Document:

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                                                                    EXHIBIT 10.2

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

                                                     January 22, 2001

Mr. Howard M. Lorber
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131

Dear Mr. Lorber:

         We are pleased to inform you that Vector Group Ltd. (the "Company") has
granted you a nonqualified option (the "Option") to purchase 250,000 shares of
the Company's common stock, par value $.10 per share (the "Common Stock"), at a
purchase price of $19.125 per share, subject to adjustment (any of the
underlying shares of Common Stock to be issued upon exercise of the Option are
referred to hereinafter as the "Shares"), pursuant to the Company's 1999
Long-Term Incentive Plan, as may be and is in effect and as amended from time to
time (the "Plan"). This agreement is subject in all respects to the terms and
provisions of the Plan, all of which terms and provisions are made a part of and
incorporated in this agreement as if they were each expressly set forth herein.
In the event of any conflict between the terms of this agreement and the terms
of the Plan, the terms of the Plan shall control.

         1. The Option may be exercised on or prior to the tenth anniversary of
the date of grant (after which date the Option will, to the extent not
previously exercised, expire), provided the Option shall only vest and become
exercisable as to all of the aggregate shares covered thereby on November 4,
2003. However, the Option shall earlier vest and become immediately exercisable
upon (i) the occurrence of a "Change in Control" as defined in Section 6(f) of
the Employment Agreement dated as of June 1, 1995, as amended as of January 1,
1996, by and between you and New Valley Corporation ("New Valley"), a Subsidiary
(as defined in Section 2.18 of the Plan) of the Company, regardless of whether
the Employment Agreement is then in effect (the "Employment Agreement"), other
than any Change in Control arising by reason of a testamentary bequest by
Bennett S. LeBow to or for the benefit of his surviving spouse of any or all
securities of the Company or of New Valley beneficially owned by him as of the
date of death, so long as, following the bequest, the event referenced in
Section 6(f)(ii) of the Employment Agreement shall not have occurred, or (ii)
the termination of your employment with the Company due to death or Disability
(as defined in Section 2.8 of the Plan).
<PAGE>   2

Mr. Howard M. Lorber
January 22, 2001
Page 2

         2. The Option, from and after the date it vests and becomes exercisable
pursuant to Section 1 hereof, may be exercised in whole or in part by delivering
to the Company a written notice of exercise in the form attached hereto as
Exhibit A, specifying the number of the Shares to be purchased and the purchase
price therefor, together with payment of the purchase price of the Shares to be
purchased. The purchase price is to be paid in cash or by delivering shares of
Common Stock already owned by you for at least six months and having a fair
market value on the date of exercise equal to the purchase price of the Option
being exercised, or a combination of such shares and cash.

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

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

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

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

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

         6. In the event of any change in capitalization affecting the Common
Stock of the Company, including, without limitation, a stock dividend or other
distribution, stock split, reverse stock split,
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Mr. Howard M. Lorber
January 22, 2001
Page 3

recapitalization, consolidation, subdivision, split-up, spin-off, split-off,
combination or exchange of shares or other form of reorganization or
recapitalization, or any other change affecting the Common Stock, the aggregate
number of shares of Common Stock covered by the Option and the exercise price
per share of Common Stock subject to the Option shall be proportionately
adjusted by the Company.

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

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

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

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

         11. In the event of the payment of any dividends or other distributions
in respect of the Common Stock on or after the date hereof, through and
including the tenth anniversary of the date of grant, you shall receive, within
ten days of the payment of such dividend or distribution, a payment equal to the
amount of any such dividends or other distributions that would have been paid to
you had you been at the record date for such dividends or other distributions a
shareholder of the Shares issuable upon exercise of any then unexercised portion
of the Option, whether vested or unvested.
<PAGE>   4

Mr. Howard M. Lorber
January 22, 2001
Page 4

         12. The Company represents and warrants to you as follows: (i) this
agreement and the grant of the Option hereunder have been authorized by all
necessary corporate action by the Company and this letter agreement is a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms; (ii) the grant of the Option to you on the terms set
forth herein will be exempt from the provisions of Section 16(b) of the
Securities Exchange Act of 1934, as amended, pursuant to Rule 16b-3(d)
thereunder; (iii) the Company will obtain, at its expense, any regulatory
approvals necessary or advisable in connection with the grant of the Option or
the issuance of the Shares; and (iv) the Company currently has reserved and
available, and will continue to have reserved and available during the term of
the Option, sufficient authorized and issued shares of its Common Stock for
issuance upon exercise of the Option.

