Company or any
Subsidiary shall generally not, or shall be unable to, r shall admit in writing
its inability to, pay its debts as they become due; or

                  (g)      The rendering by any court of a final judgment or
judgments against the Company or any Subsidiary which shall not be
satisfactorily stayed, discharged, vacated or set aside within sixty (60) days
of the making thereof; or the attachment of any property of the Company or any
Subsidiary which has not been released or provided for to the reasonable
satisfaction of the Purchasers within sixty (60) days after the making thereof,
which judgment or attachment is for an amount of $250,000 or more; or

                  (h)      the Franchise Agreement is terminated for any reason
whatsoever or is determined, in whole or in part, to be void, unenforceable or
not in full force and effect; or

                  (i)      Any representation or warranty made or deemed herein
or which is contained in any certificate, document or financial or other
statement in connection with this Agreement shall prove to have been false in
any material respect on or as of the date made or deemed made, then, in any such
event, any or all of the following actions shall be taken: the Agent by notice
of default to the Company, may declare the entire amount due under the Notes
(with accrued interest thereon) and all other amounts owing under this Agreement
to be immediately due and payable; provided, however, that upon the happening of
an event specified in subsection (f) of this Section 8, the Notes shall be
immediately due and payable without declaration or other notice to the Company.
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived.

         9.       COLLATERAL.

         9.1      SECURITY INTEREST. To secure payment and performance of the
Subordinated Obligations, the Company and each Company Subsidiary other than
Preferred (collectively, "Grantors") hereby pledges, assigns, conveys,
transfers, delivers and grants to Agent, on behalf

                                       26

<PAGE>

of the Purchasers, a continuing security interest (subject only to Permitted
Liens) in all currently existing and hereafter acquired or arising Collateral
pursuant to this Agreement. At such time as as Preferred obtains a valid
mortgage banking license (the "License Approval Date"), the Company shall
promptly (i) notify Agent of such fact, and (ii) deliver to Agent copies of the
organizational documents of Preferred. It is the intent of the parties hereto
that upon the License Approval Date (1) Preferred be caused to guarantee the
obligations of the Company hereunder and (2) 100% of the equity interests in
Preferred be pledged to Agent as additional security for the Subordinated
Obligations, but only if such actions would not jeopardize the good standing of
Preferred's license with the New York State Banking Department. Until all of the
Subordinated Obligations have been fully satisfied, the security interest and
Liens in and against the Collateral granted herein shall continue in full force
and effect. Until all of the Superior Debt Obligations have been fully
satisfied, the security interest and Liens in and against the Collateral granted
herein shall be subordinated to the security interest granted to PREFSA as
Lender to secure such Superior Debt Obligations. Purchasers' security interest
in the Collateral shall attach to the Collateral without further action by
Agent, Purchasers or Grantors.

         9.2      DISCLOSURE OF SECURITY INTEREST. Grantors shall make
appropriate entries upon their annual financial statements and their books and
records disclosing Purchasers' security interest in the Collateral.

         9.3      SECURITY DOCUMENTS; POWER OF ATTORNEY. At Agent's request,
Grantors shall execute or deliver to Agent, for the benefit of the Purchasers,
at any time or times hereafter, all Security Documents, or any substitute note,
that Agent may reasonably request, in form and substance acceptable to Agent,
and pay the costs of any recording or filing of the Security Documents or
substitute Note. Grantors agree that a carbon, photographic, photostatic or
other reproduction of this Agreement or of a financing statement is sufficient
as a financing statement. Each Grantor hereby irrevocably makes, constitutes and
appoints Agent (and all Persons designated by Agent for that purpose) as such
Grantor's true and lawful attorney (and agent-in-fact) with power (a) to sign
the name of such Grantor on any of the Security Documents to which it is a party
and to deliver those Security Documents to such Persons as Agent, in its sole
discretion, may elect, (b) at any time that an Event of Default has occurred and
is continuing, subject to any rights of PREFSA as Lender under the PREFSA Loan
Agreement, to endorse such Agent's name on any checks, notes or other forms of
payment or security, (c) to send requests for verification of Accounts, (d) at
any time that an Event of Default has occurred and is continuing, subject to any
rights of PREFSA as Lender under the PREFSA Loan Agreement, to make, settle and
adjust all claims under such Grantor's policies of insurance and make all
determinations and decisions with respect to such policies of insurance, (e) at
any time that an Event of Default has occurred and is continuing, subject to any
rights of PREFSA as Lender under the PREFSA Loan Agreement, to settle and adjust
disputes and claims respecting the Accounts directly with Account Debtors, for
amounts and upon terms that Agent determines to be reasonable, and Agent may
cause to be executed and delivered any documents and releases that Agent
determines to be necessary and (f) do all things necessary or appropriate to
carry out the terms of this Agreement, all without notice to such Grantor. Each
Grantor ratifies and approves all acts of any such attorney and agrees that
neither Agent nor any such attorney will be liable to any Grantor for any acts,
omissions, error of judgment or mistake of fact or law, unless any of the
foregoing are occasioned by the gross negligence or willful misconduct of Agent
or of

                                       27

<PAGE>

any such attorney. The foregoing power of attorney, being coupled with an
interest, is irrevocable until the Subordinated Obligations have been fully
satisfied.

         9.4      AGENT'S PAYMENT OF CLAIMS ASSERTED AGAINST GRANTORS. Subject
to any rights of PREFSA as Lender under the PREFSA Loan Agreement, Agent may, at
any time or times hereafter, in its sole discretion, and without waiving or
releasing any obligation, liability or duty of any Grantor under this Agreement
or any Default or Event of Default, pay, acquire and/or accept an assignment of
any Lien asserted by any Person against the Collateral; provided that (i) PREFSA
shall not have given written notice to Grantors of its intent to do so under the
PREFSA Loan Agreement, (ii) Agent shall first give Grantors written notice of
its intent to do so, and (iii) Grantors shall not, within ten days of such
notice, pay the claim or otherwise attempt to obtain a release of the Liens to
which the notice relates. All sums paid by Agent in respect thereof and all
costs, fees and expenses, including reasonable attorneys' and paralegals' fees
and expenses, court costs, expenses and other charges relating thereto, which
are incurred by Agent on account thereof, shall be payable, on demand, by
Grantors to Agent and shall be additional Subordinated Obligations hereunder
secured by the Collateral.

         9.5      PROCESSING, SALE, COLLECTIONS, ETC. Until such time as Agent
shall notify Grantors to the contrary, Grantors (i) will, at their own expense,
endeavor to collect, as and when due, all amounts due with respect to any of the
Collateral, including the taking of any action with respect to collection as
Agent may reasonably request or, in the absence of a request, as Grantors may
deem advisable, and (ii) may grant, in the ordinary course of business, to any
party obligated on any of the Collateral, any rebate, refund or allowance to
which the party may be lawfully entitled. Agent, during the continuance of an
Event of Default, subject to any rights of PREFSA as Lender under the PREFSA
Loan Agreement, may notify any parties obligated on any of the Collateral to
make payment to the Purchasers or to a bank account designated by Agent of any
amounts due or to become due thereunder and enforce collection of any of the
Collateral by suit or otherwise and surrender, release or exchange all or part
thereof, or compromise or extend or renew for any period (whether or not longer
than the original period) any indebtedness thereunder or evidenced thereby. At
Agent's request during the continuance of an Event of Default, subject to any
rights of PREFSA as Lender under the PREFSA Loan Agreement, Grantors will, at
their own expense, (a) notify any parties obligated on any of the Collateral to
make payment to Agent or to a bank account designated by Agent of any amounts
due or to become due thereunder and (b) cause all instruments and Chattel Paper,
upon receipt by any Grantor, to be immediately endorsed to and deposited with
Agent.

         9.6      NEGOTIABLE COLLATERAL. Following the satisfaction in full of
the Superior Debt, if any Collateral, including proceeds, is evidenced by
Negotiable Collateral, Grantors shall, immediately upon written request therefor
from Agent, endorse and assign the Negotiable Collateral over to Agent and
deliver actual physical possession of the Negotiable Collateral to Agent.

         9.7      INTERCREDITOR AGREEMENT. Purchasers' rights under this Article
9 shall be subject to the terms of the Intercreditor Agreement and the
Subordination Agreement.

                                       28

<PAGE>

         10.      DEFINITIONS AND INTERPRETATION

                  Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context clearly requires otherwise
(meanings shall be equally applicable to the singular and plural forms of the
terms so defined):

                  "Account Debtor" means any Person who is or who may become
obligated under, with or respect to, or on account of, an Account.

                  "Accounts" means all currently existing and hereafter arising
accounts, contract rights (including, without limitation, all listings and
receivables) and all other forms of obligations owing to any Grantor arising out
of the sale or lease of goods or the rendition of services by such Grantor,
irrespective of whether earned by performance, and any credit insurance,
guaranties, or security therefore, and Grantor's Books relating to the
foregoing.

                  "Affiliate" shall mean 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.

                  "Agent" shall mean New Valley Real Estate Corporation or such
other person as from time to time may be designated as Agent in accordance with
Article 11 hereof.

                  "Agreement" or "this Agreement" shall mean this Note and
Equity Purchase Agreement, together with the Annexes, Exhibits and Schedules
hereto and the Disclosure Schedule.

                  "Applicable Law" shall mean any applicable law, including
(without limitation) any: (a) federal, state, territorial, county, municipal or
other governmental or quasi-governmental law, statute, ordinance, rule,
regulation, requirement or use or disposal classification or restriction,
whether domestic or foreign; or (b) judicial, administrative or other
governmental or quasi-governmental order, injunction, writ, judgment, decree,
ruling, interpretation, finding or other directive, whether domestic or foreign.

                  "B & H" shall mean B & H Associates of NY, LLC, a New York
limited liability company and shall include its predecessor B & H Associates, a
New York partnership.

