<PAGE> 1
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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
--------------- ---------------
Commission file number 1-5759
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BROOKE GROUP LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0255124
- ---------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 S.E. 2ND STREET, MIAMI, FLORIDA 33131
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
(305) 579-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of May 12, 1995, there were outstanding 18,247,096 shares of common
stock, par value $0.10 per share.
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<PAGE> 2
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 35,877 $ 4,276
Accounts receivable - trade 17,304 31,325
Other receivables 10,867 1,558
Inventories 51,779 47,098
Other current assets 2,787 3,247
---------- ---------
Total current assets 118,614 87,504
Property, plant and equipment, at cost, less accumulated
depreciation of $25,368 and $24,460 25,128 25,806
Intangible assets, at cost, less accumulated amortization
of $14,367 and $13,936 6,306 6,728
Investment in affiliate 73,292 97,520
Other assets 11,158 11,867
---------- ---------
Total assets $ 234,498 $ 229,425
========== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
- 3 -
<PAGE> 3
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Notes payable and current portion of long-term debt $ 39,299 $ 31,351
Accounts payable 14,299 12,415
Accrued promotional expenses 24,911 29,853
Unearned revenue 2,056
Net current liabilities of business held for disposition 4,974
Other accrued liabilities 64,545 63,702
-------- --------
Total current liabilities 143,054 144,351
Notes payable, long-term debt and other obligations, less current
portion 402,607 405,798
Noncurrent employee benefits 31,429 31,119
Net long-term liabilities of business held for disposition 23,009
Commitments and contingencies
Stockholders' equity (deficit):
Preferred Stock, par value $1.00 per share, authorized
10,000,000 shares
Common stock, par value $0.10 per share, authorized 40,000,000
shares, issued 24,998,043 shares, outstanding 18,247,096 and
18,260,844 shares, respectively 1,825 1,826
Additional paid-in capital 70,874 66,245
Deficit (392,766) (420,746)
Other 11,058 11,365
Less: 6,750,947 and 6,737,199 shares of common stock in
treasury, at cost (33,583) (33,542)
-------- --------
Total stockholders' equity (deficit) (342,592) (374,852)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 234,498 $ 229,425
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
- 4 -
<PAGE> 4
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1995 1994
------------- -------------
<S> <C> <C>
Revenues* $ 95,290 $ 114,105
Cost of goods sold* 46,378 57,296
---------- ----------
Gross profit 48,912 56,809
Selling, general and administrative expenses 49,308 50,529
---------- ----------
Operating income (loss) (396) 6,280
Other income (expenses):
Interest income 389 49
Interest expense (14,715) (13,339)
Equity in earnings of affiliate 1,683
Other, net 115 237
---------- ----------
(Loss) from continuing operations before
income taxes (12,924) (6,773)
Provision (benefit) for income taxes (14) (53)
---------- ----------
(Loss) from continuing operations (12,910) (6,720)
Discontinued operations:
Income from discontinued operations, net of income taxes
of $63 and $3,068 in 1995 and 1994, respectively 1,648 5,314
Gain on diposal 13,138
---------- ----------
Income from discontinued operations 14,786 5,314
---------- ----------
Income (loss) before extraordinary item 1,876 (1,406)
Extraordinary (loss) from the early extinguishment of debt (1,118)
---------- ----------
Net income (loss) 1,876 (2,524)
Proportionate share of excess of carrying value of redeemable
preferred shares over cost of shares purchased 3,069
---------- ----------
Net income (loss) applicable to common shares $ 4,945 $ (2,524)
========== ==========
Per common share:
(Loss) from continuing operations $ (0.53) $ (0.38)
========== ==========
Income from discontinued operations $ 0.80 $ 0.30
========== ==========
Extraordinary item $ -- $ (0.06)
========== ==========
Net income (loss) $ 0.27 $ (0.14)
========== ==========
Weighted average common shares and common stock
equivalents outstanding 18,501,830 17,426,809
========== ==========
</TABLE>
___________________________________
* Revenues and Cost of goods sold include federal excise taxes of $26,392
and $31,815 for the periods ended March 31, 1995 and 1994, respectively.
The accompanying notes are an integral part
of the consolidated financial statements
- 5 -
<PAGE> 5
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In Treasury
Shares Amount Capital Deficit Stock Other Total
------ ------ ---------- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 18,260,844 $1,826 $66,245 $(420,746) $(33,542) $11,365 $(374,852)
Net income 1,876 1,876
Dividends on common stock of BGL ($0.075
per share) (1,368) (1,368)
Stock grant to directors 20,000 2 (2) 94 94
Stock grant to consultant 939 (703) 236
MAI spin-off 27,286 27,286
Net unrealized holding gain 396 396
Effect of New Valley capital transactions 3,689 3,689
Other, net 186 186
Treasury stock, at cost (33,748) (3) 3 (135) (135)
---------- ----- ------ ------- ------ ------ -------
Balance, March 31, 1995 18,247,096 $1,825 $70,874 $(392,766) $(33,583) $11,058 $(342,592)
========== ===== ====== ======= ====== ====== =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
- 6 -
<PAGE> 6
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1995 1994
--------- ---------
<S> <C> <C>
Net cash (used in) provided by operating activities $ (5,263) $ (4,785)
Cash flows from investing activities:
Dividends from affiliate 30,916
Redemption of SkyBox preferred stock 4,000
Investment in New Valley (365)
Capital expenditures (511) (38)
Proceeds from sale of assets/equipment 34
Impact of discontinued operations (438)
-------- --------
Net cash provided by (used in) investing activities 34,074 (476)
-------- --------
Cash flows from financing activities:
Proceeds from debt 2,343 18,840
Borrowings (repayments) under revolver 1,478 (143)
Repayments of debt (389) (7,534)
Increase (decrease) in overdraft 900 (11,972)
Dividends paid on Series G preferred stock (3,018)
Dividends paid on BGL common stock (1,368)
Treasury stock purchases (135) (82)
Stockholder loan and interest repayments 16,780
Deferred financing charges (5,043)
Impact of discontinued operations (81)
Other, net (39)
-------- --------
Net cash provided by financing activities 2,790 7,747
-------- --------
Net increase in cash and cash equivalents 31,601 2,486
Cash and cash equivalents, beginning of period 4,276 11,497
-------- --------
Cash and cash equivalents, end of period $ 35,877 $ 13,983
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
- 7 -
<PAGE> 7
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. GENERAL
The consolidated financial statements included herein prepared by Brooke
Group Ltd. (the "Company") are unaudited and, in the opinion of
management, reflect all adjustments necessary (which are normal and
recurring) to present fairly the Company's consolidated financial
position, results of operations and cash flows. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto for the years ended December
31, 1994, 1993 and 1992, included in the Company's Form 10-K as filed
with the Securities and Exchange Commission on April 17, 1995. The
consolidated results of operations for interim periods should not be
regarded as necessarily indicative of the results that may be expected
for the entire year.
Certain amounts in the 1994 consolidated financial statements have been
reclassified to conform to the 1995 presentation.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Liggett
Group Inc. ("Liggett"), New Valley Holdings, Inc. and other less
significant subsidiaries.
As the result of the spin off of the Company's equity interest in MAI
Systems Corporation ("MAI") in February 1995 and the sale/redemption of
the Company's common and preferred stock of SkyBox International, Inc.,
both entities are reported as discontinued operations. Revenues for MAI
were $6,652 for the period January 1, 1995 to February 6, 1995 and
$17,188 for the three months ended March 31, 1994.