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

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

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

                                         Very truly yours,

                                         VECTOR GROUP LTD.

                                         By: /s/ Bennett S. Lebow
                                            -------------------------------
                                            Bennett S. LeBow
                                            Chairman and Chief Executive Officer

AGREED TO AND ACCEPTED:

/s/ Howard M. Lorber
------------------------------
Howard M. Lorber

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                                                                       EXHIBIT A

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

Gentlemen:

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

                   [ ]     my check in the amount of $_________________.

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

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

                  Number of Certificates
                     and Denominations           ___________________________

                  Name                           ___________________________

                  Address                        ___________________________

                                                 ___________________________

                                                 ___________________________

                  Social Security No.            ___________________________

Dated:
                                                 Very truly yours,

                                                 Howard M. Lorber<PAGE>   1
                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT dated as of January 17, 2001, by and between
Vector Group Ltd., a Delaware corporation (the "Company"), and Howard M. Lorber
(the "Executive").

                                   WITNESSETH

         A. WHEREAS, the Company desires to employ the Executive as President
and Chief Operating Officer; and

         B. WHEREAS, the Executive is willing to be employed by the Company for
the period and upon the terms and conditions set forth herein;

         NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the Company and the Executive hereby agree as follows:

1. EMPLOYMENT AND TERM.

         (a) The Company hereby employs the Executive, and the Executive accepts
employment by the Company, as President and Chief Operating Officer of the
Company upon the terms and conditions set forth herein.
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         (b) Subject to paragraphs (c) and (d) of this Section 1 and the
provisions for termination hereinafter provided, the term of the Executive's
employment hereunder shall be from January 17, 2001 (the "Effective Date")
through and including the day immediately preceding the third anniversary of the
Effective Date (the "Initial Period").

         (c) On the first anniversary of the Effective Date (the "Renewal Date")
and on each subsequent anniversary of such date, the term of this Agreement
shall automatically be extended by one additional calendar year (the "Extension
Period") unless either party shall have provided notice to the other within the
sixty-day period prior to such anniversary that such party does not desire to
extend the term of this Agreement, in which case no further extension of the
term of this Agreement shall occur pursuant hereto but all previous extensions
of the term shall continue to be given full force and effect.

         (d) For purposes of this Agreement, the term "Employment Period" means
the Initial Period, if the term of this Agreement has not been extended pursuant
to paragraph 1(c); otherwise, the period beginning on the Effective Date and
ending with the last day of the most recently arising Extension Period.

2. DUTIES.

         (a) Throughout the Employment Period, the Executive shall be the
President and Chief Operating Officer of the Company and shall report to the
Chief Executive Officer of the Company. The Executive shall at all times comply
with Company policies as established by the Board of Directors of the Company
(the "Board").

         (b) Throughout the Employment Period, the Executive shall devote
substantial services to the Company, including such time as is necessary to
perform his duties under this Employment

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Agreement fully, diligently and faithfully, and shall use his best efforts to
promote the interests of the Company and its subsidiaries and affiliates.

         (c) Anything herein to the contrary notwithstanding, nothing shall
preclude the Executive from (i) serving on the boards of directors of a
reasonable number of other business entities, trade associations and/or
charitable organizations, (ii) engaging in charitable activities and community
affairs, (iii) managing his personal investments and affairs, and (iv) any other
activities approved by the Board; provided, however, that such activities do not
materially interfere with the proper performance of his duties and
responsibilities specified in paragraph (b) of this Section 2.

3. COMPENSATION.

         As full compensation to the Executive for his performance of the
services hereunder and for his acceptance of the responsibilities described
herein, the Company agrees to pay the Executive, and the Executive agrees to
accept, the following compensation and other benefits:

         (a) BASE SALARY.

         During the Employment Period, the Company shall pay the Executive:

                  (i) A salary (the "Base Salary") at the rate of $480,000 per
annum, payable in equal installments at such payment intervals as are the usual
custom of the Company, but not less often than monthly. The Base Salary shall be
increased, as of January 1 of each year commencing January 1, 2002, by a cost of
living adjustment determined by reference to the Consumer Price Index, All Urban
Consumers for New York-Northern New Jersey, All Items (1982-1984 = 100) (the
"Index"), or, if publication of the Index is terminated, any substantially
equivalent successor thereto. The Base Salary for any year (the "Current Year")
following the year that includes the Effective Date shall be determined by
multiplying the Base Salary for the year first preceding the

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Current Year (the "Prior Year") by the percentage obtained by dividing the Index
for the month of December of the Prior Year by the Index for the month of
December of the year first preceding the Prior Year. In addition to the
foregoing, the Board shall periodically review such Base Salary and may increase
(but not decrease) it from time to time, in its sole discretion.