                  "Balance Sheet" shall mean the most recent audited balance
sheet dated December 31, 2002 of the Company and its consolidated Subsidiaries,
included in the Financial Statements.

                  "Balance Sheet Date" shall mean the date of the Balance Sheet.

                  "Bankruptcy Code" means that United States Bankruptcy Code (11
U.S.C.ss.101 et seq.), as amended, and any successor statute.

                  "Chattel Paper" means ay "chattel paper," as that term is
defined in Section 9201(a)(11) of the Commercial Code, now owned or hereafter
acquired by a Grantor.

                                       29

<PAGE>

                  "Closing" shall mean the closing referred to in Section 2.

                  "Closing Date" shall mean the date on which the Closing
occurs.

                  "Code" shall mean the Internal Revenue Code of 1986, as
amended.

                  "Collateral" shall mean, except as noted below, all tangible
and intangible personal property of the Grantors, whether now owned or hereafter
acquired or arising and wherever located, including but not limited to each of
the following:

                  (a) the Accounts,

                  (b) Grantor's Books,

                  (c) the Equipment,

                  (d) the General Intangibles,

                  (e) the Negotiable Collateral,

                  (f) the Pledged Securities,

                  (g) any money or other assets of Grantors that now or
                      hereafter come into the possession, custody or control of
                      PREFSA or PREA (including, but not limited to, any money
                      or other obligations owing to any Grantors under any
                      Franchise Agreement or under any other agreement between
                      PREA, or any other Affiliate of PREFSA, and any Grantor)
                      or, after the payment in full of the Superior Debt
                      Obligations, of Agent, and

                  (h) the proceeds and products, whether tangible or intangible,
                      of any of the foregoing, including proceeds of insurance
                      covering any or all of the Collateral, and any and all
                      Accounts, Grantor's Books, Equipment, General Intangibles,
                      Negotiable Collateral, real property, money, deposit
                      accounts or other tangible or intangible property
                      resulting from the sale, exchange, collection or other
                      disposition of any of the foregoing, or any portion
                      thereof or interest therein, and the proceeds thereof.

         Notwithstanding anything in the foregoing to the contrary, the term
         "Collateral" shall in no event include any of the Grantors' rights in,
         to or under the Franchise Agreement, including, without limitation, any
         rights in or to the tradenames and servicemarks of The Prudential
         Insurance Company of America, Inc., a New Jersey corporation, and The
         Prudential Real Estate Affiliates, Inc., a Delaware corporation (the
         "Prudential Tradenames and Servicemarks").

                                       30

<PAGE>

                  "Commercial Code" shall mean Uniform Commercial Code, as
amended and as now in effect in the State of New York and the Uniform Commercial
Code of any other jurisdiction as required under New York Commercial Code
Section 9301.

                  "Company" shall mean Montauk Battery Realty, LLC, a New York
limited liability company.

                  "Company Subsidiaries" shall mean B & H, Hamptons, PE and
Preferred (notwithstanding the fact that it is not a Subsidiary of the Company).
Upon their acquisition, IDE and IRG shall each become a Subsidiary of the
Company.

                  "Company's knowledge" or "knowledge of the Company" shall mean
the actual knowledge that the directors and officers of the Company have after
reasonable investigation and inquiry.

                  "Compensation" means, with respect to any Person, all payments
and accruals commonly considered to be compensation, including, without
limitation, all wages, salary, deferred payment arrangements, bonus payments and
accruals, profit sharing arrangements, payments in respect of stock options or
phantom stock options or similar arrangements, stock appreciation rights or
similar rights, incentive payments, pension or employment benefit contributions
or similar payments and perquisites, made to or accrued for the account of that
Person or otherwise for the direct or indirect benefit of that Person.

                  "Consolidated Debt Ratio" means, as of a particular date of
determination, the ratio of (i) the funded indebtedness of the Company and its
Subsidiaries on a consolidated basis (including the PREFSA Loans, the Loans, the
NFB Loan and any obligations under Capitalized Leases, but excluding the
Franchise Term Note and that certain loan from Fleet Bank in the original
principal amount of $1,700,000, which loan matures and is to be paid off in full
in June of 2003), to (ii) EBITA for the 12-month period ending as of such date
of determination.

                  "Consolidated Interest Charges" means, for any period, total
interest expense (including, without limitation, that portion of any Capitalized
Lease Obligations attributable to interest expense in conformity with GAAP and
amortization of capitalized interest) with respect to all outstanding
Indebtedness of the Company and its Subsidiaries, including, without limitation,
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers acceptances, net costs related to any interest
rate hedging, interest rate cap or similar agreement or arrangement, the portion
of any fee, commission or discount paid with respect to any interest rate hedge
which is being expensed, during the period, less payments received under the
interest rate hedging, interest rate cap or similar agreement or arrangement to
the extent not already reducing interest expense, all as determined for the
Company and its Subsidiaries on a consolidated basis for the period in
accordance with GAAP.

                  "Default" shall mean any of the events specified in Section 8
hereof, whether or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied or given, as the case
may be.

                                       31

<PAGE>

                  "Disclosure Schedule" shall mean the disclosure schedule of
even date herewith prepared and signed by the Company and delivered to the
Purchasers simultaneously with the execution hereof.

                  "Documents" means any "documents," as that term is defined in
Section 9201(a)(30) of the Commercial Code, now owned or hereafter acquired by a
Grantor.

                  "Equipment" means all of Grantors' present and hereafter
acquired machinery, machine tools, motors, equipment (including computers and
printers), furniture, furnishings, fixtures, vehicles (including motor vehicles
and trailers), tools, parts and goods, wherever located, including, (i) any
interest of Grantors in any of the foregoing and (ii) all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
to any of the foregoing.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.

                  "ERISA Affiliate" means (i) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the employees of
the Company or any Subsidiary under Code Section 414(b), (ii) any trade or
business subject to ERISA whose employees are treated as employed by the same
employer as the employees of any the Company or any Subsidiary under Code
Section 414(c), (iii) solely for purposes of Section 302 of ERISA and Code
Section 412, any organization subject to ERISA that is a member of an affiliated
service group of which the Company or any Subsidiary is a member under Code
Section 414(m), or (iv) solely for purposes of Section 302 of ERISA and Code
Section 412, any party subject to ERISA that is a party to an arrangement with
the Company or any Subsidiary and whose employees are aggregated with the
employees of the Company or any Subsidiary under Code Section 414(o).

                  "Excess Cash Flow" means, for any period, the aggregate net
income of the Company and its Subsidiaries plus (X) less (Y), where (X) equals
the sum of (i) to the extent not included in net income, cash proceeds to the
Company or any Subsidiary actually received from the sale of any of its assets,
and (ii) the amount of depreciation and amortization expense (calculated
pursuant to GAAP) deducted in the calculation of net income by the Company and
its Subsidiaries during such period, and where (Y) equals the sum of (a) capital
expenditures actually paid in cash by the Company and its Subsidiaries (but
limited to such amounts as permitted under this Agreement), (b) principal
payments on all funded Indebtedness permitted under this Agreement (other than
principal payments on the PREFSA Revolving Loan), (c) principal portion of
capital lease obligations actually paid, and (d) Permitted Tax Distributions.

                  "Event of Default" shall mean the occurrence of the events
specified in Article 8 of this Agreement, provided that any requirement for the
giving of notice, the lapse of time, or both, or any other condition, has been
satisfied.

                  "Financial Statements" shall have the meaning set forth in
Section 3.10.

                                       32

<PAGE>

                  "Financials" shall have the meaning set forth in Section
7.4(b).

                  "Fiscal Year" shall mean the twelve-month accounting period of
the Company and its Subsidiaries commencing on January 1 and ending on December
31 of each year.

                  "Franchise Agreement" means, collectively, (i) the Real Estate
Brokerage Franchise Agreement, effective as of December 17, 2002, between PLIR
and PREA, as amended or modified from time to time, (ii) the Real Estate
Brokerage Franchise Agreement, effective as of December 17, 2002, between
Hamptons LLC and PREA, as amended or modified from time to time, and (iii) the
Real Estate Brokerage Franchise Agreement, effective as of March 14, 2003,
between IDE and PREA, as amended or modified from time to time.

                  "Franchisee" means, collectively, B & H, IDE and Hamptons.

                  "Franchise Term Note" means that certain Franchise Term Note
in the original principal amount of $3,300,000.00 dated as of December 17, 2002
executed by B&H and Hamptons and payable to the order of PREA.

                  "GAAP" shall mean United States generally accepted accounting
principles.

                  "General Intangibles" means all of Grantors' present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, clauses, or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, advertising materials, signage, deposit accounts, insurance premium
rebates, tax refunds and tax refund claims), other than goods, Accounts and
Negotiable Collateral.

                  "Grantors' Books" means, with respect to any Grantor, all of
such Grantor's books and records including: ledgers; records indicating,
summarizing or evidencing such Grantor's properties or assets (including the
Collateral) or liabilities; all information relating to such Borrower's business
operations or financial condition; and all computer programs, disk or tape
files, printouts, runs or other computer prepared information.

                  "Governmental Entity" shall mean a court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency, whether domestic or foreign.

                  "Grantor" shall mean the Company and the Company Subsidiaries
other than Preferred.

                  "Guaranty" shall mean the Guaranty of the Loans to the
Purchasers by the Company Subsidiaries (other than Preferred), IDE and IRG.

                                       33

<PAGE>

                  "Hamptons" shall mean B & H of the Hamptons, LLC.

                  "IDE" shall mean Insignia Douglas Elliman LLC.