3. INVESTMENT IN NEW VALLEY CORPORATION
The Company's investment in New Valley at March 31, 1995 is summarized
as follows:
<TABLE>
<CAPTION>
Number of Shares Carrying Value
---------------- --------------
<S> <C> <C>
Common shares 79,794,229 $ (49,065)
Class A Preferred Shares 618,326 122,103
Class B Preferred Shares 50,885 254
-------
$ 73,292
=======
</TABLE>
Summarized income statement information for New Valley Corporation for the
three month period ended March 31, 1995 is as follows:
<TABLE>
<S> <C>
Revenues $7,669
=====
Income before discontinued operations $6,631
=====
Net income $8,029
=====
</TABLE>
- 8 -
<PAGE> 8
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
In February 1995, New Valley Corporation repurchased 54,445 Class A
Preferred shares pursuant to a tender offer made as part of the New
Valley Corporation First Amended Joint Chapter 11 Plan of Reorganization.
The Company has recorded its proportionate interest in the excess of the
carrying value of the shares over the cost of the shares repurchased as
a capital transaction in the amount of $3,069.
4. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- -----------
<S> <C> <C>
Finished goods $21,611 $18,374
Work in process 2,872 2,952
Raw materials 21,782 20,609
Replacement parts and supplies 3,724 3,754
------- -------
49,989 45,689
LIFO adjustments 1,790 1,409
------- -------
$51,779 $47,098
======= =======
</TABLE>
At March 31, 1995, the Company had leaf tobacco purchase commitments of
approximately $31,000 compared to $41,000 at December 31, 1994.
5. CONTINGENCIES
Since 1954, the Company and other United States cigarette manufacturers
have been named as defendants in a number of direct and third-party
actions predicated on the theory that they should be liable for damages
from cancer and other adverse health effects alleged to have been caused
by cigarette smoking or by exposures to secondary smoke (environmental
tobacco smoke, "ETS") from cigarettes. These cases are reported
hereinafter as though having been commenced against Liggett (without
regard to whether such actually were commenced against Brooke Group Ltd.
in its former name or in its present name or against Liggett), since all
involve the tobacco manufacturing and marketing activities currently
performed by Liggett. The number of such cases pending against the
Company and the other cigarette manufacturers has decreased generally
since early 1987, after several years of increases, but new cases continue
to be commenced against Liggett and other cigarette manufacturers with the
number of cases now pending against Liggett being somewhat greater than in
1993. As new cases are commenced, the costs associated with defending
such cases and the risks attendant on the inherent unpredictability of
litigation continue. To date a number of such actions, including several
against Liggett, have been disposed of favorably to the defendants; no
plaintiff has ultimately prevailed on the merits of any such action; and
no payment in settlement of any such claim has been made by the Company
nor, to the Company's knowledge, any other cigarette manufacturer.
An action entitled Yvonne Rogers v. Liggett Group Inc., et al., Superior
Court, Marion County, Indiana, was initiated by the plaintiff on March 27,
1987 against Liggett and three other cigarette manufacturers. The
plaintiff seeks compensatory and punitive damages for cancer alleged to
have
- 9 -
<PAGE> 9
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
been caused by cigarette smoking. Trial commenced on January 31, 1995.
The trial ended on February 22, 1995 when the trial court declared a
mistrial due to the jury's inability to reach a verdict. The Court
directed a verdict in favor of the defendants as to the issue of punitive
damages during the trial of this action. A second trial has been
scheduled for August 1996.
In the action entitled Cipollone v. Liggett Group Inc., et al., the United
States Supreme Court, on June 24, 1992, issued an opinion respecting
federal preemption of state law damage actions. The Supreme Court in
Cipollone concluded that The Federal Cigarette Labeling and Advertising
Act (the "1965 Act") did not preempt any state common law damage claims.
The decision permits plaintiffs to assert common law claims for damages
for failure to warn adequately, fraudulent misrepresentation, concealment,
conspiracy and breach of express warranty in the period from 1966 to 1969.
Relying on an amendment to Section 5(b) of the 1965 Act by The Public
Health Cigarette Smoking Act of 1969 (the "1969 Act"), however, the
Supreme Court concluded that the 1969 Act preempted certain, but not all,
common law damage claims. Accordingly, the decision bars plaintiffs from
asserting claims that, after the effective date of the 1969 Act, the
tobacco companies either failed to warn adequately of the claimed health
risks of cigarette smoking or sought to neutralize those claimed risks in
their advertising or promotion of cigarettes. It does permit, however,
claims for fraudulent misrepresentation (other than a claim of
fraudulently neutralizing the warning), concealment (other than in
advertising and promotion of cigarettes), conspiracy and breach of express
warranty after 1969.
The Court expressed no opinion on whether any of these claims are viable
under state law, but assumed arguendo that they are viable. The
application of the principles enunciated in the decision to the particular
theories of recovery asserted in each case will await further proceedings.
In addition, bills have been introduced in Congress on occasion to
eliminate the federal preemption defense. Enactment of any federal
legislation with such an effect could result in a significant increase in
claims, liabilities and litigation costs.
On May 11, 1993, in the case entitled Wilks v. The American Tobacco
Company, No. 91-12,355, Circuit Court of Washington County, State of
Mississippi (a case in which Liggett was not a defendant), the trial court
granted plaintiffs' motion to impose absolute liability on defendants for
the manufacture and sale of cigarettes and struck defendants' affirmative
defenses of assumption of risk and comparative fault/contributory
negligence. The trial court ruled that the only issue to be tried in the
case were causation and damages. No other court has ever imposed absolute
liability on a manufacturer of cigarettes. After trial, the jury returned
a verdict for defendants, finding no liability. The Company is or has
been a defendant in other cases in Mississippi and it cannot be stated
that other courts will not apply the Wilks ruling as to absolute
liability.
On May 12, 1992, an action entitled Cordova v. Liggett Group Inc., et al.,
Superior Court of the State of California, City of San Diego, was filed
against Liggett, five other cigarette manufacturing companies, the Tobacco
Institute, Inc., the Council for Tobacco Research and Hill & Knowlton. In
her complaint, plaintiff, purportedly on behalf of the general public,
alleges that defendants have been engaged in unlawful, unfair and
fraudulent business practices by allegedly misrepresenting and concealing
from the public scientific studies pertaining to smoking and health funded
by, and misrepresenting the independence of, the Council for Tobacco
Research and its predecessor. The Complaint seeks equitable relief
against the defendants, including the imposition of a corrective
advertising campaign, restitution of funds fraudulently obtained by
defendants, disgorgement of revenues and profits acquired as a result of
the alleged fraud, the imposition of a constructive trust
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<PAGE> 10
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
and an asset freeze on alleged ill-gotten gains, an injunction precluding
defendants from pursuing the alleged wrongful acts, and reasonable
attorneys' fees and costs. The case is presently in discovery.
On March 15, 1994, in an action entitled Broin et al v. Philip Morris
Companies, Inc., et al., Dade County Circuit Court, State of Florida, the
District court of Appeals for the Third District reversed the Dade County
Circuit Court's dismissal of plaintiffs' class action allegations and a
motion to invoke the discretionary jurisdiction of the Florida Supreme
Court is pending. This case was the first class action commenced against
the industry, and has been brought by plaintiffs on behalf of all flight
attendants that have worked or are presently working for airlines based in
the United States and who have never regularly smoked cigarettes but
allege that have been damaged by an involuntary exposure to ETS. On
December 12, 1994, plaintiffs' motion to certify the action as a class
action was granted. Defendants have appealed this ruling.