                  (ii) An annual bonus (the "Bonus Amount") to be determined by
the Board, in consultation with the Chief Executive Officer of the Company, by
reference to the performance and activities of the Company and its subsidiaries
and the Executive's contribution thereto.

         (b) BENEFIT PLANS.

                  During the Employment Period and as otherwise provided herein,
the Executive shall be entitled to participate in any and all employee welfare
and health benefit plans (including, but not limited to life insurance, health
and medical, dental and disability plans) and other employee benefit plans,
including but not limited to qualified pension plans, established by the Company
from time to time for the general and overall benefit of executives of the
Company. Nothing herein contained shall be construed as requiring the Company to
establish or continue any particular benefit plan in discharge of its
obligations hereunder.

         (c) DEFERRED COMPENSATION.

                  Notwithstanding any other provision of this Employment
Agreement, the Executive shall have the right to request the receipt of any
portion of his Base Salary by any lawful means (including, without limitation,
any non-qualified deferred compensation arrangement(s) requested by the
Executive), and the Company shall reasonably cooperate with the Executive to
grant such request, provided that the granting of such request does not
represent inequitable treatment as

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concerns other senior employees or executives (in the Company's sole judgment)
and does not impose additional costs on the Company other than insignificant
administrative costs.

4. VACATION AND OTHER BENEFITS.

         The Executive shall be entitled to not less than five (5) weeks of paid
vacation each year of his employment hereunder, as well as to such other
employment benefits extended or provided to executives of comparable status,
including, but not limited to, payment or reimbursement of all reasonable
expenses incurred by the Executive in the performance of his responsibilities
and the promotion of the Company's businesses, including, without limitation,
first-class air travel and lodging, cellular phone charges, club memberships and
dues, and travel expenses of the Executive's spouse when accompanying him on
business-related trips. The Executive shall submit to the Company periodic
statements of all expenses so incurred. Subject to such audits as the Company
may deem necessary, the Company shall reimburse the Executive the full amount of
any such expenses advanced by him promptly in the ordinary course.

5. EXECUTIVE COVENANTS.

         Provided that the Company is not in material default to the Executive
on any of its obligations under this Agreement, the Executive agrees as follows:

         (a) Except with the consent of or as directed by the Board, or except
if compelled by judicial or legal authorities, the Executive shall keep
confidential and not divulge to any other person, during the Employment Period
or thereafter, any business secrets and other confidential information regarding
the Company, its subsidiaries and affiliates, except for information which is or
becomes publicly available other than as a result of disclosure by the
Executive.

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         (b) All papers, books and records of every kind and description
relating to the business and affairs of the Company, its subsidiaries and
affiliates, whether or not prepared by the Executive are the exclusive property
of the Company, and the Executive shall surrender them to the Company, at any
time upon request, during or after the Employment Period.

         (c) During the Employment Period and during any Severance Period (as
hereinafter defined), the Executive shall not, without the prior written consent
of the Board, compete, directly or indirectly, with the Company, its
subsidiaries or affiliates or participate as a director, officer, employee,
agent, representative, stockholder, or partner, or have any direct or indirect
financial interest as a creditor, in any business which directly or indirectly
competes with the Company, its subsidiaries or affiliates; provided, however,
that this paragraph (c) shall not restrict the Executive from holding up to 5%
of the publicly traded securities of any entity which so competes with the
Company.

         (d) During the Employment Period and during any Severance Period (as
hereinafter defined), the Executive shall not, without the prior written consent
of the Board, either for his own account or for any person, firm or company (i)
solicit any customers of the Company, its subsidiaries or affiliates, or (ii)
solicit or endeavor to cause any employee of the Company, its subsidiaries or
affiliates to leave its employment or induce or attempt to induce any such
employee to breach any employment agreement with the Company, its subsidiaries
or affiliates, or otherwise interfere with the employment of any employee by the
Company, its subsidiaries or affiliates.