                  "Indebtedness" shall mean any and all obligations of the
Company and the Company Subsidiaries consolidated in accordance with GAAP
consistently applied as of the date of calculation: (a) for borrowed money,
however evidenced; (b) evidenced by any promissory note, bond, debenture or
other similar written obligation to pay money; (c) for the deferred purchase
price of any asset, property or service; (d) under any interest rate protection,
foreign currency exchange, or other interest or exchange rate swap or hedging
agreement or arrangement; (e) in respect of any letter of credit or banker's
acceptance; (f) to reimburse or compensate any other person respecting any
provisional or other temporary credit in advance of collection for deposits of
any checks, instruments or other documents made by the referenced person or any
of its affiliates; (g) as lessee under leases that have been capitalized or
should be capitalized under GAAP; (h) respecting any preferred stock issued by
the referenced person bearing any mandatory dividend, interest or other return,
or subject to any repurchase or redemption, that is payable in cash or any other
property (other than as payable only with common stock or like preferred stock);
(i) respecting unfunded accrued benefits under plans covered by Title IV of
ERISA and unfunded accrued post-retirement benefits under any "employee welfare
benefit plan" (as defined in ERISA); (j) whereby the referenced person directly
or indirectly has guarantied, assumed or otherwise become liable or responsible
for the Indebtedness or other obligation of any other person, whether contingent
or otherwise, and whether or not recourse is limited to specified amounts or any
asset or property of the referenced person; or (k) respecting other items
treated as liabilities under GAAP; provided, however, that Indebtedness shall
not include (i) obligations incurred in the ordinary course of business that are
(A) treated as current trade accounts payable under GAAP, or (B) owed by the
Company to any Company Subsidiary or by any Company Subsidiary to the Company,
(ii) accrued expenses that have been or should be capitalized under GAAP, or
(iii) estimated income Tax liabilities with respect to unrealized appreciation
of assets.

                  "Initial Loans" shall mean the Loans to the Company from each
Purchaser in the principal amount set forth in Annex A.

                  "Insignia Acquisition" shall mean the acquisition by the
Company of all of the membership interests of IDE and IRG pursuant to the
Purchase Agreement.

                  "Instruments" means any "instrument," as that term is defined
in Section 9102(a)(47) of the Commercial Code, now owned or hereafter acquired
by any Grantor, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.

                  "Intercompany Loans" means any loan or advance made by the
Company to any of its Subsidiaries or Preferred or from any Subsidiary or
Preferred to another Subsidiary or Preferred consistent with sound business
practices and without any intent to hinder, delay or defraud any creditors.

                                       34

<PAGE>

                  "Intercreditor Agreement" shall mean the Intercreditor
Agreement among NFB, PREFSA and New Valley dated as of the date hereof.

                  "IRG" shall mean a newly-formed LLC formed for the conversion
of Insignia Residential Group, Inc.

                  "License Approval Date" shall have the meaning set forth in
Section 9.1.

                  "Liens" shall mean security interests, liens, claims, pledges,
agreements, limitations in voting rights, charges or other encumbrances of any
nature whatsoever.

                  "Loans" shall mean the Loans from each Purchaser to the
Company in the Loan Amount.

                  "Loan Amount" shall be the amounts set forth on Annex A, as
increased by certain accrued interest thereon in accordance with the terms of
the Notes.

                  "Long Island Facilities" shall mean the term loan and
revolving credit loan made by PREFSA to the Company and certain affiliates
pursuant to a certain loan and security agreement dated as of December 17, 2002.

                  "Majority Purchasers" shall have the meaning set forth in
Section 11.2.

                  "Margin Stock" shall mean any "margin stock" as defined in any
applicable Margin Stock Regulations.

                  "Margin Stock Regulations" shall mean Regulation T, U and/or X
of the Board of Governors of the Federal Reserve System, as applicable, and the
rules and regulations promulgated thereunder, as the same may be supplemented,
modified, amended, restated or replaced from time to time, or any corresponding
or succeeding provisions of Applicable Law.

                  "Material Adverse Effect" means material adverse effect on (i)
the business, assets, operations or financial or other condition of the Company
and its Subsidiaries considered on a consolidated basis, (ii) the Company's
ability to pay the Subordinated Obligations in accordance with the terms hereof
or the other Related Documents, (iii) the value of the Collateral or the amount
that the Purchasers would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of the
Collateral, taken as a whole on a going concern basis, or (iv) a material
impairment of the priority of the Purchasers' Liens with respect to the
Collateral, taken as a whole.

                  "Members" shall mean DTHY Realty, Inc., a New York
corporation, Dorothy Herman, New Valley, New Valley Mortgage Corporation and
PREFSA.

                  "Membership Interests" shall mean, in the aggregate, thirty
percent (30%) equity interests in the Company on a fully diluted basis, in
accordance with Annex B.

                                       35

<PAGE>

                  "Montauk Guaranty" shall mean the guaranty of even date by and
among the Company, Insignia ESG, Inc. and Insignia Financial Group, Inc. and
referred to in the Purchase Agreement as the "Montauk Guaranty."

                  "Multiemployer Plan" shall mean any Plan described in Section
4001(a)(3) of ERISA.

                  "Negotiable Collateral" means all of any Grantor's present and
future letters of credit, notes, drafts, instruments, investment property,
security entitlements, securities (including the securities of Subsidiaries of
such Grantor), documents, personal property leases (wherein such Grantor is the
lessor), Chattel Paper and such Grantor's Books relating to the foregoing.

                  "New Valley" shall mean New Valley Real Estate Corporation.

                  "NFB" means Northfork Bank.

                  "NFB Loan" means the term loan evidenced by that certain
promissory note dated December 17, 2002 made by B&H to the order of NFB in the
principal amount of $1,940,000.

                  "Notes" shall mean the notes evidencing the Initial Loans, in
the form of Exhibit I hereto.

                  "Operating Agreement" shall mean the Operating Agreement of
the Company dated as of December 17, 2002, as amended by that certain First
Amendment of even date herewith.

                  "PBGC" shall mean the Pension Benefit Guaranty Corporation.

                  "PE" shall mean PE Title Agency, LLC.

                  "Person" shall mean a natural person, partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, Governmental Entity or other
entity or organization.

                  "Permitted Liens" shall have the meaning set forth in Section
7.2(d).

                  "Permitted Tax Distributions" shall mean distributions on or
before April 15, June 15, September 15 and December 15 of each year to each
member of the Company and its Subsidiaries in an amount equal to one-quarter of
the maximum federal and state income tax rate for individuals (the "Maximum
Rate") for the applicable year times the then projected taxable income to such
member during the applicable year attributable to the operations of the Company;
provided, however, that if the Company and its Subsidiaries for any Fiscal Year,
has an actual taxable income which is less than its projected taxable income for
such Fiscal Year, and as a result thereof, members of the Company receive
distributions from the Company for the payment of such members' taxes which
exceed the Maximum Rate times the actual taxable income attributable to the
operations of the Company (the "Excess Distribution"), then, in the

                                       36

<PAGE>

succeeding year, distributions to members of the Company which would otherwise
be permitted hereunder for the payment of taxes will be disallowed on a
dollar-for-dollar basis in an amount equal to the Excess Distribution.

                  "Persons" shall mean any individual, corporation (including
any non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Body.

                  "Plans" shall mean a plan, program, agreement, arrangement or
program described in Section 4021(a) of ERISA and required to be included in the
Disclosure Schedule pursuant to Section 3.14(a).

                  "Pledged Securities" shall mean the equity interests in each
direct or indirect Subsidiary now owned or hereinafter acquired by the Company,
excluding Preferred until the License Approval Date.

                  "PREA" shall mean Prudential Real Estate Affiliates.

                  "PREA Secured Obligations" shall mean the obligations of B&H
and Hamptons under the Franchise Term Note.

                  "Preferred" shall mean Burr Enterprises, Ltd., a New York
corporation d/b/a Preferred Empire Mortgage Company.

                  "PREFSA" shall mean The Prudential Real Estate Financial
Services of America, Inc.

                  "PREFSA Loan Agreement" shall mean the Loan and Security
Agreement between the Company, the Company subsidiaries and PREFSA dated March
14, 2003.

                  "Pro Rata Share" shall have the meaning set forth in Section
11.2.

                  "Prohibited Transaction" shall mean any transaction set forth
in Section 404 of ERISA or the regulations thereunder, Section 4975 of the Code
or regulations thereunder.

                  "Projections" means the Company and its Subsidiaries
forecasted consolidated and consolidating: (a) balance sheets; (b) profit and
loss statements; (c) cash flow statements (including budgeted capital
expenditures); and (d) capitalization statements, all prepared on a Subsidiary
by Subsidiary basis, supported by an office by office profit and loss
projection, and otherwise consistent with the Company and its Subsidiaries
historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions.

                  "Purchase Agreement" shall mean a Purchase and Sale Agreement
by and among Insignia Financial Group, Inc., Insignia ESG, Inc., Insignia
Residential Group, Inc., Insignia IP, Inc. and the Company dated March 14, 2003.

                                       37

<PAGE>

                  "Purchasers" shall mean New Valley and PREFSA.

                  "Related Documents" shall mean the Notes, the Guaranty and the
Operating Agreement.

                  "Reportable Event" means a "reportable event" as that term is
defined in Section 4043 of ERISA.

                  "Security Documents" means all assignments, pledges,
agreements, instruments, financing statements and documents and other written
matter necessary or requested (now or hereafter) by Agent, on behalf of the
Purchasers, to evidence, confirm, effect or perfect, and keep perfected,
Purchasers' security interest in the Collateral.

                  "Securities" shall mean the Notes and Membership Interests.

                  "Securities Act" shall mean the Securities Act of 1933, as
amended.

                  "Service" means the Internal Revenue Service.