On March 25, 1994, an action entitled Castano, et al v. The American
Tobacco Company, et al., United States District Court, Eastern District of
Louisiana, was filed against Liggett and four other cigarette companies
(and since has been amended to add an additional cigarette company as a
defendant). The class action complaint was brought on behalf of
plaintiffs and residents of the United States who claim to be addicted to
tobacco products of defendants, including Liggett, and survivors who claim
their decedents were addicted to such tobacco products. The complaint is
based upon the claim that defendants manipulated the nicotine levels in
their tobacco products with the intent to addict plaintiffs and the class
members and, inter alia, fraud, deceit, negligent misrepresentation,
breach of express and implied warranty, strict liability and violation of
consumer protection statutes. Plaintiffs seek compensatory and punitive
damages, equitable relief including disgorgement of profits from the sale
of cigarettes and creation of a fund to monitor the health of class
members and to pay for medical expenses allegedly caused by defendants,
attorneys' fees and costs. On December 14, 1994, plaintiffs' motion to
certify the action as a class action was orally argued before the Court.
On February 17, 1995, the Court issued an Order that granted in part
Plaintiffs' motion for class certification for the specific claims of
fraud, breach of express warranty, breach of implied warranty, intentional
tort, negligence, strict liability and consumer protection, together with
punitive damages to the end of establishing a multiplier to compute
punitive damage awards. The court denied class certification as to issues
of injury and fact, proximate cause, reliance and affirmative defenses.
The Court defined Plaintiffs' class as being comprised of all
nicotine-dependent persons (and their representatives) in the U.S. and its
territories and possessions and Puerto Rico who have purchased and smoked
cigarettes manufactured by the Defendants. The trial court Order defines
"nicotine-dependent" as (a) all cigarette smokers who have been diagnosed
by a medical practitioner as nicotine-dependent; and/or (b) all regular
cigarette smokers who were or have been advised by a medical practitioner
that smoking has had or will have adverse health consequences who
thereafter do not or have not quit smoking. Defendants have made
application to the trial court that it certify the class certification
Order for interlocutory appeal, but if such is not granted, Defendants
will seek appellate review by mandamus. Hearing has been scheduled by the
trial court for May 10, 1995, on Defendants' interlocutory appeal
application.
On May 5, 1994, an action entitled Engle, et al v. R. J. Reynolds Tobacco
Company, et al., Circuit Court of the 11th Judicial District in and for
Dade County, Florida, was filed against Liggett, five other cigarette
companies, The Council for Tobacco Research - USA, Inc., the Tobacco
Institute, Inc. and others. The class action complaint was brought on
behalf of plaintiffs and all persons in the United States who allegedly
have become addicted to cigarette products of defendants, including those
of Liggett, and allegedly have suffered personal injury as a result
thereof, with such claims predicated on theories of strict liability in
tort, fraud and misrepresentation, conspiracy to misrepresent and
- 11 -
<PAGE> 11
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
commit fraud, breach of implied warranty of merchantability and fitness,
breach of express warranty, intentional infliction of emotional distress
and negligence. Plaintiffs seek compensatory and punitive damages,
equitable relief including but not limited to a medical fund for future
health care costs, attorneys' fees and costs. On October 31, 1994,
plaintiffs' motion to certify the action as a class action was granted.
Defendants have appealed this ruling.
On May 23, 1994, an action entitled Mike Moore, Attorney General, ex rel
State of Mississippi vs. The American Tobacco Company, et al., Chancery
Court for the County of Jackson, State of Mississippi, was filed against
Liggett and five other cigarette companies, the Tobacco Institute, Inc.,
the Council for Tobacco Research - USA, Hill & Knowlton and others. In
this action, the State of Mississippi seeks restitution and indemnity for
medical payments and expenses made or incurred by the State of Mississippi
on behalf of welfare patients for tobacco related illnesses. Similar
actions (although not identical) have been filed recently by the State of
Minnesota (together with Minnesota Blue Cross-Blue Shield) and by the
State of West Virginia.
The State of Florida enacted legislation effective July 1, 1994 allowing
certain state authorities or entities to commence a lawsuit to seek
recovery of Medicaid payments made on behalf of Medicaid recipients as a
result of diseases allegedly caused by liable third parties. Though not
limited to the tobacco industry, the statutory scheme includes the
industry with ultimate liability based upon market share and would include
disease allegedly caused by the smoking of cigarettes. The statute
abrogates comparative negligence, assumption of risk and other defenses
normally available to liable third parties and, by its stated language,
permits the use of statistical evidence to prove causation. A suit has
been commenced to challenge the constitutionality of the legislation. On
February 22, 1995, suit was commenced by the State of Florida, together
with others, against the five domestic cigarette manufacturers and their
respective parent companies, as well as others, seeking restitution of
monies expended in the past and which may be expended in the future by the
State of Florida to provide health care to Medicaid recipients for
injuries and ailments allegedly caused by the use of cigarettes and other
tobacco products. Plaintiffs also seek a variety of other forms of relief
including a disgorgement of all profits from the sales of cigarettes in
Florida. On May 6, 1995, the Florida legislature voted in favor of a bill
to repeal this legislation. The repeal of this legislation, if the
repealer bill becomes law, would be effective as of the date and time the
original legislation became law. The repealer bill will become law if the
Governor, after receipt of the repealer bill, signs such into law within
fifteen days after receipt or fails to act within such fifteen day period.
The Governor of Florida has announced that he will veto this repealer
bill. It is uncertain at this time whether or not and at what time the
Florida legislature could or would take action to override such a veto if
the Governor vetoes the repealer bill.
The Commonwealth of Massachusetts has enacted legislation authorizing
lawsuits similar to the suits filed by the State of Mississippi, the State
of Minnesota and the State of West Virginia. Aside from the Florida and
Massachusetts statutes, legislation authorizing the state to sue a company
or individual to recover costs incurred by the state to provide health
care to persons injured by the company or individual also has been
introduced in several other states (California, Connecticut, Kansas,
Maine, Massachusetts, New Jersey, New York, Oregon and Vermont). These
bills contain some or all of the following provisions: eliminating all
affirmative defenses, permitting the use of statistical evidence to prove
causation and damages, adopting market share liability and allowing class
action suits without notification to class members.
- 12 -
<PAGE> 12
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
Currently in addition to Cordova, approximately 32 product liability
lawsuits are pending and active in which Liggett is a defendant. In most
of these lawsuits, plaintiffs seek punitive as well as compensatory
damages. The states in which suits are presently pending and active
against Liggett are California, Florida, Indiana, Louisiana, Minnesota,
Mississippi, Nevada, New Hampshire, New Jersey, New York, Ohio, Oklahoma,
Pennsylvania, Texas and West Virginia.
A Grand Jury investigation presently is being conducted by the office of
the United States Attorney for the Eastern District of New York regarding
possible violations of criminal law relating to the activities of The
Council for Tobacco Research - USA, Inc. The Company was a sponsor of The
Council for Tobacco Research - USA, Inc. at one time. The Company is
unable, at this time, to predict the outcome of the investigation.
Liggett has been responding to a Civil Investigative Demand from the
Antitrust Division of the United States Department of Justice, which
requests information from Liggett. The request appears to focus on United
States tobacco industry activities in connection with product development
efforts respecting, in particular, "fire-safe" or self-extinguishing
cigarettes. It also requests certain general information addressing
Liggett's involvement with and relationship to its competitors. Liggett
is unable to predict the outcome of this investigation.
In March and April 1994, the Health and the Environmental Subcommittee of
the Energy and Commerce Committee of the House of Representatives held
hearings regarding nicotine in cigarettes. On March 25, 1994,
Commissioner David A. Kessler of the Food and Drug Administration (the
"FDA") gave testimony as to the potential regulation of nicotine under the
Food, Drug and Cosmetic Act, and the potential for jurisdiction over the
regulation of cigarettes to be accorded to the FDA. In response to
Commissioner Kessler's allegations about manipulation of nicotine by
cigarette manufacturers, including Liggett, the chief executive of each of
the major cigarette manufacturers, including Liggett, testified before the
subcommittee on April 14, 1994, denying Commissioner Kessler's claims.