         (e) Without limiting any other provision of this Employment Agreement,
the Executive hereby agrees to be bound by and to comply with any obligations
known to the Executive and

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imposed on the Company, its subsidiaries or affiliates, by law, rule,
regulation, ordinance, order, decree, instrument, agreement, understanding or
other restriction of any kind.

         (f) The Executive hereby agrees to provide reasonable cooperation to
the Company, its subsidiaries and affiliates during the Employment Period and
any Severance Period in any litigation between the Company, its subsidiaries or
affiliates, and third parties.

         (g) The parties agree that the Company shall, in addition to other
remedies provided by law, have the right and remedy to have the provisions of
this Section 5 specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any breach or threatened breach of the
provisions of this Section 5 will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company. Nothing
contained herein shall be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Executive.

6. TERMINATION OF EMPLOYMENT PERIOD AND SEVERANCE.

         (a) TERMINATION BY THE COMPANY WITHOUT CAUSE. If for any reason the
Company wishes to terminate the Employment Period and the Executive's employment
hereunder (including by not extending the term of this Agreement pursuant to
Section 1(c)) the Company shall give a written notice to the Executive stating
such intention, and the Employment Period shall terminate, and a severance
period shall commence, upon the Renewal Date or anniversary thereof next
following receipt of such notice (such period, the "Severance Period"). The
Severance Period shall continue for thirty-six months. During the Severance
Period, the Executive shall continue to receive the Base Salary and benefits
under Sections 3(a) and 3(b) (including any benefits under the

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<PAGE>   8

Company's long term disability and life insurance plans) of this Employment
Agreement as if the Employment Period continued throughout the Severance Period.

         (b) DEATH. If the Executive dies during the Employment Period, the
Employment Period shall automatically terminate, the Severance Period described
in Section 6(a) hereof shall immediately commence and the duties, rights,
benefits and other matters during such Severance Period shall be as set forth in
Section 6(a), except that the Executive's heirs, beneficiaries, and estate shall
be paid and receive all compensation and benefits which the Executive would have
received during the Severance Period. If the Executive dies during the Severance
Period, his heirs, beneficiaries and estate shall continue to receive
compensation and benefits that the Executive would have otherwise received
during the remainder of the Severance Period without any offset or reduction and
without any duty or obligation by such heirs, beneficiaries or estate.

         (c) DISABILITY. If the Executive becomes disabled (as hereinafter
defined) during the Employment Period, the Company shall be entitled to
terminate his employment upon written notice to the Executive from the Company.
In the event of such termination, the Executive shall be released from any
duties hereunder, and the Severance Period described in Section 6(a) hereof
shall immediately commence. The duties, rights, benefits and other matters
during such Severance Period shall be as set forth in Section 6(a), and the
Executive shall be entitled to all compensation and benefits during the
Severance Period without any offset or reduction except by such amounts, if any,
as are paid to the Executive in lieu of compensation for services under any
applicable disability or other insurance policies of the Company (or by the
Company under any self insurance plan). For purposes of this Employment
Agreement, "Disability" shall mean mental or physical impairment or incapacity
rendering the Executive substantially unable to perform his duties under this

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<PAGE>   9

Employment Agreement for more than 180 days out of any 360-day period during the
Employment Period. A determination of Disability shall be made by the Board in
its sole discretion upon its own initiative or upon request of the Executive or
a person acting on his behalf. The Employment Period shall cease upon the making
of a determination of Disability. If the Executive becomes disabled during a
Severance Period, he shall continue to receive the compensation and benefits of
this Employment Agreement during the entire Severance Period without any offset
or reduction, except by such amounts, if any, as are paid to the Executive in
lieu of compensation for services under any applicable disability or other
insurance policies of the Company (or by the Company under any self insurance
plan).

         (d) TERMINATION BY THE COMPANY FOR CAUSE. The Company, by written
notice to the Executive, shall have the right to terminate the Employment Period
in the event of any of the following (any of which shall constitute "Cause"):

                  (i) The Executive's intentional refusal to perform such duties
as are consistent with his positions, as described above, with the Company
(other than as a result of Disability);

                  (ii) The Executive's fraud, dishonesty, or deliberate injury
to the Company in the performance of his duties;

                  (iii) The Executive's breach of any provision of this
Agreement which is materially damaging to the financial position of the Company
and its subsidiaries and affiliates taken as a whole;

provided, however, that the Executive may not be terminated under any of the
foregoing clauses (i) through (iii) unless he shall have first received thirty
days' prior written notice from the Board advising him of the specific acts or
omissions alleged to constitute the basis for such termination

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<PAGE>   10

and the Executive (and his representative) shall have been afforded an
opportunity to appear before the Board to explain why the Executive believes
that cause did not occur, and, with respect to any acts or omissions alleged to
constitute a refusal to perform duties described in clause (i), or a material
breach described in clause (iii), such acts or omissions continue after the
Executive shall have had a reasonable opportunity to correct the acts or
omissions cited in the notice.

