Employment Agreement

EMPLOYMENT AGREEMENT


AGREEMENT made as of March 13, 1997 between 800-JR CIGAR, INC., a Delaware corporation (the "Company"), and JANE VARGAS ("Executive").


WHEREAS, the Company wishes to employ Executive and Executive is willing to accept such employment, all upon the terms and conditions hereinafter set forth;


NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


1. Employment. The Company shall employ Executive, and Executive accepts employment with the Company, upon the terms and conditions set forth in this Agreement for the period beginning on the date on which the Company sells shares of its common stock in an initial public offering (the "Employment Date") and ending as provided in paragraph 4 hereof (the "Employment Period").


2. Position and Duties.


(a) During the Employment Period, Executive shall serve as a Vice President of the Company and, subject to the control of the Board of Directors of the Company (the "Board"), shall have all powers and perform all duties incident to the office of Vice President.


(b) Executive shall report to the President of the Company, and Executive shall devote her best efforts and her full business time and attention to the business and affairs of the Company and its Subsidiaries (as defined), except for permitted vacation periods and reasonable periods of illness or other incapacity. Executive shall perform her duties and responsibilities to the best of her abilities in a diligent, trustworthy, businesslike and efficient manner.


(c) For purposes of this Agreement, "Subsidiary" shall mean any corporation of which the securities having a majority of the voting power in electing directors are, at the time of determination, owned by the Company, directly or through one or more Subsidiaries.


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3. Compensation and Benefits.


(a) During the Employment Period, Executive's base salary shall be $105,000 per annum or such higher rate as the Board, in its sole discretion, may designate from time to time (the "Base Salary"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices. In addition, during the Employment Period, Executive shall be entitled to participate in all of the Company's employee benefit programs, including insurance and pension plans, for which senior executive employees of the Company and its Subsidiaries are generally eligible, and Executive shall be entitled to four (4) weeks of paid vacation each year.


(b) The Company shall reimburse Executive for all reasonable expenses incurred by Executive in the course of performing Executive's duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses.


(c) In consideration of Executive's performance of services hereunder and of Executive entering into this Agreement, Executive shall receive a one-time signing bonus of $500,000 payable by the Company as soon as practicable following the Employment Date. In addition, during the Employment Period, Executive shall be entitled to receive such bonus or bonuses, if any, as determined by the Board in its discretion.


4. Term.


(a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on the fifth anniversary of the Employment Date; provided that the Employment Period (i) shall terminate prior to such date upon Executive's death, and (ii) may be terminated at any time by the Company upon written notice of termination given by the Company to Executive (a) if Executive shall be unable to perform his duties hereunder for at least 90 consecutive days or any 110 non-consecutive days in any 180-day period by reason of Executive's mental or physical disability or incapacity or (b) for Cause (as defined below).


(b) If the Employment Period is terminated due to Executive's death or by the Company due to Executive's mental or physical disability or incapacity prior to the third anniversary of the Employment Date, Executive's estate or Executive, as the case may be, shall be entitled to receive Executive's Base Salary (as in effect on the date of such termination) payable on the Company's regular payroll dates for a period equal to the lesser of (i) the remainder of the then remaining Employment Period and (ii) one year after such termination, so long as Executive has not breached the provisions of paragraphs 5 and 6 hereof.
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