The Omnibus Budget Reconciliation Act of 1993 (the "Act") requires United
States cigarette manufacturers to use at least 75% domestic tobacco in the
aggregate of the cigarettes manufactured in the United States, effective
January 1, 1994, on an annualized basis or pay a "marketing assessment"
based upon price differentials between foreign and domestic tobacco and
under certain circumstances make purchases of domestic tobacco from a
corporation organized by the United States government. Liggett uses both
domestic and foreign tobacco in its cigarettes. As part of an inventory
management program, Liggett has entered into tobacco purchase agreements
under which Liggett's commitments amounted to approximately $31 million at
March 31, 1995, of which approximately 90% is foreign tobacco. The
foreign tobacco used in manufacturing Liggett's cigarettes costs
approximately 10- 15% less than its comparable domestic tobacco. In
response to this situation, Liggett implemented certain changes in its
product composition and modified its existing agreements with tobacco
vendors to minimize the effect of the Act on Liggett's financial position.
However, no assurance can be given that Liggett's efforts have been
successful.
A General Agreement on Tariffs and Trade ("GATT") tribunal ruled that the
Act violates GATT. Legislation has been enacted which will repeal
retroactively the Act as of the end of 1994 upon the declaration of
tariffs on imported tobacco in excess of certain quotas to be set forth in
a Presidential proclamation. The Act will be in effect until such time as
a proclamation is issued. Liggett believes that such a proclamation will
be issued during 1995. Liggett is exploring avenues which might be
- 13 -
<PAGE> 13
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
available to it to realize relief from any marketing assessment or
purchase requirement sanctions that may be imposed under the Act. While
Liggett is of the opinion that there would be a realistic potential to
achieve such relief if sanctions were imposed, no assurance can be given
that Liggett would be successful in doing so, either in whole or in part.
No amounts have been accrued.
Further, the tariff structure, when established, may have the effect of
limiting Liggett's access to imported tobacco, possible driving Liggett's
costs of goods higher. Due to existing inventories of foreign tobacco,
management believes the tariff structure would have no short-term effects
on Liggett, but is unable to state at this time what long-term effects, if
any, the tariff structure would have on Liggett.
As to each of the cases referred to above which is pending against
Liggett, Liggett believes, and has been so advised by counsel handling the
respective cases, that Liggett has a number of valid defenses to the claim
or claims asserted against Liggett. All cases are, and will continue to
be, vigorously defended. Litigation is subject to many uncertainties, and
it is possible that some of these actions could be decided unfavorably.
An unfavorable outcome of a pending smoking and health case could
encourage the commencement of additional similar litigation. Recently,
there have been a number of restrictive regulatory, adverse political and
other developments concerning cigarette smoking and the tobacco industry,
including the commencement of the purported class actions referred to
above. These developments generally receive widespread media attention.
Liggett is not able to evaluate the effect of these developing matters on
pending litigation or the possible commencement of additional litigation.
Liggett is unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome of the cases pending
against Liggett. It is possible that Liggett's financial position,
results of operations or cash flows could be materially affected by an
ultimate unfavorable outcome of certain pending litigation.
There are several other proceedings, lawsuits and claims pending against
Liggett unrelated to product liability. Management is of the opinion that
the liabilities, if any, ultimately resulting from such proceedings,
lawsuits and claims should not materially affect Liggett's financial
position, results of operations and cash flows.
On September 20, 1993, a group of Contingent Value Rights ("CVR") holders
and the CVR trustee filed an action in the Delaware Chancery court, New
Castle County, against the Company and certain of its present and former
directors, challenging and seeking to enjoin or rescind the Distribution.
Pursuant to notice given on October 15, 1993, the Company redeemed its
CVRs on December 9, 1993 for a payment of $.36 per CVR. On June 2, 1994,
the Company entered into a Stipulation and Agreement of Compromise and
Settlement (the "Stipulation") pursuant to which a class of CVR holders,
which includes all persons who held CVRs at any time between September 20,
1993 and June 2, 1994, were to receive a total of $4,000 plus an award of
attorneys' and experts' fees and expenses not to exceed $900. The $4,000
settlement fund has been deposited into an escrow account for eventual
disbursement to all eligible CVR holders.
By order dated June 10, 1994, the Court of Chancery scheduled a settlement
hearing to be held on August 16, 1994 to determine, inter alia, whether
the Stipulation is fair, reasonable and adequate. That settlement hearing
was adjourned at the named plaintiff CVR holders' request because of
issues arising from filing of a motion for leave to amend the Company's
complaint in a separate lawsuit pending against the CVR trustee. The
named plaintiff CVR holders subsequently asked the
- 14 -
<PAGE> 14
Item 1. Consolidated Financial Statements - (Continued)
BROOKE GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
court to rescind the Stipulation, stating, in substance, that they had
mistakenly entered into it in the erroneous belief that the Company would
be unable to assert claims against the trustee which those CVR holders
might have to indemnify. On December 28, 1994, the court rescinded the
Stipulation, finding that such a mistake had been made; however, the named
plaintiff CVR holders and the defendants continued settlement discussions,
seeking to address the named plaintiff CVR holders' concerns over their
obligation to indemnify the trustee. On March 3, 1995, these parties
advised the court that they had reached an agreement in principle to
settle the case on a class basis, subject to the final resolution of
certain remaining issues.
At March 31, 1995, there were several other proceedings, lawsuits and
claims pending against the Company and its subsidiaries. The Company is
of the opinion that the liabilities, if any, ultimately resulting from the
CVR action and other proceedings, lawsuits and claims should not
materially affect its consolidated financial position, results of
operations or cash flows.
6. SERIES 1 NOTES
On April 3, 1995 a Notice of Redemption was sent to holders of the Series
1 Notes (the "Holders") in which the Company announced its intention to
redeem the Series 1 Notes on May 3, 1995. Accordingly, on April 3, 1995
the Company deposited with the trustee an amount sufficient to redeem all
of the Series 1 Notes including interest thereon accruing from April 1,
1995 to May 3, 1995. On May 2, 1995, the Company and the Holders agreed
to extend the redemption date to no earlier than May 9, 1995. After that
date, the redemption may be effected by either the Company or the Holders
with a two-day notice to the trustee.
7. REORGANIZATION
Liggett reduced its field sales force on January 10, 1994 by 150 permanent
positions and added approximately 300 part-time positions. This
reorganization has significantly reduced operating costs and enabled
Liggett to expand its retail base coverage.
In March 1995, Liggett continued its efforts towards reducing costs by,
among other things, offering voluntary retirement programs to eligible
employees. Thus far, Liggett's 1995 cost reduction programs have reduced
Liggett's headcount by approximately 63 positions. In connection
therewith, Liggett recorded a $487 non-recurring charge to operating
income. Liggett anticipates further cost reduction programs during 1995.
- 15 -
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to information entitled "Contingencies" in Note 4 to
the Company's Consolidated Financial Statements included elsewhere in
this report on Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Fifth Supplemental Indenture, dated as of January 18,
1995, to the Indenture, dated as of April 1, 1988,
among Brooke Partners, L.P., Brooke Capital Corp.,
L Holdings Inc. and Shawmut Bank, N.A.*
4(b) Fifth Supplemental Indenture, dated as of January 18,
1995, to the Indenture, dated as of April 1, 1988,
among Brooke Partners, L.P., Brooke Capital Corp.,
L Holdings Inc. and First Trust National Association.*
4(c) Letter agreements between BGLS Inc. and United States
Trust Company of New York, Tortoise Corp., The Bank of
New York and Daffodil & Co., each dated May 2, 1995.