                  Any termination under this Section 6(d) shall not be followed
by a Severance Period and shall be without damages or liability to the Company
for compensation and other benefits which otherwise would have accrued to the
Executive hereunder, but any unpaid compensation, benefits and reimbursements
accrued through the date of such termination, including Base Salary and any
unpaid Bonus Amount, shall be paid to the Executive at the times normally paid
by the Company.

         (e) VOLUNTARY TERMINATION BY THE EXECUTIVE. In the event of the
voluntary termination of employment by the Executive, the terms of the last
paragraph of Section 6(d) shall apply, except in the event that such voluntary
termination occurs within ninety days of (i) a material diminution of the
Executive's duties and responsibilities provided in Section 2, (ii) a reduction
of the Executive's base salary or any other material breach of any provision of
this Agreement by the Company, or (iii) relocation of the Executive's office
from the New York City or Miami metropolitan areas, in which case the provisions
of Section 6(a) shall apply.

         (f) TERMINATION FOLLOWING A CHANGE IN CONTROL. For purposes of this
Agreement, a "Change in Control" shall occur if or upon the occurrence of:

                           (i) Any "Person" (as the term person is used for
                  purposes of Section 13(d) or 14(d) of the Securities and
                  Exchange Act of 1934, as amended (the "Exchange Act"))
                  acquires "Beneficial Ownership" (within the meaning of Rule
                  13d-3 promulgated under the Exchange Act) of any securities of
                  the Company

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<PAGE>   11

                  which generally entitles the holder thereof to vote for the
                  election of directors of the Company (the "Voting
                  Securities"), which, when added to the Voting Securities then
                  "Beneficially Owned" by such person, would result in such
                  Person "Beneficially Owning" forty percent (40%) or more of
                  the combined voting power of the Company's then outstanding
                  Voting Securities; provided, however, that for purposes of
                  this paragraph (i), a Person shall not be deemed to have made
                  an acquisition of Voting Securities if such Person: (a)
                  acquires Voting Securities as a result of a stock split, stock
                  dividend or other corporate restructuring in which all
                  stockholders of the class of such Voting Securities are
                  treated on a pro rata basis: (b) acquires the Voting
                  Securities directly from the Company; (c) becomes the
                  Beneficial Owner of more than the permitted percentage of
                  Voting Securities solely as a result of the acquisition of
                  Voting Securities by the Company, which, by reducing the
                  number of Voting Securities outstanding, increases the
                  proportional number of shares Beneficially Owned by such
                  Person; (d) is the Company or any corporation or other Person
                  of which a majority of its voting power or its equity
                  securities or equity interest is owned directly or indirectly
                  by the Company (a "Controlled Entity"); or (e) acquires Voting
                  Securities in connection with a "Non-Control Transaction" (as
                  defined in paragraph (iii) below); or

                           (ii) The individuals who, as of January 17, 2001 are
                  members of the Board (the "Incumbent Board"), cease for any
                  reason to constitute at least two-thirds of the Incumbent
                  Board, provided, however, that if either the election of any
                  new director or the nomination for election of any new
                  director was approved by a vote of more than two-thirds of the
                  Incumbent Board, such new director shall be considered as a
                  member of the Incumbent Board; provided further, however, that
                  no individual shall be considered a member of the Incumbent
                  Board if such individual initially assumed office as a result
                  of either an actual or threatened "Election Contest" (as
                  described in Rule 14a-11 promulgated under the Exchange Act)
                  or other actual or threatened solicitation of proxies or
                  consents by or on behalf of a Person other than the Board (a
                  "Proxy Contest"), including by reason of any agreement
                  intended to avoid or settle any Election Contest or Proxy
                  Contest; or

                           (iii) Shareholder approval of:

                                   (a) A merger, consolidation or reorganization
                  involving the Company (a "Business Combination"), unless

                                            (1) the stockholders of the Company
                  immediately before the Business Combination, own, directly or
                  indirectly immediately following the Business Combination, at
                  least fifty-one percent (51%) of the combined voting power of
                  the outstanding Voting Securities of the corporation resulting
                  from the Business Combination (the "Surviving Corporation") in
                  substantially the same proportion as their ownership of the
                  Voting Securities immediately before the Business Combination,
                  and