                  "Subordinated Obligations" means and includes the Loans, and
all other liabilities, obligations, covenants and duties owing to Purchasers
from the Company and the Company Subsidiaries of any kind or nature, present or
future, arising under this Agreement, the Notes or under any other agreement or
document executed pursuant to or in connection with this Agreement or the
transactions described herein, as such Agreement, Notes or any other such
agreement or document may be amended or modified from time to time. The term
includes, without limitation, all interest, charges, expenses, fees, attorneys'
fees and any other sums chargeable to the Company or any of the Company
Subsidiaries under this Agreement or in connection with this Agreement.

                  "Subordination Agreement" shall mean the Subordination
Agreement of even date herewith by and among New Valley, Agent and PREFSA.

                  "Subsidiary" shall mean, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (a) at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the Board of Directors,
Board of Managers or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries or (b) such party or any other Subsidiary of
such party is a general partner (excluding any such partnership where such party
or any Subsidiary of such party does not have a majority of the voting interest
in such partnership).

                  "Superior Debt" shall mean the borrowings and all other
obligations under the PREFSA Loan Agreement, or any refinancings thereof in a
principal amount not to exceed $57,500,000 (plus any protective advances made
thereunder).

                                       38

<PAGE>

                  "Superior Debt Obligations" shall mean the borrowings,
interest, charges, expenses, fees, attorneys fees and other amounts chargeable
to the Company or its Subsidiaries under the PREFSA Loan Agreement.

                  "Tax" or "Taxes" shall mean all taxes, charges, fees, duties,
levies, tariffs, imposts, penalties or other assessments of any kind imposed by
any federal, state, local or foreign governmental authority, including, but not
limited to, income, gross receipts, excise, profits, ad valorem, net worth,
value added, service, special assessments, workers' compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall profits,
real or personal property, sales, gain, use, license, custom duty, unemployment,
capital stock, transfer, franchise, payroll, withholding, social security,
minimum estimated, and other taxes, and shall include interest, penalties or
additions attributable thereto.

                  "Tax Return" shall mean any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.

                  "Transactions" shall mean the Transactions provided for or
contemplated by this Agreement and the Related Documents.

                  "Transfer" shall mean any sale, assignment, license or other
transfer, whether voluntarily or involuntarily or by operation of law.

         11.      AGENT AND PURCHASERS.

                  11.1.    APPOINTMENT OF AGENT. Upon the terms and provisions
and subject to the conditions contained in this Agreement, the Purchasers hereby
appoint New Valley to act as Agent under this Agreement and the other Related
Documents, and New Valley hereby accepts such appointment.

                  11.2.    VOTING RIGHTS, ETC.

                  (a)      Notwithstanding anything to the contrary in this
Agreement or any other Related Document, the prior written consent of each
affected Purchaser shall be required for any action that would (i) release or
subordinate any interest under any Related Document in any material part of the
Collateral, (ii) release any guarantor, surety or pledgor from personal
liability under any Related Document, (iii) alter the manner of determining any
Purchaser's Pro Rata Share, or (iv) effect an amendment or restatement of this
Agreement, any Note or any other Related Document which adversely affects such
Purchaser.

                  (b)      Except as otherwise provided in Section 11.2(a) of
this Agreement, the prior written consent of the Majority Purchasers shall be
required for any action that would (i) declare or waive any Event of Default
(other than an Event of Default under Section 8(h) which may be declared or
waived by PREFSA acting individually), (ii) waive or consent to any departure
from any other term or provision of this Agreement, any Note or

                                       39

<PAGE>

any other Related Document signed by the Purchasers, (iii) otherwise amend or
restate this Agreement, any Note or any other Related Document signed by the
Purchasers, (iv) exercise the right to vote the indebtedness evidenced by the
Notes with respect to any plan of reorganization, distribution right or
otherwise in connection with any proceeding under the Bankruptcy Code, or (v)
determine to commence any case, proceeding or other action against the Company
of the type described in Section 8(f) hereof; provided that the Agent in its
discretion nevertheless from time to time may grant temporary waivers or
consents respecting the late delivery of notices, financial statements and
similar documents and consent to non-substantive changes in the form thereof.

                  (c)      Except as otherwise provided in this Agreement or any
other Related Document, the Agent shall have the right (but shall be under no
duty or obligation) to make any and all decisions with respect to the terms and
provisions of the Related Documents other than those requiring the approval of
the Majority Purchasers, including (without limitation) the right to give any
notice, to otherwise communicate with the Company or any guarantor, surety or
pledgor under any Related Document and to waive or consent to any departure from
any of those terms or provisions, all without notice to or consent from any
Purchaser.

                  (d)      Each Purchaser shall be bound by such notices,
consents, waivers, releases, supplements, modifications, amendments,
restatements and other agreements and communications as so made by the Agent or
the Majority Purchasers, as and if required to the same extent as if each
Purchaser had been a party thereto. A separate consent from a Purchaser shall
not be required for any document signed by it.

                  (e)      "PRO RATA SHARE" at a particular time for a
particular Purchaser shall mean a share of the referenced item equal to the
percentage obtained by dividing (i) that portion of the principal balance then
outstanding under the Loans attributable to principal amounts received from such
Purchaser under this Agreement and not theretofore repaid, by (B) the aggregate
principal balance then outstanding under all of the Loans.

                  (f)      "MAJORITY PURCHASERS" at a particular time shall mean
the Purchasers (which may include the Agent) then having an aggregate Pro Rata
Share of at least 66 2/3%.

         11.3     POWERS AND DUTIES OF THE AGENT, ETC.

                  (a)      With the consent of the Majority Purchasers specified
in this Agreement, the Agent from time to time in its discretion may exercise or
otherwise enforce any right, power, privilege, remedy or interest under this
Agreement and the other Related Documents and Applicable Law, and shall perform
all duties specifically required of it by the terms of this Article, in all
cases together with such rights, powers, privileges and remedies as are
incidental thereto.

                  (b)      To the extent possession of the Collateral may be
required or permitted under any of the Related Documents, the Agent shall hold
such Collateral as collateral agent for the other Purchasers. The Agent also may
be designated as the secured party for the purpose of any Uniform Commercial
Code, mortgage or other filing. Each such collateral agency shall be for the
limited purpose of perfecting the Purchasers' security interest in the
Collateral for the benefit of the Purchasers and shall be subject to the rights
of the Purchasers and the pledgors

                                       40

<PAGE>

under the relevant Related Documents. Except as otherwise provided in this
Agreement or any other Related Document, the Agent shall have the right to
administer the Collateral and the security interests with respect thereto in
such manner as the Agent may deem necessary or desirable. The Agent shall
administer the Loans in the same manner as it administers its own loans. Except
as otherwise provided in this Agreement or any other Related Document, the
Agent, without notice to or consent from any Purchaser, from time to time may
execute and deliver releases, subordinations, satisfactions, assignments,
reassignments and similar instruments and documents in respect of any Collateral
and take any other action that may be necessary or desirable in connection
therewith so long as such instruments, documents or actions are required,
contemplated or permitted by the terms and provisions of the relevant Related
Document(s).

                  (c)      Without limiting its right to do so in its
discretion, the Agent shall be fully justified in failing or refusing to take or
continue any action under this Agreement or any other Related Document unless
the Agent first shall be reimbursed or otherwise indemnified to its reasonable
satisfaction (which may include the deposit of funds) by the Purchasers (other
than itself) in accordance with their respective Pro Rata Share against any and
all liabilities and expenses that the Agent reasonably estimates may be incurred
by the Agent by reason of taking or continuing to take any such action.

         11.4     STATUS AND LIABILITY OF THE AGENT, ETC. The Agent shall not
have by reason of this Agreement a fiduciary relationship in respect of any
other Purchaser. The Agent may exercise or otherwise enforce any of its rights,
powers, privileges, remedies and interests under this Agreement, the other
Related Documents and Applicable Law or perform any of its duties under this
Agreement and the other Related Documents by or through its directors, officers,
employees, attorneys, agents or designees. The Agent and its designees, and
their respective directors, officers, employees, attorneys and agents, shall not
incur any liability (other than for a person's own acts or omissions amounting
to gross negligence or willful misconduct as finally determined pursuant to
Applicable Law by a Governmental Entity having jurisdiction) for acts and
omissions arising out of or related directly or indirectly to this Agreement,
any Note, any other Related Document, any part of the Collateral, any of the
Loans or the application of any proceeds thereof, and each Purchaser hereby
expressly waives any and all claims and actions (other than to the extent
occasioned by a person's own acts or omissions amounting to gross negligence or
willful misconduct as finally determined pursuant to Applicable Law by a
Governmental Entity having jurisdiction) against the Agent or its designees, and
their respective directors, officers, employees, attorneys and agents, arising
out of or related directly or indirectly to any and all of the foregoing acts,
omissions and circumstances.

         11.5     RESIGNATION AND SUCCESSOR AGENT. The Agent may resign at any
time by giving written notice to the Purchasers and the Company. The Agent may
be removed at any time by written action of the Majority Purchasers. Upon such
resignation or removal, the Majority Purchasers shall have the right to
designate any Purchaser as successor Agent with the consent of the Company
(which consent shall not be unreasonably withheld or delayed). In the event no
one has been approved (or accepted the appointment) as successor Agent within
thirty days of the Agent's notice of resignation, PREFSA shall be appointed as
successor Agent or, if PREFSA declines to accept such appointment, the Agent in
its discretion may (on behalf of all of the

                                       41

<PAGE>

Purchasers) appoint any other Purchaser as successor Agent. Upon the acceptance
of any appointment as Agent hereunder, the successor Agent shall thereupon
succeed to and become vested with all of the rights, powers, privileges,
interest and duties of the resigning Agent, and the resigning Agent shall be
discharged from its duties and obligations as "Agent" under this Agreement and
the other Related Documents. After resigning as Agent, the terms and provisions
of this Agreement and the other Related Documents shall nevertheless inure to
the resigned Agent's benefit as to any actions taken or omitted while it was
Agent.