10(a) Stock Option Agreement, dated January 25, 1995, by
and between Brooke Group Ltd. and Howard M. Lorber.*
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed the following current reports on Form 8-K
during the first quarter of 1995:
<TABLE>
<CAPTION>
DATE ITEM(S) FINANCIAL STATEMENTS
---- ------- --------------------
<S> <C> <C> <C>
1. January 13, 1995 2, 5 Inapplicable
2. January 25, 1995 5 Unaudited ProForma financial statements
for the nine months ended September 30,
1994 and for the year ended December 31, 1993.
</TABLE>
*Incorporated by reference to the Issuer's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKE GROUP LTD.
(Registrant)
Date: May 17, 1995 By: /s/ Gerald E. Sauter
---------------------------- ----------------------------------
Gerald E. Sauter
Vice President and Chief Financial
Officer
<PAGE> 1
EXHIBIT 4(c)
May 2, 1995
BGLS Inc.
100 S.E. Second Street
Miami, FL 33131
Ladies and Gentlemen:
The undersigned is the holder of $10,243,000 principal amount of
your 13.75% Series 1 Senior Secured Notes due 1995 (the "Notes") (the
"Beneficial Owner"). On April 3, 1995, you gave notice of redemption of the
Notes (the "Redemption Notice") on May 3, 1995 pursuant to the Indenture dated
as of September 30, 1994 between you and Shawmut Bank, N.A., trustee (the
"Indenture", terms defined therein having the same meanings when used herein).
You hereby represent that you deposited with the Trustee an amount (the
"Deposit Amount") sufficient to effect the redemption of all the Securities on
that date (which Deposit Amount shall remain on deposit until the Notes are
redeemed). You represent that letter agreements substantially identical to
this letter agreement ("Other Letter Agreements") are being entered into
between you and all holders of Securities and that true and correct copies of
the Other Letter Agreements are attached hereto.
We hereby waive our right to have the Notes redeemed on May 3,
1995 pursuant to the Redemption Notice and thereafter until a date (not earlier
than May 9, 1995), designated by written notice (a "Notice") (delivered by hand
or by telecopy) of two Business Days from us to you or from you to us, in
either case with a contemporaneous copy to the Trustee, such notice to be in
place of any notice required under Section 3.03 of the Indenture. If you
receive such a notice from any Person other than the undersigned, you agree to
promptly deliver a copy of such notice to the undersigned, with a copy to the
Beneficial Owner and its counsel for such purpose (if known to you). The Notes
subject to this letter agreement and the Other Letter
<PAGE> 2
2
Agreements shall become due and payable and shall be redeemed at 100% of the
principal amount thereof plus (notwithstanding anything to the contrary in the
Redemption Notice or the Indenture) interest accrued until redemption, upon the
earliest to occur of (i) two Business Days after the sending of such Notice
under this letter agreement or any Other Letter Agreement, (ii) the Maturity
Date, (iii) any date on which the maturity of the Securities is accelerated and
(iv) any amendment or modification of any Other Letter Agreement. Without
limiting our rights to receive such price, we acknowledge that the portion of
the Deposit Amount applied towards redemption of the Notes (the "Proportionate
Deposit Amount") will be limited to an amount proportional to the amount of
Securities held by us. Unless actually utilized to retire the Notes
beneficially owned by the undersigned, the Trustee shall retain the
Proportionate Deposit Amount exclusively for such purpose. We shall have no
liability to you, and no holder of Securities that enters into an Other Letter
Agreement shall have any liability to us, based on the delivery of any such
notice or the consequences thereof. The foregoing exculpation shall also inure
to the benefit of any Beneficial Owners and any direct or indirect pledgee of
the Notes. For purposes of the second paragraph of Section 3.05 of the
Indenture, the definition of "Redemption Date" set forth in Section 1.01 shall
be deemed amended to read as follows:
"'Redemption Date,' when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to
this Indenture and the letter agreements dated May 2, 1995 among
the Company, the Trustee and the Holders amending this Indenture."
We also waive, as holders of Securities and Series 2 Notes, any
default that may have arisen under the Indenture or the Series 2 Note Indenture
solely as a result of the application of Payments from NV Holdings not in
excess of $5,552,048 to pay interest on April 1, 1995 on the Series 2 Notes;
provided, however, that the foregoing waiver is based upon your representation
and warranty, which you hereby make, that Exhibit A hereto accurately describes
the amount, source and flow of such Payments and shall in any event expire on
the day following the day fixed for redemption pursuant to clauses (i) - (iv)
of the preceding paragraph. Except as specifically provided in the immediately
preceding sentence, nothing in this letter agreement shall limit our rights
with respect to any Default or Event of Default. You represent that as of the
date hereof there is no other Default or Event of Default continuing.
Between the date hereof and the date of imposition of the legend
referred to in the next sentence, we agree not to transfer any of the Notes
unless the transferee agrees in writing
<PAGE> 3
3
to be bound by the terms of this letter agreement. We agree to surrender the
Notes to the Trustee promptly after the date hereof so that they can be
legended to reflect the contents of this letter agreement, provided that the
arrangements for such legending are reasonably satisfactory to us and to the
Beneficial Owner.
Please indicate that the foregoing represents our agreement by
signing and returning the enclosed copy of this letter. This letter agreement
shall represent a supplement to the Indenture. Except as supplemented hereby,
the Indenture remains and shall remain in full force and effect. The Trustee
shall have no liability to any Person with respect to its action or inaction
pursuant to this letter agreement taken absent negligence or bad faith.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
This letter agreement shall not be effective until each of the
following conditions has occurred: (i) this letter agreement shall have been
duly executed and delivered by you and the Trustee, (ii) each Other Letter
Agreement shall have been duly executed and delivered by all the parties
thereto and (iii) the undersigned shall have received the executed legal
opinion of Milbank, Tweed, Hadley & McCloy, substantially in the form of
Exhibit B hereto.
Very truly yours,
TORTOISE CORP.
By______________________
Name: Robert Mitchell
Title: Vice President
and Assistant
Secretary
<PAGE> 4
4
Accepted and agreed:
BGLS INC.
By_______________________
Name:
Title:
Acknowledged and agreed:
SHAWMUT BANK, N.A., Trustee
By_______________________
Name:
Title:
<PAGE> 5
5
EXHIBIT A
<TABLE>
<S> <C>
Dividends received from New Valley Holdings $31,040,941
Deposit Amount 23,874,179
Interest on Securities 1,614,714
Applied to interest on
Series 2 Notes $ 5,552,048
</TABLE>
<PAGE> 6
May 2, 1995
AIF II, L.P.
Artemis America LLC
Mainstay High Yield Corporate
Bond Fund
Tortoise & Co.
Ladies and Gentlemen:
We have acted as special New York counsel to BGLS Inc. in
connection with letter agreements dated as of the date hereof among each of you
(or your nominee), the Company and Shawmut Bank, N.A., trustee under an
Indenture (the "Indenture") dated as of September 30, 1994 relating to 13.75%
Series 1 Senior Secured Notes due 1995 (the "Letter Agreements"). Terms
defined in the Indenture are used herein as defined therein.
In rendering the opinion expressed below, we have examined the
following agreements, instruments and other documents:
(a) the Indenture;
(b) the Pledge Agreement;
(c) the Letter Agreements; and
(d) such other documents as we have deemed necessary as a basis
for the opinion expressed below.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinion
expressed below, we are of the opinion that to the extent the Pledge Agreement
created a security interest in the Collateral securing the Securities, that
security interest was not affected by the call of the Securities
<PAGE> 7
7
for redemption on May 3, 1995, the deposit of the Redemption Price with the
Trustee or the postponement of the redemption pursuant to the Letter
Agreements.
The foregoing opinion is limited to matters involving the law of
the State of New York, and we do not express any opinion as to the laws of any
other jurisdiction.