                                      -11-
<PAGE>   12

                                            (2) the individuals who were members
                  of the Incumbent Board immediately prior to the execution of
                  the agreement providing for the Business Combination
                  constitute at least a majority of the members of the Board of
                  Directors of the relevant Surviving Corporation, and

                                            (3) no Person (other than the
                  Company, or any Controlled Entity, a trustee or other
                  fiduciary holding securities under one or more employee
                  benefit plans or arrangements (or any trust forming a part
                  thereof) maintained by the Company, the Surviving Corporation
                  or any Controlled Entity, or any Person who, immediately prior
                  to the Business Combination, had Beneficial Ownership of forty
                  percent (40%) or more of the then outstanding Voting
                  Securities) has Beneficial Ownership of forty percent (40%) or
                  more of the combined voting power of the Surviving
                  Corporation's then outstanding voting securities (a
                  transaction described in this subparagraph (a) shall be
                  referred to as a "Non-Control Transaction");

                                    (b) A complete liquidation or dissolution of
                  the Company; or

                                    (c) The sale or other disposition of all or
                  substantially all of the assets of the Company to any Person
                  (other than a transfer to a Controlled Entity).

                  Notwithstanding the foregoing, (x) a Change in Control shall
                  not be deemed to occur solely because forty percent (40%) or
                  more of the then outstanding Voting Securities is Beneficially
                  Owned by (A) a trustee or other fiduciary holding securities
                  under one or more employee benefit plans or arrangements (or
                  any trust forming a part thereof) maintained by the Company or
                  any Controlled Entity or (B) any corporation which,
                  immediately prior to its acquisition of such interest, is
                  owned directly or indirectly by the stockholders of the
                  Company in the same proportion as their ownership of stock in
                  the Company, immediately prior to such acquisition; (y) a
                  Change in Control shall not be deemed to occur by reason of a
                  testamentary bequest by Bennett S. LeBow to or for the benefit
                  of his surviving spouse of any or all securities of the
                  Company Beneficially Owned by him as of the date of death, so
                  long as, following the bequest, the event referenced in
                  Section 6(f)(ii) shall not have occurred; and (2) if the
                  Executive ceases to be an employee of the Company and the
                  Executive reasonably demonstrates that such termination (A)
                  was at the request of a third party who has indicated an
                  intention or taken steps reasonably calculated to effect a
                  Change in Control and who effectuates a Change in Control or
                  (B) otherwise occurred in connection with, or in anticipation
                  of, a Change in Control which actually occurs, then for all
                  purposes hereof, the date of a Change in Control with respect
                  to the Executive shall mean the date immediately prior to the
                  date of such termination of employment.

                                      -12-
<PAGE>   13

                  If within two years of a Change in Control, the Employment
Period is terminated by the Company without Cause (other than for reason of
Death or Disability) or by the Executive for any (or all) of the reasons set
forth in Sections 6(e)(i), (ii) or (iii), the Company shall pay the Executive in
cash in a lump sum to be paid as soon as practicable following termination, an
amount equal to 2.99 times the sum of (A) the annual Base Salary of the
Executive immediately prior to such termination and (B) the Bonus Amounts earned
by him for the twelve-month period ending with the last day of the month
immediately preceding the month in which such termination occurs. The Executive
shall also be entitled to continue to participate in all employee benefit plans
in which he was participating on the date of termination of his employment until
the earlier of (X) the end of the Employment Period or (Y) the date he receives
equivalent coverage and benefits under the plans and programs of a subsequent
employer. In addition, for a thirty-six month period after such termination, the
Company shall arrange to provide the Executive, at the Company's expense, with
life, disability, accident, and health and medical insurance benefits
substantially similar to those which the Executive was receiving immediately
prior to such termination; but benefits otherwise receivable by the Executive
pursuant to this sentence shall be reduced to the extent comparable benefits are
actually received by him during such period following such termination, and any
such benefits actually received by the Executive shall be reported to the
Company. There shall be no Severance Period following a termination under this
Section 6(f), and upon such a termination the Executive shall no longer be bound
by the provisions of Section 5 of this Employment Agreement.