         11.6     EXCESS PAYMENTS. If any Purchaser shall obtain any payment or
other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Subordinated Obligations in excess of its pro rata
share of payments and other recoveries on account of such Subordinated
Obligations obtained by all Purchasers, such Purchaser shall purchase from the
other Purchasers such participations in such Subordinated Obligations held by
them as shall be necessary to cause such purchasing Purchaser to share the
excess payment or other recovery ratably with each of the other Purchasers,
provided, however, that if all or any portion of the excess payment or other
recovery is thereafter recovered from such purchasing Purchaser, the purchase
shall be rescinded and the purchase price restored to such Purchaser to the
extent of such recovery, but without interest.

         12.      SUCCESSORS AND ASSIGNS; ASSIGNMENT.

         (a)      Whenever in this Agreement or any other Related Document
reference is made to any party, such reference shall be deemed to include the
successors, assigns, heirs and legal representatives of such party, and, without
limiting the generality of the foregoing, all representations, warranties,
covenants and other agreements made by or on behalf of the Company in this
Agreement and the Related Documents shall inure to the benefit of the successors
and assigns of the Purchasers; provided, however, that nothing herein shall be
deemed to authorize or permit the Company to assign any of its rights or
obligations under this Agreement or any Related Documents to any other person
and the Company covenants and agrees that it shall not make any such assignment.
The Purchasers from time to time: (a) may assign all or any portion(s) of the
rights, powers, privileges, remedies and interests of, and/or the Loans owed to
the Purchasers under this Agreement or any other Related Document (b) may
furnish and disclose financial statements, documents and other information
pertaining to the Company or any Company Subsidiary or to any potential assignee
and (c) may take any and all other actions that the Purchasers may determine (in
its sole and absolute discretion) to be necessary or appropriate in connection
with any such assignment, or participation; in each case, unless otherwise
required below, without notice to or consent of any Borrower or any other
Person.

         (b)      The Purchasers may assign to one or more assignees (each an
"Assignee") all or a portion of its rights under this Agreement. The parties to
each assignment shall execute and deliver to the Company a copy of the
Assignment and Assumption Agreement to the Purchasers; provided, that any
failure or delay in giving any such copy shall not affect the validity of any
such assignment. The Company agrees to execute and deliver such amendments to or
restatements of this Agreement and the Related Documents as may be reasonably
required to

                                       42

<PAGE>

reflect any such assignment (including, without limitation, the delivery of such
replacement notes as are reasonably required to reflect any such assignment).

         (c)      The Company covenants and agrees to furnish copies of
financial statements, reports and other documents required under this Agreement
directly to such potential assignees as the Purchasers or such assignee from
time to time may, request.

         13.      MISCELLANEOUS.

                  (a)      SURVIVAL. All covenants, representations and
warranties made herein shall survive the Closing.

                  (b)      GOVERNING LAW. This Agreement shall be governed in
all respects by the laws of the State of New York as applied to agreements
entered into and performed entirely in the State of New York.

                  (c)      CONSENT TO JURISDICTION. THE COMPANY (BY ITS
         EXECUTION HEREOF) AND EACH NOTEHOLDER (BY ITS ACCEPTANCE OF ITS NOTE)
         EACH (I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
         COURTS OF THE STATE OF NEW YORK (OR THE UNITED STATES DISTRICT COURT
         LOCATED IN THE STATE OF NEW YORK) FOR THE PURPOSE OF ANY ACTION ARISING
         OUT OF OR BASED UPON OR RELATING TO THIS AGREEMENT, (II) WAIVES, TO THE
         EXTENT NOT PROHIBITED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY
         WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, ANY CLAIM
         THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE
         ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
         ATTACHMENT OR EXECUTION, THAT ANY SUCH PROCEEDING BROUGHT IN ONE OF THE
         ABOVE-NAMED COURTS IS IMPROPER, OR THAT THIS AGREEMENT, THE NOTE OR ANY
         CONTRACTUAL OBLIGATION RELATING HERETO OR THERETO, OR THE SUBJECT
         MATTER HEREOF OR THEREOF, MAY NOT BE ENFORCED IN OR BY ANY SUCH COURT,
         (III) AGREES NOT TO COMMENCE ANY ACTION ARISING OUT OF OR BASED UPON OR
         RELATING TO THIS AGREEMENT OTHER THAN BEFORE ONE OF THE ABOVE-NAMED
         COURTS NOR TO MAKE ANY MOTION OR TAKE ANY OTHER ACTION SEEKING OR
         INTENDING TO CAUSE THE TRANSFER OR REMOVAL OF ANY SUCH ACTION TO ANY
         COURT OTHER THAN ONE OF THE ABOVE-NAMED COURTS WHETHER ON GROUNDS OF
         INCONVENIENT FORUM OR OTHERWISE AND (IV) CONSENTS TO SERVICE OF PROCESS
         IN ANY SUCH PROCEEDING IN ANY MANNER PERMITTED BY NEW YORK STATE LAW,
         AND AGREES THAT SERVICE OF PROCESS BY REGISTERED OR CERTIFIED MAIL,
         RETURN RECEIPT REQUESTED, AT ITS ADDRESS INDICATED IN SECTION 13(d)
         HEREOF IS REASONABLY CALCULATED TO GIVE ACTUAL NOTICE.

                  (d)      NOTICES; PAYMENTS. Any notice or other document
         required or permitted to be given or delivered to the Purchasers shall
         be delivered at, or sent by certified or

                                       43

<PAGE>

         registered mail to, the Agent at: New Valley Real Estate Corporation,
         100 S.E. Second Street, 32nd floor, Miami, Florida 33131, Attn: Richard
         J. Lampen, Executive Vice President or such other address that shall
         have been furnished to the Company in writing by the Agent. Any notice
         or other document required or permitted to be given or delivered to the
         Company shall be delivered at or sent by registered or certified mail
         to Montauk Battery Realty, LLC, 110 Walt Whitman Road, Huntington
         Station, NY 11746, or to such other address as shall have been
         furnished in writing to the Agent by the Company. Any notice so
         addressed and mailed by registered or certified mail shall be deemed to
         be given when so mailed. Any notice so addressed and otherwise
         delivered shall be deemed to be given when actually received by the
         addressee. Unless the Company is otherwise instructed by the
         Purchasers, all payments to the Purchasers under the Note shall be made
         by wire transfer to the account furnished to the Company in writing by
         such Purchasers.

                  (e)      COUNTERPARTS. This Agreement may be executed in
         counterparts, each of which shall be enforceable against the party
         actually executing the counterpart, and both of which together shall
         constitute one instrument.

                  (f)      ENTIRE AGREEMENT; AMENDMENT. This Agreement, together
         with the Related Documents, constitutes the sole and entire agreement
         of the parties with respect to the subject matter hereof. Neither this
         Agreement nor any term hereof may be amended, waived, discharged or
         terminated other than by a written instrument signed by the Company and
         the Majority Purchasers; provided that any amendment which would
         adversely affect a Purchaser shall require the written consent of such
         Purchaser.

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

                                    THE COMPANY:

                                    MONTAUK BATTERY REALTY LLC

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

                                       44

<PAGE>

                                    PURCHASERS:

                                    NEW VALLEY REAL ESTATE CORPORATION.

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

                                    THE PRUDENTIAL REAL ESTATE FINANCIAL
                                    SERVICES OF AMERICA, INC.

                                    By: /s/ Andrew Downs
                                        -------------------------------------

                                        Andrew Downs, President

                                       45

<PAGE>

                                    EXHIBIT I

                                 PROMISSORY NOTE

                                     ANNEX A

<TABLE>
<CAPTION>
     Purchaser                                       Loan Amount
     ---------                                       -----------
<S>                                                  <C>
New Valley Real Estate Corporation                   $9,500,000

The Prudential Real Estate Financial
Services of America, Inc.                            $9,500,000
</TABLE>

                                       46

<PAGE>

                                     ANNEX B

<TABLE>
<CAPTION>
          Purchaser                              Percentage Membership Interest*
          ---------                              -------------------------------
<S>                                              <C>
New Valley Real Estate Corporation                             15.00%

The Prudential Real Estate
Financial Services, Inc.                                       15.00%
</TABLE>

* represents percentage equity interest in the Company on a fully diluted basis

                                       47

<PAGE>

                                                                       EXHIBIT I

THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBJECT TO AN ORIGINAL ISSUE
DISCOUNT. CONTACT MONTAUK BATTERY REALTY LLC, 110 WALT WHITMAN ROAD, HUNTINGTON
STATION, NY 11746, ATTENTION: RALPH CUSANO, (631) 549-7401 FOR ADDITIONAL
INFORMATION WITH RESPECT THERETO.

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SUCH ACT.

THIS NOTE IS THE SUBJECT OF CERTAIN SUBORDINATION PROVISIONS CONTAINED IN A
SUBORDINATION AGREEMENT DATED MARCH 14, 2003, BY AND AMONG MONTAUK BATTERY
REALTY LLC, NEW VALLEY REAL ESTATE CORPORATION AND THE PRUDENTIAL REAL ESTATE
FINANCIAL SERVICES OF AMERICA, INC., WHICH, AMONG OTHER THINGS, SUBORDINATES THE
OBLIGATIONS OF THE OBLIGOR HEREUNDER TO THE PRIOR PAYMENT OF CERTAIN OBLIGATIONS
OF THE OBLIGOR TO THE HOLDER OF SUPERIOR DEBT AS DEFINED THEREIN. A COMPLETE AND
CORRECT COPY OF SUCH AGREEMENT MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE
COMPANY OR OBTAINED FROM THE COMPANY WITHOUT CHARGE.