This opinion letter is provided to you by us in our capacity as
special New York counsel to the Company and may not be relied upon by any
person or for any purpose other than in connection with the transactions
contemplated by the Letter Agreements without, in each instance, our prior
written consent.
Very truly yours,
MLW:MMI
<PAGE> 8
May 2, 1995
BGLS Inc.
100 S.E. Second Street
Miami, FL 33131
Ladies and Gentlemen:
The undersigned is the holder of $5,644,000 principal amount of
your 13.75% Series 1 Senior Secured Notes due 1995 (the "Notes") as nominee for
Artemis America LLC as beneficial owner (the "Beneficial Owner"). On April 3,
1995, you gave notice of redemption of the Notes (the "Redemption Notice") on
May 3, 1995 pursuant to the Indenture dated as of September 30, 1994 between
you and Shawmut Bank, N.A., trustee (the "Indenture", terms defined therein
having the same meanings when used herein). You hereby represent that you
deposited with the Trustee an amount (the "Deposit Amount") sufficient to
effect the redemption of all the Securities on that date (which Deposit Amount
shall remain on deposit until the Notes are redeemed). You represent that
letter agreements substantially identical to this letter agreement ("Other
Letter Agreements") are being entered into between you and all holders of
Securities and that true and correct copies of the Other Letter Agreements are
attached hereto.
We hereby waive our right to have the Notes redeemed on May 3,
1995 pursuant to the Redemption Notice and thereafter until a date (not earlier
than May 9, 1995), designated by written notice (a "Notice") (delivered by hand
or by telecopy) of two Business Days from us to you or from you to us, in
either case with a contemporaneous copy to the Trustee, such notice to be in
place of any notice required under Section 3.03 of the Indenture. If you
receive such a notice from any Person other than the undersigned, you agree to
promptly deliver a copy of such notice to the undersigned, with a copy to the
Beneficial Owner and its counsel for such purpose (if known to you). The Notes
subject to this letter agreement and the Other Letter Agreements shall become
due and payable and shall be redeemed at
<PAGE> 9
2
100% of the principal amount thereof plus (notwithstanding anything to the
contrary in the Redemption Notice or the Indenture) interest accrued until
redemption, upon the earliest to occur of (i) two Business Days after the
sending of such Notice under this letter agreement or any Other Letter
Agreement, (ii) the Maturity Date, (iii) any date on which the maturity of the
Securities is accelerated and (iv) any amendment or modification of any Other
Letter Agreement. Without limiting our rights to receive such price, we
acknowledge that the portion of the Deposit Amount applied towards redemption
of the Notes (the "Proportionate Deposit Amount") will be limited to an amount
proportional to the amount of Securities held by us. Unless actually utilized
to retire the Notes beneficially owned by the undersigned, the Trustee shall
retain the Proportionate Deposit Amount exclusively for such purpose. We shall
have no liability to you, and no holder of Securities that enters into an Other
Letter Agreement shall have any liability to us, based on the delivery of any
such notice or the consequences thereof. The foregoing exculpation shall also
inure to the benefit of any Beneficial Owners and any direct or indirect
pledgee of the Notes. For purposes of the second paragraph of Section 3.05 of
the Indenture, the definition of "Redemption Date" set forth in Section 1.01
shall be deemed amended to read as follows:
"'Redemption Date,' when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to
this Indenture and the letter agreements dated May 2, 1995 among
the Company, the Trustee and the Holders amending this Indenture."
We also waive, as holders of Securities and Series 2 Notes, any
default that may have arisen under the Indenture or the Series 2 Note Indenture
solely as a result of the application of Payments from NV Holdings not in
excess of $5,552,048 to pay interest on April 1, 1995 on the Series 2 Notes;
provided, however, that the foregoing waiver is based upon your representation
and warranty, which you hereby make, that Exhibit A hereto accurately describes
the amount, source and flow of such Payments and shall in any event expire on
the day following the day fixed for redemption pursuant to clauses (i) - (iv)
of the preceding paragraph. Except as specifically provided in the immediately
preceding sentence, nothing in this letter agreement shall limit our rights
with respect to any Default or Event of Default. You represent that as of the
date hereof there is no other Default or Event of Default continuing.
Between the date hereof and the date of imposition of the legend
referred to in the next sentence, we agree not to transfer any of the Notes
unless the transferee agrees in writing to be bound by the terms of this letter
agreement. We agree to
<PAGE> 10
3
surrender the Notes to the Trustee promptly after the date hereof so that they
can be legended to reflect the contents of this letter agreement, provided that
the arrangements for such legending are reasonably satisfactory to us and to
the Beneficial Owner.
Please indicate that the foregoing represents our agreement by
signing and returning the enclosed copy of this letter. This letter agreement
shall represent a supplement to the Indenture. Except as supplemented hereby,
the Indenture remains and shall remain in full force and effect. The Trustee
shall have no liability to any Person with respect to its action or inaction
pursuant to this letter agreement taken absent negligence or bad faith.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
This letter agreement shall not be effective until each of the
following conditions has occurred: (i) this letter agreement shall have been
duly executed and delivered by you and the Trustee, (ii) each Other Letter
Agreement shall have been duly executed and delivered by all the parties
thereto and (iii) the undersigned shall have received the executed legal
opinion of Milbank, Tweed, Hadley & McCloy, substantially in the form of
Exhibit B hereto.
Very truly yours,
THE BANK OF NEW YORK
(in its nominee name
Hare & Co.), as custodian
for Artemis America LLC
By___________________________
Name:
Title:
<PAGE> 11
4
Accepted and agreed:
BGLS INC.
By_______________________
Name:
Title:
Acknowledged and agreed:
SHAWMUT BANK, N.A., Trustee
By_______________________
Name:
Title:
<PAGE> 12
5
EXHIBIT A
<TABLE>
<S> <C>
Dividends received from New Valley Holdings $31,040,941
Deposit Amount 23,874,179
Interest on Securities 1,614,714
Applied to interest on
Series 2 Notes $ 5,552,048
</TABLE>
<PAGE> 13
May 2, 1995
AIF II, L.P.
Artemis America LLC
Mainstay High Yield Corporate
Bond Fund
Tortoise & Co.
Ladies and Gentlemen:
We have acted as special New York counsel to BGLS Inc. in
connection with letter agreements dated as of the date hereof among each of you
(or your nominee), the Company and Shawmut Bank, N.A., trustee under an
Indenture (the "Indenture") dated as of September 30, 1994 relating to 13.75%
Series 1 Senior Secured Notes due 1995 (the "Letter Agreements"). Terms
defined in the Indenture are used herein as defined therein.
In rendering the opinion expressed below, we have examined the
following agreements, instruments and other documents:
(a) the Indenture;
(b) the Pledge Agreement;
(c) the Letter Agreements; and
(d) such other documents as we have deemed necessary as a basis
for the opinion expressed below.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinion
expressed below, we are of the opinion that to the extent the Pledge Agreement
created a security interest in the Collateral securing the Securities, that
security interest was not affected by the call of the Securities
<PAGE> 14
7
for redemption on May 3, 1995, the deposit of the Redemption Price with the
Trustee or the postponement of the redemption pursuant to the Letter
Agreements.
The foregoing opinion is limited to matters involving the law of
the State of New York, and we do not express any opinion as to the laws of any
other jurisdiction.
This opinion letter is provided to you by us in our capacity as
special New York counsel to the Company and may not be relied upon by any
person or for any purpose other than in connection with the transactions
contemplated by the Letter Agreements without, in each instance, our prior
written consent.
Very truly yours,
MLW:MMI
<PAGE> 15
May 2, 1995
BGLS Inc.