7. GROSS-UP PAYMENT. If it shall be determined that any payment or distribution
by the Company to or for the benefit of the Executive pursuant to this Agreement
(a "Base Payment") would be subject to the excise tax (the "Excise Tax") imposed
by Section 4999 of the Internal

                                      -13-
<PAGE>   14

Revenue Code of 1986, as amended (the "Code"), then the Executive shall be
entitled to receive an additional payment (the "Gross-Up Payment") in an amount
such that the net amount retained by him, after the calculation and deduction of
any Excise Tax on the Base Payment and any federal, state, and local income
taxes and Excise Tax on the Gross-Up Payment, shall be equal to the Base
Payment. In determining this amount, the amount of the Gross-Up Payment
attributable to federal income taxes shall be reduced by the maximum reduction
in federal income taxes that could be obtained by the deduction of the portion
of the Gross-Up Payment attributable to state and local income taxes.
Additionally, the Gross-Up Payment shall be reduced by income or excise tax
withholding payments made by the Company to any federal, state, or local taxing
authority with respect to the Gross-Up Payment that were not deducted from
compensation payable to the Executive.

         All determinations required to be made under this Section 7, including
whether and when a Gross-Up Payment is required, the amount of such Gross-Up
Payment, and the assumptions to be utilized in arriving at such determination,
except as specified above, shall be made by the Company's independent auditor
(the "Accounting Firm"), which shall provide detailed supporting calculations
both to the Company and the Executive within fifteen business days after the
receipt of notice from the Executive that there should be a Gross-Up Payment.
The determination of tax liability made by the Accounting Firm shall be subject
to review by the Executive's tax advisor, and if said tax advisor does not agree
with the determination reached by the Accounting Firm, then the Accounting Firm
and said tax advisor shall jointly designate a nationally recognized public
accounting firm, which shall make the determination. All fees and expenses of
the accountants and tax advisors retained by either the Executive or the Company
shall be borne by the Company. Any

                                      -14-
<PAGE>   15

Gross-Up Payment shall be paid by the Company to the Executive within five days
after the receipt of the determination. Any determination by a jointly
designated public accounting firm shall be binding upon the Company and the
Executive.

         As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination hereunder, it is possible that
Gross-Up Payments shall not have been made by the Company that should have been
made consistent with the calculations required to be made hereunder
("Underpayment"). In the event that the Executive thereafter is required to make
a payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. In the event that the Gross-Up
Payment exceeds the amount subsequently determined to be due, such excess shall
constitute a loan from the Company payable on the fifth day after demand by the
Company (together with interest at the rate provided in Section 1274(b)(2)(B) of
the Code).

8. NO MITIGATION OF DAMAGES. In the event the employment of the
Executive under this Agreement is terminated by the Company, the Executive shall
not be required to seek comparable employment so as to minimize any obligation
of the Company to compensate him for any damages he may suffer by reason of such
wrongful termination.

                                      -15-
<PAGE>   16

9. INDEMNIFICATION.

         (a) The Company agrees to indemnify the Executive to the fullest extent
permitted by applicable law with respect to any acts or non-acts he may have
committed while he was an officer, director, employee, agent or fiduciary (i) of
the Company or its affiliated entities, or (ii) at the request of the Company,
of any other entity. The Executive shall have legal fees and other expenses paid
to him in advance of final disposition of a proceeding provided he executes an
undertaking to repay such amounts if, and to the extent, required to do so by
applicable law.

         (b) The Company agrees to maintain for the Executive a directors' and
officers' liability insurance policy not less favorable than any policy that the
Company or any subsidiary or affiliate thereof maintains for its directors and
executive officers in general.

         (c) This paragraph 9 establishes contract rights which shall be binding
upon, and shall inure to the benefit of the heirs, executors, personal and legal
representatives, successors and assigns of the Executive. The obligations set
forth in this paragraph 9 shall survive any termination of this Agreement.

10. CONFLICTING AGREEMENTS.

         The Executive hereby represents and warrants to the Company that his
entering into his Employment Agreement, and the obligations and duties
undertaken by him hereunder, will not conflict with, constitute a breach of, or
otherwise violate the terms of any other employment or other agreement to which
he is a party. The Company represents and warrants that it is a corporation duly
organized and existing under the laws of the State of Delaware and that
execution and delivery of this Employment Agreement has been duly authorized by
all necessary corporate action.

                                      -16-
<PAGE>   17

11. ASSIGNMENT.

         (a) BY THE EXECUTIVE. This Employment Agreement and any obligations
hereunder shall not be assigned, pledged, alienated, sold, attached, encumbered
or transferred in any way by the Executive and any attempt to do so shall be
void.