This instrument is subject to the terms of a Subordination Agreement dated March
14, 2003 among Insignia ESG, Inc., a Delaware corporation, Insignia Financial
Group, Inc., a Delaware corporation, The Prudential Real Estate Financial
Services of America, Inc., a California corporation, and New Valley Real Estate
Corporation, a Delaware corporation, and consented and agreed to by Montauk
Battery Realty, LLC, a New York limited liability company, B&H Associates of NY,
LLC, a New York limited liability company, PE Title Agency, LLC, a New York
limited liability company, and B&H of the Hamptons, LLC, a New York limited
liability company, which agreement is incorporated herein by reference.
Notwithstanding any statement to the contrary contained in this instrument, no
payment on account of the obligations hereunder, whether of principal or
interest or otherwise, shall be made, paid, received or accepted except in
accordance with the express terms of said Subordination Agreement.

                   12.00% SUBORDINATED NOTE DUE MARCH 14, 2013

                           MONTAUK BATTERY REALTY, LLC

$9,500,000                                                        March 14, 2003

         FOR VALUE RECEIVED, the undersigned, MONTAUK BATTERY REALTY LLC, a New
York limited liability company (the "Company"), hereby promises to pay to the
order of NEW VALLEY REAL ESTATE CORPORATION, a Delaware corporation ("Payee") or
its

<PAGE>

assigns (Payee or any such assignee from time to time, the "Noteholder"), at 100
S.E Second Street, 32nd floor, Miami, Florida 33131 by the method set forth in
Section 12(d) of the Purchase

         Agreement referred to in Section 1 hereof, or at such other place as
the Noteholder shall from time to time have designated to the Company in
writing, on March 14, 2013 (the "Maturity Date"), Nine Million Five Hundred
Thousand Dollars ($9,500,000) and to pay interest thereon as provided in Section
2 hereof.

1.       THE NOTE. This Note (the "Note") is issued pursuant to Section 1 of the
Note and Equity Purchase Agreement dated as of March 14, 2003, between the
Company, Payee and the other note purchasers thereunder (as amended, modified or
supplemented and in effect from time to time, the "Purchase Agreement"). This
Note, together with any notes issued in exchange for it, is referred to herein
as the "Note."

2.       INTEREST PROVISIONS. This Note shall bear interest (computed on the
basis of a 360-day year of twelve 30-day months) from the date hereof, on the
principal amount hereof from time to time unpaid, to and including the maturity
hereof, at a rate per annum equal to twelve percent (12.00%), ten percent
(10.00%) of which shall be payable in cash and two percent (2.00%) of which
shall accrue, be added to the principal amount hereof and be payable on the
Maturity Date. Interest shall be payable on the outstanding principal amount of
this Note on the first business day of each month from the date hereof through
the Maturity Date, with the final payment of accrued and unpaid interest being
due and payable on the Maturity Date.

         Notwithstanding any provisions of this Note, in no event shall the
amount of interest paid or agreed to be paid by the Company exceed an amount
computed at the highest rate of interest permissible under applicable law.

3.       PAYMENT PROVISIONS. The Company covenants that so long as the Note is
outstanding:

         3.1      Payment at Maturity of the Note. On the Maturity Date, or on
any accelerated maturity of the Note permitted hereby, the Company will pay the
entire principal amount of this Note then outstanding, together with all accrued
and unpaid interest thereon.

         3.2      Voluntary Prepayments. Subject to the restrictions imposed by
the Superior Debt, the Company may at any time and from time to time prepay all
or part of the principal amount of the Note then outstanding without penalty or
premium.

         3.3      Mandatory Prepayment. (a) The Company shall make annual
mandatory payments to the Noteholder of principal on this Note on the first
Business Day in June of each year commencing June 2004 this Note is outstanding
equal to ten (10%) percent of the Excess Cash Flow for the Fiscal Year ending on
the prior December 31.

         (b) Commencing March 14, 2011 or upon any earlier repayment in full of
amounts outstanding under the PREFSA Loan Agreement and termination of all
commitments thereunder, the Company shall pay to the Noteholder the amount of
principal then outstanding under this Note in eight equal quarterly
installments, on the first business day of March, June, September

<PAGE>

and December. Each such principal payment shall be accompanied by accrued and
unpaid interest thereon. Any remaining principal and interest hereunder shall be
paid in full by the Company on the Maturity Date.

         3.4      Notice of Prepayments. Notice of each voluntary prepayment of
the Note pursuant to Section 3.2 hereof or mandatory prepayment pursuant to
Section 3.3 hereof, shall be given in accordance with Section 12 (c) of the
Purchase Agreement not fewer than three days before the prepayment date, in each
case by mailing to the Noteholder a notice of intention to prepay specifying the
date of prepayment, the aggregate amount of the Note to be prepaid on such date,
the principal amount of the Note to be prepaid on such date held by the
Noteholder, and the accrued interest applicable to such prepayment.

         3.5      Payment and Interest Cut-Off. Upon each prepayment of the
Note, in whole or in part, the Company will pay to the Noteholder the amount of
the Note to be prepaid, as set forth in the notice delivered pursuant to Section
3.4 hereof, together with unpaid interest in respect thereof accrued from the
last interest payment date to and including the prepayment date.

4.       SUBORDINATION.

         The payment of principal and interest on this Note is subordinated to
Superior Debt in accordance with the provisions of the Subordination Agreement
and each holder of this Note expressly agrees to such subordination. This Note
is on a parity and equality with other Subordinated Notes issued and hereafter
issued.

5.       DEFAULTS.

         5.1      Generally. Upon the occurrence of an Event of Default (as
defined in the Purchase Agreement) or any breach by the Company of the covenants
contained herein or therein, the Noteholder may proceed as set forth in Section
9 of the Purchase Agreement.

         5.2      Default Interest Rate; Expenses. If any payment of principal
and interest under this Note is not made at the Maturity Date or when otherwise
due hereunder, then interest shall accrue on such overdue principal and, to the
extent permitted by applicable law, on such overdue interest at a rate of
fifteen percent (15.00%) per annum, until such payment is made, whereupon the
interest rate applicable hereunder shall return to twelve percent (12.00%) per
annum in the manner set forth in Section 2 hereof. In addition, if any payment
of principal and interest under this Note is not made at the Maturity Date or
when otherwise due, the Company will pay the Noteholder's reasonable
out-of-pocket expenses related to the enforcement of its rights hereunder.

6.       MISCELLANEOUS.

         6.1      Definitions. Capitalized terms not otherwise defined herein
shall have the meanings provided in the Purchase Agreement.

<PAGE>

         6.2      Notices. Any notice or other communication to the Company or
the Noteholder in connection with this Note shall be deemed to be delivered and
received by such addressee if delivered or made in the manner stipulated in the
notice provisions of Section 13(d) of the Purchase Agreement and to the
addresses specified therein.

         6.3      Consent to Jurisdiction. THE COMPANY (BY ITS EXECUTION HEREOF)
AND THE NOTEHOLDER (BY ITS ACCEPTANCE OF THIS NOTE) EACH (I) IRREVOCABLY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW YORK (OR
THE UNITED STATES DISTRICT COURT LOCATED IN THE STATE OF NEW YORK) FOR THE
PURPOSE OF ANY ACTION ARISING OUT OF OR BASED UPON OR RELATING TO THIS NOTE,
(II) WAIVES, TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, AND AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, ANY
CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED
COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT
ANY SUCH PROCEEDING BROUGHT IN ONE OF THE ABOVE-NAMED COURTS IS IMPROPER, OR
THAT THIS NOTE OR ANY CONTRACTUAL OBLIGATION RELATING THERETO, OR THE SUBJECT
MATTER HEREOF, MAY NOT BE ENFORCED IN OR BY ANY SUCH COURT, (III) AGREES NOT TO
COMMENCE ANY ACTION ARISING OUT OF OR BASED UPON OR RELATING TO THIS NOTE OTHER
THAN BEFORE ONE OF THE ABOVE-NAMED COURTS NOR TO MAKE ANY MOTION OR TAKE ANY
OTHER ACTION SEEKING OR INTENDING TO CAUSE THE TRANSFER OR REMOVAL OF ANY SUCH
ACTION TO ANY COURT OTHER THAN ONE OF THE ABOVE-NAMED COURTS WHETHER ON GROUNDS
OF INCONVENIENT FORUM OR OTHERWISE AND (IV) CONSENTS TO SERVICE OF PROCESS IN
ANY SUCH PROCEEDING IN ANY MANNER PERMITTED BY NEW YORK STATE LAW, AND AGREES
THAT SERVICE OF PROCESS BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, AT ITS ADDRESS INDICATED IN SECTION 13 (d) OF THE PURCHASE AGREEMENT
IS REASONABLY CALCULATED TO GIVE ACTUAL NOTICE.

         6.4      Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE COMPANY (BY ITS EXECUTION
HEREOF) AND THE NOTEHOLDER (BY ITS ACCEPTANCE OF THIS NOTE) WAIVES AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT
TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION ARISING OUT OF
OR BASED UPON OR RELATING TO THIS NOTE OR IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING.

<PAGE>

         6.5      Governing Law. This Note shall be governed by and construed in
accordance with the domestic substantive laws of New York without giving effect
to any choice or conflict of law provision or rule that would cause the
application of the domestic substantive laws of any other jurisdiction.

         IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by a duly authorized officer as of the date first written above.

                                               MONTAUK BATTERY REALTY, LLC

                                               By_______________________________
                                                  Name:
                                                  Title: Manager<PAGE>

                                                                    EXHIBIT 10.3

                 AMENDMENT TO NOTE AND EQUITY PURCHASE AGREEMENT

         AMENDMENT TO NOTE AND EQUITY PURCHASE AGREEMENT dated as of April 14,
2003, by and between Montauk Battery Realty LLC, a New York limited liability
company (the "Company"), and New Valley Real Estate Corporation, a Delaware
corporation ("New Valley"), and The Prudential Real Estate Financial Services of
America, Inc., a California corporation ("PREFSA" and together with New Valley,
the "Purchasers").