100 S.E. Second Street
Miami, FL 33131
Ladies and Gentlemen:
The undersigned is the holder of $7,330,000 principal amount of
your 13.75% Series 1 Senior Secured Notes due 1995 (the "Notes") as nominee for
AIF II, L.P. as beneficial owner (the "Beneficial Owner"). On April 3, 1995,
you gave notice of redemption of the Notes (the "Redemption Notice") on May 3,
1995 pursuant to the Indenture dated as of September 30, 1994 between you and
Shawmut Bank, N.A., trustee (the "Indenture", terms defined therein having the
same meanings when used herein). You hereby represent that you deposited with
the Trustee an amount (the "Deposit Amount") sufficient to effect the
redemption of all the Securities on that date (which Deposit Amount shall
remain on deposit until the Notes are redeemed). You represent that letter
agreements substantially identical to this letter agreement ("Other Letter
Agreements") are being entered into between you and all holders of Securities
and that true and correct copies of the Other Letter Agreements are attached
hereto.
We hereby waive our right to have the Notes redeemed on May 3,
1995 pursuant to the Redemption Notice and thereafter until a date (not earlier
than May 9, 1995), designated by written notice (a "Notice") (delivered by hand
or by telecopy) of two Business Days from us to you or from you to us, in
either case with a contemporaneous copy to the Trustee, such notice to be in
place of any notice required under Section 3.03 of the Indenture. If you
receive such a notice from any Person other than the undersigned, you agree to
promptly deliver a copy of such notice to the undersigned, with a copy to the
Beneficial Owner and its counsel for such purpose (if known to you). The Notes
subject to this letter agreement and the Other Letter Agreements shall become
due and payable and shall be redeemed at
<PAGE> 16
2
100% of the principal amount thereof plus (notwithstanding anything to the
contrary in the Redemption Notice or the Indenture) interest accrued until
redemption, upon the earliest to occur of (i) two Business Days after the
sending of such Notice under this letter agreement or any Other Letter
Agreement, (ii) the Maturity Date, (iii) any date on which the maturity of the
Securities is accelerated and (iv) any amendment or modification of any Other
Letter Agreement. Without limiting our rights to receive such price, we
acknowledge that the portion of the Deposit Amount applied towards redemption
of the Notes (the "Proportionate Deposit Amount") will be limited to an amount
proportional to the amount of Securities held by us. Unless actually utilized
to retire the Notes beneficially owned by the undersigned, the Trustee shall
retain the Proportionate Deposit Amount exclusively for such purpose. We shall
have no liability to you, and no holder of Securities that enters into an Other
Letter Agreement shall have any liability to us, based on the delivery of any
such notice or the consequences thereof. The foregoing exculpation shall also
inure to the benefit of any Beneficial Owners and any direct or indirect
pledgee of the Notes. For purposes of the second paragraph of Section 3.05 of
the Indenture, the definition of "Redemption Date" set forth in Section 1.01
shall be deemed amended to read as follows:
"'Redemption Date,' when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to
this Indenture and the letter agreements dated May 2, 1995 among
the Company, the Trustee and the Holders amending this Indenture."
We also waive, as holders of Securities and Series 2 Notes, any
default that may have arisen under the Indenture or the Series 2 Note Indenture
solely as a result of the application of Payments from NV Holdings not in
excess of $5,552,048 to pay interest on April 1, 1995 on the Series 2 Notes;
provided, however, that the foregoing waiver is based upon your representation
and warranty, which you hereby make, that Exhibit A hereto accurately describes
the amount, source and flow of such Payments and shall in any event expire on
the day following the day fixed for redemption pursuant to clauses (i) - (iv)
of the preceding paragraph. Except as specifically provided in the immediately
preceding sentence, nothing in this letter agreement shall limit our rights
with respect to any Default or Event of Default. You represent that as of the
date hereof there is no other Default or Event of Default continuing.
Between the date hereof and the date of imposition of the legend
referred to in the next sentence, we agree not to transfer any of the Notes
unless the transferee agrees in writing to be bound by the terms of this letter
agreement. We agree to
<PAGE> 17
3
surrender the Notes to the Trustee promptly after the date hereof so that they
can be legended to reflect the contents of this letter agreement, provided that
the arrangements for such legending are reasonably satisfactory to us and to
the Beneficial Owner.
Please indicate that the foregoing represents our agreement by
signing and returning the enclosed copy of this letter. This letter agreement
shall represent a supplement to the Indenture. Except as supplemented hereby,
the Indenture remains and shall remain in full force and effect. The Trustee
shall have no liability to any Person with respect to its action or inaction
pursuant to this letter agreement taken absent negligence or bad faith.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
This letter agreement shall not be effective until each of the
following conditions has occurred: (i) this letter agreement shall have been
duly executed and delivered by you and the Trustee, (ii) each Other Letter
Agreement shall have been duly executed and delivered by all the parties
thereto and (iii) the undersigned shall have received the executed legal
opinion of Milbank, Tweed, Hadley & McCloy, substantially in the form of
Exhibit B hereto.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK (in its nominee
name Atwell & Co.), as
custodian for AIF II, L.P.
By___________________________
Name:
Title:
<PAGE> 18
4
Accepted and agreed:
BGLS INC.
By_______________________
Name:
Title:
Acknowledged and agreed:
SHAWMUT BANK, N.A., Trustee
By_______________________
Name:
Title:
<PAGE> 19
5
EXHIBIT A
<TABLE>
<S> <C>
Dividends received from New Valley Holdings $31,040,941
Deposit Amount 23,874,179
Interest on Securities 1,614,714
Applied to interest on
Series 2 Notes $ 5,552,048
</TABLE>
<PAGE> 20
May 2, 1995
AIF II, L.P.
Artemis America LLC
Mainstay High Yield Corporate
Bond Fund
Tortoise & Co.
Ladies and Gentlemen:
We have acted as special New York counsel to BGLS Inc. in
connection with letter agreements dated as of the date hereof among each of you
(or your nominee), the Company and Shawmut Bank, N.A., trustee under an
Indenture (the "Indenture") dated as of September 30, 1994 relating to 13.75%
Series 1 Senior Secured Notes due 1995 (the "Letter Agreements"). Terms
defined in the Indenture are used herein as defined therein.
In rendering the opinion expressed below, we have examined the
following agreements, instruments and other documents:
(a) the Indenture;
(b) the Pledge Agreement;
(c) the Letter Agreements; and
(d) such other documents as we have deemed necessary as a basis
for the opinion expressed below.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinion
expressed below, we are of the opinion that to the extent the Pledge Agreement
created a security interest in the Collateral securing the Securities, that
security interest was not affected by the call of the Securities
<PAGE> 21
7
for redemption on May 3, 1995, the deposit of the Redemption Price with the
Trustee or the postponement of the redemption pursuant to the Letter
Agreements.
The foregoing opinion is limited to matters involving the law of
the State of New York, and we do not express any opinion as to the laws of any
other jurisdiction.
This opinion letter is provided to you by us in our capacity as
special New York counsel to the Company and may not be relied upon by any
person or for any purpose other than in connection with the transactions
contemplated by the Letter Agreements without, in each instance, our prior
written consent.
Very truly yours,
MLW:MMI
<PAGE> 22
May 2, 1995
BGLS Inc.
100 S.E. Second Street
Miami, FL 33131
Ladies and Gentlemen:
The undersigned is the holder of $377,000 principal amount of your
13.75% Series 1 Senior Secured Notes due 1995 (the "Notes") as nominee for
Mainstay High Yield Corporate Bond Fund as beneficial owner (the "Beneficial
Owner"). On April 3, 1995, you gave notice of redemption of the Notes (the
"Redemption Notice") on May 3, 1995 pursuant to the Indenture dated as of
September 30, 1994 between you and Shawmut Bank, N.A., trustee (the
"Indenture", terms defined therein having the same meanings when used herein).