         (b) BY THE COMPANY. Provided the substance of the Executive's duties
set forth in Section 2 shall not change, and provided that the Executive's
compensation as set forth in Section 3 shall not be adversely affected, the
Company may, after obtaining the prior written consent of the Executive, assign
or otherwise transfer this Employment Agreement to any succeeding entity without
limitation, which entity shall assume all rights and obligations hereunder.

12. ARBITRATION.

         (a) Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in the City of
New York, New York before a panel of three (3) arbitrators in accordance with
the rules of the American Arbitration Association then pertaining in the City of
New York. In any such arbitration, one arbitrator shall be selected by each of
the parties, and the third arbitrator shall be selected by the first two
arbitrators. The arbitration award shall be final and binding upon the parties
and judgment thereon may be entered in any court having jurisdiction thereof.
The arbitrators shall be deemed to possess the powers to issue mandatory orders
and restraining orders in connection with such arbitration; provided, however,
that nothing in this Section 12 shall be construed so as to deny the Company the
right and power to seek and obtain injunctive relief in a court of equity for
any breach or threatened breach of the Executive of any of his covenants
contained in paragraph 5 hereof.

                                      -17-
<PAGE>   18

         (b) All costs, fees and expenses of any arbitration or litigation in
connection with this Agreement, including, without limitation, attorneys' fees
of the Executive and the Company, shall be borne by, and be the obligation of,
the Company. The obligations of the Company under this Section 12 shall survive
the termination of this Agreement (whether such termination is by the Company,
the Executive, upon the expiration of this Agreement, or otherwise).

13. NOTICES.

         All notices, requests, demands and other communications hereunder must
be in writing and shall be deemed to have been duly given if delivered by hand
or mailed within the continental United States by first class, registered mail,
return receipt requested, postage and registry fees prepaid, to the applicable
party and addressed as follows:

         (a)      if to the Company:

                           Vector Group Ltd.
                           100 S.E. Second Street
                           Miami, Florida 33131
                           Attn: Chief Executive Officer

         (b)      if to the Executive:

                           Howard M. Lorber
                           8061 Fisher Island Drive
                           Fisher Island, Florida 33109

         Addresses may be changed by notice in writing signed by the addressee.

                                      -18-
<PAGE>   19

14. MISCELLANEOUS.

         (a) If any provision of this Employment Agreement shall, for any
reason, be adjudicated by any court of competent jurisdiction to be invalid or
unenforceable, such judgment shall not effect, impair or invalidate the
remainder of this Employment Agreement but shall be confined in its operation to
the jurisdiction in which made and to the provisions of this Employment
Agreement directly involved in the controversy in which such judgment shall have
been rendered.

         (b) No course of dealing and no delay on the part of any party hereto
in exercising any right, power or remedy under or relating to this Employment
Agreement shall operate as a waiver thereof or otherwise prejudice such party's
rights, power and remedies. No single or partial exercise of any rights, powers
or remedies under or relating to this Employment Agreement shall preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.

         (c) This Employment Agreement may be executed by the parties hereto in
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument, and all
signatures need not appear on any one counterpart.

         (d) All payments required to be made to the Executive by the Company
hereunder shall be subject to any applicable withholding under any applicable
Federal, state, or local tax laws. Any such withholding shall be based upon the
most recent form W-4 filed by the Executive with the Company, and the Executive
may from time to time revise such filing.

                                      -19-
<PAGE>   20

         (e) This Employment Agreement embodies the entire understanding, and
supersedes all other oral or written agreements or understandings, between the
parties regarding the subject matter hereof. No change, alteration or
modification hereof may be made except in writing signed by both parties hereto.
The headings in this Employment Agreement are for convenience of reference only
and shall not be considered part of this Employment Agreement or limit or
otherwise affect the meaning hereof. This Employment Agreement and the rights
and obligations of the parties hereunder shall be construed in accordance with
and governed by the laws of the state of New York (disregarding any choice of
law rules which might look to the laws of any other jurisdiction).

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

                                      VECTOR GROUP LTD.

                                      By: /s/ Bennett S. Lebow
                                         ---------------------------------------
                                            Bennett S. LeBow
                                            Chairman and Chief Executive Officer

                                       /s/ Howard M. Lorber
                                      ------------------------------------------
                                      HOWARD M. LORBER

                                      -20-

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