                                    RECITALS

         The Company and the Purchasers entered into a Note and Equity Purchase
Agreement dated as of March 14, 2003 (the "Loan Agreement"), pursuant to which
certain financial accommodations were made available to the Company.

         The parties hereto have agreed by separate agreement dated March 14,
2003 to modify the representations, warranties and covenants of the Company
contained in the Loan Agreement to be identical to those of the Company
contained in the PREFSA Loan Agreement upon and subject to the following terms
and conditions.

         NOW, THEREFORE, in consideration of the premises and mutual covenants
and promises exchanged herein, the parties hereto mutually agree as follows:

         Section 1.   Definitions. Except as otherwise defined in this
Amendment, terms defined in the Loan Agreement are used herein as defined
therein.

         Section 2.   Amendments. The Loan Agreement shall be amended as
follows:

2.1  Representations and Warranties:

     (a) Section 3.7 of the Loan Agreement is hereby deleted in its entirety and
     the following is substituted therefore:

                  "3.7 TITLE; LIENS AND ENCUMBRANCES. The Company and the
                  Company Subsidiaries either own or hold under leases all of
                  the material properties used by its business. Each of the
                  Company and the Company Subsidiaries has good, indefeasible
                  and marketable title to all of its property (reflected in the
                  balance sheets described in Section 3.5), free and clear of
                  all security interests, liens, encumbrances, restrictions and
                  other burdens, except as set forth on Schedule 3.7 and as
                  permitted by Section 7.2(d). Except as set forth on Schedule
                  3.7, no financing statement (other than any which may have
                  been filed on behalf of PREFSA) covering any of the Collateral
                  is on file in any public office applicable thereto
                  (collectively, "Applicable Public Offices"), which offices are
                  listed on Schedule 3.7. Except for (i) those financing
                  statements naming PREFSA as secured party, (ii) those
                  financing

<PAGE>

                  statements naming PREA as secured party filed with respect to
                  the Franchise Term Note and (iii) any financing statements
                  naming NFB as secured party filed with respect to the NFB
                  Loan, each of the financing statements listed in Schedule 3.7
                  evidence a lien on specific equipment of B&H given to secure
                  B&H's obligations under an equipment lease or in connection
                  with equipment lease financing."

2.2 Covenants

         (a) Section 7.1(c)(i) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefor:

                  "(c)     Tax Obligations.

                  (i)      The Company shall, and shall cause each Subsidiary
                  to, file all Tax Returns required by and prepared in
                  accordance with Applicable Law and shall pay or cause to be
                  paid all Taxes assessed against the Company or any Subsidiary,
                  or payable by such the Company or any Subsidiary, at such
                  times and in such manner as to prevent any penalty from
                  accruing or any Lien or charge from attaching to property of
                  the Company or any Subsidiary, provided that the Company and
                  each Subsidiary shall have the right to contest in good faith,
                  by an appropriate proceeding promptly initiated and diligently
                  conducted, the validity, amount or imposition of any such Tax,
                  and upon good faith contest to delay or refuse payment
                  thereof, provided, that (A) in the case of a delay or refusal
                  of payment the proceedings shall cause the suspension of the
                  collection of the applicable amount from the Company, any
                  Subsidiary or the Collateral, (B) the contest shall have the
                  effect of staying or postponing any sale, forfeiture or loss
                  of the Collateral, (C) the Company or Subsidiary shall have
                  set aside on its books adequate reserves with respect thereto,
                  and shall have furnished whatever security is reasonably
                  requested by Agent including a letter of credit, title
                  insurance or bond and (D) the contest does not have a Material
                  Adverse Effect."

         (b) Section 7.1(k) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefor:

                  "(k)     Life Insurance Assignment. Upon payment in full of
                  the Superior Debt Obligations, the Company shall use its best
                  efforts to obtain the life insurance described in the
                  definition of Life Insurance Assignment, and to deliver to
                  Agent a fully-executed original of the Life Insurance
                  Assignment in a form satisfactory to the Agent."

         (c) Section 7.2 (c) of the Loan Agreement is hereby deleted in its
         entirety and the following is substituted therefore:

                                       2

<PAGE>

                  "(c)     Indebtedness. The Company and its Subsidiaries shall
                  not incur, create, suffer to exist or assume, or permit any of
                  their Subsidiaries (if any) to incur, create, allow to exist
                  or assume, any Indebtedness or sell or discount with recourse
                  any accounts receivable or any debt instruments owned by them,
                  or enter into any other arrangement which has the effect of
                  guaranteeing a represented result or assuring a creditor of a
                  Person against loss (including arrangements to purchase or
                  repurchase property or obligations, pay for property, goods or
                  services whether or not delivered or rendered, maintain
                  working capital, equity capital or other financial statement
                  condition of, or lend or contribute to or invest in, any
                  Person), except the following:

                           (i)      the Subordinated Obligations incurred
                                    hereunder

                           (ii)     the Superior Debt;

                           (iii)    liability arising from the endorsement of
                                    negotiable instruments for deposit and
                                    collection received in the ordinary course
                                    of the Company's or such Subsidiary's
                                    business;

                           (iv)     capital leases and/or financing for Capital
                                    Expenditures not to exceed $1,500,000 at any
                                    one time in the aggregate;

                           (v)      the PREA Secured Obligations;

                           (vi)     the NFB Loan;

                           (vii)    accounts payable incurred in the ordinary
                                    course of the Company's and its
                                    Subsidiaries' business. For purposes hereof,
                                    the term "accounts payable" shall in no
                                    event include any Indebtedness arising from
                                    the borrowing of money;

                           (viii)   auto leases or auto financing entered into
                                    in the ordinary course of the Company and
                                    its Subsidiaries' business; provided,
                                    however, that the monthly payments due under
                                    such obligations shall not exceed $15,000
                                    per month in the aggregate;

                           (ix)     Indebtedness for business acquisitions not
                                    to exceed $500,000 in the aggregate at any
                                    time (provided, that Indebtedness for
                                    business acquisitions consented to in
                                    writing by PREFSA under the PREFSA Loan
                                    Agreement and, after the payment in full of
                                    the Superior Debt Obligations, the Agent
                                    hereunder, shall not count towards said
                                    $500,000 limit);

                           (x)      Intercompany Loans;

                                       3

<PAGE>

                           (xi)     the existing $494,656 loan from DTHY to
                                    Montauk Battery, which loan constitutes a
                                    Member Loan (as defined in the Montauk
                                    Battery Operating Agreement) and which loan
                                    shall not be amended or modified after the
                                    date hereof;

                           (xii)    the Manhattan Franchise Note; or

                           (xiii)   miscellaneous other Indebtedness not to
                                    exceed $100,000 in the aggregate at any
                                    time."

         (d) Section 7.2(h) of the Loan Agreement is hereby amended by deleting
clauses (iv) and (v) in their entirety and substituting the following therefore:

                  "(iv) loans to its real estate agents as an advance against
                  commissions owed to any such agent, but only to the extent
                  made in the ordinary course of Borrowers' business and not to
                  exceed $700,000 (exclusive of advances made to its real estate
                  agents in the ordinary course for the purpose of paying
                  premiums for their errors and omissions (E&O) insurance
                  coverage) outstanding in the aggregate at any time (at least
                  half of which shall be for advances against commissions owed
                  under real estate contracts in escrow), (v) loans to its
                  employees (other than any principal of DTHY or New Valley)
                  made in the ordinary course of Borrowers' business and not to
                  exceed $50,000 outstanding in the aggregate at any time"

         (e) Section 7.2(j) is hereby amended by adding the following as the
last sentence thereof:

                  "Notwithstanding anything herein to the contrary, in no event
                  shall the Herman Employment Agreement be amended, modified or
                  replaced without the prior written consent of the Purchasers."

        (f) Section 7.2(k) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:

                  "(k)     Capital Expenditures. The Company and its
                  Subsidiaries shall not make Capital Expenditures in the
                  aggregate for all of them, either by purchase or lease, in any
                  Fiscal Year in excess of the amount set forth below opposite
                  such Fiscal Year:

<TABLE>
<CAPTION>
Fiscal Year                                 Amount of Capital Expenditures
-----------                                 ------------------------------
<S>                                         <C>
   2003                                               $2,400,000
</TABLE>

                                       4

<PAGE>

<TABLE>
<S>                                         <C>
2004 and each
Fiscal Year thereafter                      105% of the amount of capital expenditures
                                            permitted in the previous Fiscal Year
                                            (without consideration of any carryover from
                                            prior years); provided, that if the Company
                                            and its Subsidiaries incur capital
                                            expenditures during any previous Fiscal Year
                                            in an amount less than the permitted capital
                                            expenditures for such year, the difference
                                            between such amount and that Fiscal Year's
                                            limit shall be added to the amount of
                                            permitted capital expenditures for the
                                            current Fiscal Year; and provided, further,
                                            that in no event shall such additional
                                            amount exceed $500,000.
</TABLE>

                  Notwithstanding the foregoing, the Company and its
                  Subsidiaries may make Capital Expenditures, in the aggregate,
                  of up to $1,000,000 for each new real estate brokerage office
                  opened by the Company and its Subsidiaries with the prior
                  written approval of Agent, and, if so approved by Agent, said
                  Capital Expenditures shall not count towards the Capital
                  Expenditure limits set forth in the table above."

         (g) Section 7.2(o) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:

                  "(o)     Trade Credit. The Company and its Subsidiaries shall
not allow, in the aggregate, more than the Trade Credit Limit of trade accounts
payable (net of commissions due) to be more than 60 days past due at any time.
For purposes hereof, the "Trade Credit Limit" shall mean (i) during the months
from January through July (inclusive), $300,000, and (ii) during the months from
August through December (inclusive), $150,000."