You hereby represent that you deposited with the Trustee an amount (the
"Deposit Amount") sufficient to effect the redemption of all the Securities on
that date (which Deposit Amount shall remain on deposit until the Notes are
redeemed). You represent that letter agreements substantially identical to
this letter agreement ("Other Letter Agreements") are being entered into
between you and all holders of Securities and that true and correct copies of
the Other Letter Agreements are attached hereto.
We hereby waive our right to have the Notes redeemed on May 3,
1995 pursuant to the Redemption Notice and thereafter until a date (not earlier
than May 9, 1995), designated by written notice (a "Notice") (delivered by hand
or by telecopy) of two Business Days from us to you or from you to us, in
either case with a copy to the Trustee, such notice to be in place of any
notice required under Section 3.03 of the Indenture. If you receive such a
notice from any Person other than the undersigned, you agree to promptly
deliver a copy of such notice to the undersigned, with a contemporaneous copy
to the Beneficial Owner and its counsel for such purpose (if known to you).
The Notes subject to this letter agreement and the Other Letter Agreements
<PAGE> 23
2
shall become due and payable and shall be redeemed at 100% of the principal
amount thereof plus (notwithstanding anything to the contrary in the Redemption
Notice or the Indenture) interest accrued until redemption, upon the earliest
to occur of (i) two Business Days after the sending of such Notice under this
letter agreement or any Other Letter Agreement, (ii) the Maturity Date, (iii)
any date on which the maturity of the Securities is accelerated and (iv) any
amendment or modification of any Other Letter Agreement. Without limiting our
rights to receive such price, we acknowledge that the portion of the Deposit
Amount applied towards redemption of the Notes (the "Proportionate Deposit
Amount") will be limited to an amount proportional to the amount of Securities
held by us. Unless actually utilized to retire the Notes beneficially owned by
the undersigned, the Trustee shall retain the Proportionate Deposit Amount
exclusively for such purpose. We shall have no liability to you, and no holder
of Securities that enters into an Other Letter Agreement shall have any
liability to us, based on the delivery of any such notice or the consequences
thereof. The foregoing exculpation shall also inure to the benefit of any
Beneficial Owners and any direct or indirect pledgee of the Notes. For
purposes of the second paragraph of Section 3.05 of the Indenture, the
definition of "Redemption Date" set forth in Section 1.01 shall be deemed
amended to read as follows:
"'Redemption Date,' when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to
this Indenture and the letter agreements dated May 2, 1995 among
the Company, the Trustee and the Holders amending this Indenture."
We also waive, as holders of Securities and Series 2 Notes, any
default that may have arisen under the Indenture or the Series 2 Note Indenture
solely as a result of the application of Payments from NV Holdings not in
excess of $5,552,048 to pay interest on April 1, 1995 on the Series 2 Notes;
provided, however, that the foregoing waiver is based upon your representation
and warranty, which you hereby make, that Exhibit A hereto accurately describes
the amount, source and flow of such Payments and shall in any event expire on
the day following the day fixed for redemption pursuant to clauses (i) - (iv)
of the preceding paragraph. Except as specifically provided in the immediately
preceding sentence, nothing in this letter agreement shall limit our rights
with respect to any Default or Event of Default. You represent that as of the
date hereof there is no other Default or Event of Default continuing.
Between the date hereof and the date of imposition of the legend
referred to in the next sentence, we agree not to transfer any of the Notes
unless the transferee agrees in writing
<PAGE> 24
3
to be bound by the terms of this letter agreement. We agree to surrender the
Notes to the Trustee promptly after the date hereof so that they can be
legended to reflect the contents of this letter agreement, provided that the
arrangements for such legending are reasonably satisfactory to us and to the
Beneficial Owner.
Please indicate that the foregoing represents our agreement by
signing and returning the enclosed copy of this letter. This letter agreement
shall represent a supplement to the Indenture. Except as supplemented hereby,
the Indenture remains and shall remain in full force and effect. The Trustee
shall have no liability to any Person with respect to its action or inaction
pursuant to this letter agreement taken absent negligence or bad faith.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
This letter agreement shall not be effective until each of the
following conditions has occurred: (i) this letter agreement shall have been
duly executed and delivered by you and the Trustee, (ii) each Other Letter
Agreement shall have been duly executed and delivered by all the parties
thereto and (iii) the undersigned shall have received the executed legal
opinion of Milbank, Tweed, Hadley & McCloy, substantially in the form of
Exhibit B hereto.
Very truly yours,
DAFFODIL & CO.
By___________________________
Name:
Title:
<PAGE> 25
4
Accepted and agreed:
BGLS INC.
By_______________________
Name:
Title:
Acknowledged and agreed:
SHAWMUT BANK, N.A., Trustee
By_______________________
Name:
Title:
<PAGE> 26
5
EXHIBIT A
<TABLE>
<S> <C>
Dividends received from New Valley Holdings $31,040,941
Deposit Amount 23,874,179
Interest on Securities 1,614,714
Applied to interest on
Series 2 Notes $ 5,552,048
</TABLE>
<PAGE> 27
May 2, 1995
AIF II, L.P.
Artemis America LLC
Mainstay High Yield Corporate
Bond Fund
Tortoise & Co.
Ladies and Gentlemen:
We have acted as special New York counsel to BGLS Inc. in
connection with letter agreements dated as of the date hereof among each of you
(or your nominee), the Company and Shawmut Bank, N.A., trustee under an
Indenture (the "Indenture") dated as of September 30, 1994 relating to 13.75%
Series 1 Senior Secured Notes due 1995 (the "Letter Agreements"). Terms
defined in the Indenture are used herein as defined therein.
In rendering the opinion expressed below, we have examined the
following agreements, instruments and other documents:
(a) the Indenture;
(b) the Pledge Agreement;
(c) the Letter Agreements; and
(d) such other documents as we have deemed necessary as a basis
for the opinion expressed below.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinion
expressed below, we are of the opinion that to the extent the Pledge Agreement
created a security interest in the Collateral securing the Securities, that
security interest was not affected by the call of the Securities
<PAGE> 28
7
for redemption on May 3, 1995, the deposit of the Redemption Price with the
Trustee or the postponement of the redemption pursuant to the Letter
Agreements.
The foregoing opinion is limited to matters involving the law of
the State of New York, and we do not express any opinion as to the laws of any
other jurisdiction.
This opinion letter is provided to you by us in our capacity as
special New York counsel to the Company and may not be relied upon by any
person or for any purpose other than in connection with the transactions
contemplated by the Letter Agreements without, in each instance, our prior
written consent.
Very truly yours,
MLW:MMI
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BROOKE GROUP LTD. FOR THE THREE MONTHS ENDED MARCH
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 35,877
<SECURITIES> 0
<RECEIVABLES> 17,304
<ALLOWANCES> 0
<INVENTORY> 51,779
<CURRENT-ASSETS> 118,614
<PP&E> 25,128
<DEPRECIATION> 0
<TOTAL-ASSETS> 234,498
<CURRENT-LIABILITIES> 143,054
<BONDS> 402,607
<COMMON> 1,825
0
0
<OTHER-SE> (344,417)
<TOTAL-LIABILITY-AND-EQUITY> 234,498
<SALES> 95,290
<TOTAL-REVENUES> 95,290
<CGS> 46,378
<TOTAL-COSTS> 95,686
<OTHER-EXPENSES> (2,187)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,715
<INCOME-PRETAX> (12,924)
<INCOME-TAX> (14)
<INCOME-CONTINUING> (12,910)
<DISCONTINUED> 14,786
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,876
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0
</TABLE>