         (h) Section 7.2(p) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:

                  "(p)     Business Acquisitions. Upon the satisfaction in full
                  of the Superior Debt Obligations, the Agent's prior written
                  consent shall be required in connection with any acquisition
                  of a business by the Company or any Subsidiary; provided,
                  however, that the Company may acquire a business without such
                  consent if both (i) the acquisition price for the acquisition
                  of such business is less than $250,000, and (ii) no portion of
                  the acquisition of such business is being financed with
                  proceeds from the Loans."

         (i) Section 7.2(q) of the Loan Agreement is hereby deleted in its
entirety and the following is substituted therefore:

                                       5

<PAGE>

                  "(q)     Leases. Without Agent's prior written consent, the
                  Company and its Subsidiaries shall not, enter into, renew,
                  replace or extend any lease for any real or personal property
                  if such action would cause the aggregate lease obligations of
                  the Company and its Subsidiaries (excluding the lease at 575
                  Madison Avenue, New York, New York) on a consolidated basis to
                  exceed the aggregate lease obligations of the Company and its
                  Subsidiaries (excluding the lease at 575 Madison Avenue, New
                  York, New York) (giving effect to the acquisition contemplated
                  by the Purchase Agreement on a pro forma basis as if IRG and
                  IDE had been Subsidiaries as of December 31, 2002) on a
                  consolidated basis existing as of December 31 of the prior
                  Fiscal Year by more than ten percent (10%). For purposes of
                  this Section 7.2(q), the term "lease obligations" shall mean
                  the aggregate rental payments due under all leases during the
                  applicable Fiscal Year."

         (j) A new Section 7.2(t) is hereby added:

                  "(t) The Company and its Subsidiaries shall not open any new
                  real estate brokerage offices without the prior written
                  approval of Agent."

         (k) Section 7.3 of the Loan Agreement is hereby deleted in its entirety
and the following is substituted therefor:

                  "7.3     Financial Covenants. From and after the time that the
                  Superior Debt is paid in full and continuing as long as any of
                  the Subordinated Obligations remains unpaid (provided that,
                  solely for purposes of determining whether the financial
                  covenants set forth in Sections 7.3(d) and (e) below have been
                  satisfied, all operations in the Borough of Manhattan shall be
                  excluded from consideration (as if they did not exist) (i.e.,
                  the acquisition contemplated by the Purchase Agreement shall
                  be treated as if it never happened) and the PREFSA Loan and
                  the Loans shall be treated as if they were never made and the
                  Long Island Facilities had been left in place in completing
                  the calculations necessary to make such determination):

                           (a)      Minimum Fixed Charges Coverage Ratio. The
                  Company and its Subsidiaries will not permit the ratio of (x)
                  EBITA for the period set forth below ending as of the date of
                  determination to (y) the sum of all payments of principal
                  (excluding Excess Cash Flow payments under Section 2.4(a) of
                  the PREFSA Loan Agreement and under Section 3.3 of the Notes)
                  and interest under the PREFSA Loans, the Loans and the NFB
                  Loan for the period set forth below ending as of the date of
                  determination, as determined at the end of each Fiscal Quarter
                  of the Company and its Subsidiaries, commencing with the
                  quarter ending March 31, 2004, to be less than the ratio shown
                  below for the period ending as of the date of determination.

                                       6

<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
 Period Ending as of Date of Determination                     Minimum Ratio
--------------------------------------------------------------------------------
<S>                                                            <C>
12-month period ending as of the end of each                     1.25:1.0
Fiscal Quarter in Fiscal Year 2004
--------------------------------------------------------------------------------
12-month period ending as of the end of each                     1.35:1.0
Fiscal Quarter in Fiscal Year 2005
--------------------------------------------------------------------------------
12-month period ending as of the end of each                     1.60:1.0
Fiscal Quarter thereafter
--------------------------------------------------------------------------------
</TABLE>

                  (b)      Maximum Debt to EBITA. Beginning with the Fiscal
                  Quarter ending March 31, 2004 and as of the end of each Fiscal
                  Quarter thereafter, the Company and its Subsidiaries will not
                  permit their Consolidated Debt Ratio at such time to exceed
                  the amount set forth below:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Date of Determination                            Maximum Consolidated Debt Ratio
--------------------------------------------------------------------------------
<S>                                              <C>
End of each Fiscal Quarter in Fiscal Year 2004               5.5:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2005              5.25:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2006              4.75:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2007               3.5:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2008               3.0:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter in Fiscal Year 2009               2.5:1.0
--------------------------------------------------------------------------------
End of each Fiscal Quarter thereafter                        2.0:1.0
--------------------------------------------------------------------------------
</TABLE>

                  (c)      Minimum Interest Coverage Ratio. The Company and its
                  Subsidiaries will not permit the ratio of (x) EBITA for the
                  period set forth below ending as of the date of determination
                  to (y) Consolidated Interest Charges for the period set forth
                  below ending as of the date of determination, as determined at
                  the end of each Fiscal Quarter of the Company and its
                  Subsidiaries, commencing with the quarter ending March 31,
                  2004, to be less than the ratio shown below for the period
                  ending as of the date of determination:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
 Period Ending as of Date of Determination                  Minimum Ratio
--------------------------------------------------------------------------------
<S>                                                         <C>
12-month period ending as of the end of each                   1.8:1.0
Fiscal Quarter in Fiscal Year 2004
--------------------------------------------------------------------------------
12-month period ending as of the end of each                   1.8:1.0
Fiscal Quarter in Fiscal Year 2005
--------------------------------------------------------------------------------
12-month period ending as of the end of each                   2.25:1.0
Fiscal Quarter in Fiscal Year 2006
--------------------------------------------------------------------------------
12-month period ending as of the end of each                   3.0:1.0
Fiscal Quarter in Fiscal Year 2007
--------------------------------------------------------------------------------
</TABLE>

                                       7

<PAGE>

<TABLE>
--------------------------------------------------------------------------------
<S>                                                         <C>
12-month period ending as of the end of each                  4.0:1.0
Fiscal Quarter in Fiscal Year 2008
--------------------------------------------------------------------------------
12-month period ending as of the end of each                  5.0:1.0
Fiscal Quarter in Fiscal Year 2009
--------------------------------------------------------------------------------
12-month period ending as of the end of each                  7.0:1.0
Fiscal Quarter thereafter
--------------------------------------------------------------------------------
</TABLE>

                  (d)      2003 Minimum Fixed Charges Coverage Ratio. The
                  Company and its Subsidiaries will not permit the ratio of (x)
                  EBITA for the period set forth below ending as of the date of
                  determination to (y) the sum of all payments of principal
                  (excluding Excess Cash Flow payments under Section 2.4(a) of
                  the PREFSA Agreement) and interest under the Loans and the NFB
                  Loan for the period set forth below ending as of the date of
                  determination, as determined at the end of each Fiscal Quarter
                  of the Company, commencing with the quarter ending March 31,
                  2003, to be less than the ratio shown below for the period
                  ending as of the date of determination.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
 Period Ending as of Date of Determination                     Minimum Ratio
--------------------------------------------------------------------------------
<S>                                                            <C>
12-month period ending as of the end of each                      1.5:1.0
Fiscal Quarter in Fiscal Year 2003
--------------------------------------------------------------------------------
</TABLE>

                  (e)      2003 Maximum Debt to EBITA. Beginning with the Fiscal
                  Quarter ending March 31, 2003 and as of the end of each Fiscal
                  Quarter thereafter in Fiscal Year 2003, the Company and its
                  Subsidiaries will not permit their Consolidated Debt Ratio at
                  such time to exceed the amount set forth below:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
       Date of Determination                     Maximum Consolidated Debt Ratio
--------------------------------------------------------------------------------
<S>                                              <C>
End of each Fiscal Quarter in Fiscal Year 2003              4.0:1.0
--------------------------------------------------------------------------------
</TABLE>

                  (f)      Minimum EBITA for IDE and IRG. The Company and its
                  Subsidiaries will not permit the EBITA of IDE and IRG for the
                  12-month period ending as of December 31, 2003 to be less than
                  $10,000,000. For purposes of the foregoing sentence, EBITA
                  shall be determined as if IDE and IRG was the Company."

         Section 3.   Representations and Warranties. The Company and its
Subsidiaries represent and warrant to the Purchasers that the representations
and warranties set forth herein and in the Loan Agreement are true and complete
on the date hereof and as if made on and as of the date hereof (or, if such
representation warranty is expressly stated to have been made as of a specific
date, as of such specific date) and that no Default or Event of Default has
occurred and is continuing.

                                       8

<PAGE>

         Section 4.   Governing Law; Execution in Counterparts. Except as herein
provided, the Loan Agreement shall remain unchanged and in full force and
effect. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same amendatory instrument and
any of the parties hereto may execute this Amendment by signing any such
counterpart. This Amendment shall be governed by, and construed in accordance
with, the internal laws of the State of New York (without regard to New York
conflicts of laws principles).

         Section 5.   Expenses, etc. The Company agrees to pay or reimburse the
Purchasers for all reasonable out-of-pocket costs and expenses of the Purchasers
in connection with the negotiation, preparation, execution and delivery of this
Amendment and the transactions contemplated hereby.

                                       9

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Loan Agreement to be duly executed and delivered by their duly authorized
officers, all as of the day and year first above written.

                                           Company:

                                           MONTAUK BATTERY REALTY LLC

                                           By:  /s/ Dorothy Herman
                                               ---------------------------------
                                               Dorothy Herman
                                               President

                                           Purchasers:

                                           NEW VALLEY REAL ESTATE CORPORATION

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

                                           THE PRUDENTIAL REAL ESTATE
                                           FINANCIAL SERVICES OF AMERICA, INC.

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

                                       10

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