BROOKE GROUP LTD, 10-Q, 1995-11-14

BROOKE GROUP LTD
10-Q, 1995-11-14
CIGARETTES

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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1995

[ ] 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
-----------------
BROOKE GROUP LTD.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
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)
</TABLE>
(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 November 13, 1995, there were outstanding 18,497,096 shares of
common stock, par value $0.10 per share.

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<PAGE> 2

BROOKE GROUP LTD.

FORM 10-Q

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements:

Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994 . . . . . . . . . . . . 3

Consolidated Statements of Operations for the three and nine months ended September 30,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Consolidated Statement of Stockholders' Equity (Deficit) for the nine months ended September
30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 19

PART II. OTHER INFORMATION

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>

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<PAGE> 3

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

BROOKE GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------------------------
<S> <C> <C>
ASSETS:

Current assets:
Cash and cash equivalents $ 16,998 $ 4,276
Accounts receivable - trade 20,253 31,325
Other receivables 1,085 1,558
Inventories 45,543 47,098
Other current assets 2,991 3,247
-------- --------
Total current assets 86,870 87,504

Property, plant and equipment, at cost, less
accumulated depreciation
of $26,795 and $24,460 27,716 25,806
Intangible assets, at cost, less accumulated
amortization of $15,230
and $13,936 5,464 6,728
Investment in affiliate 82,503 97,520
Other assets 8,728 11,867
-------- --------
Total assets $211,281 $229,425
======== ========
</TABLE>

The accompanying notes are an integral part
of the consolidated financial statements.

- 3 -
<PAGE> 4

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>
September 30, December 31,
1995 1994
-------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):

Current liabilities:
Notes payable and current portion of long-term debt $ 10,082 $ 26,491
Accounts payable 11,539 12,415
Cash overdraft 2,043 4,860
Accrued promotional expenses 23,683 29,853
Unearned revenue 26 2,056
Net current liabilities of business held for disposition 4,974
Accrued taxes 17,863 19,126
Other accrued liabilities 34,098 44,576
--------- ----------
Total current liabilities 99,334 144,351

Notes payable, long-term debt and other obligations, less current
portion 397,236 405,798
Noncurrent employee benefits 31,850 31,119
Net long-term liabilities of business held for disposition 23,009
Other 9,286

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 80,121 66,245
Deficit (404,749) (420,746)
Other 29,961 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) (326,425) (374,852)
--------- ---------

Total liabilities and stockholders' equity (deficit) $ 211,281 $ 229,425
========= =========
</TABLE>

The accompanying notes are an integral part
of the consolidated financial statements.

- 4 -
<PAGE> 5

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 Nine Months Ended
-----------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1994 1995 1994
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues* $ 124,100 $ 124,446 $ 341,718 $ 357,628
Cost of goods sold* 54,626 57,847 158,766 173,091
---------- ----------- ----------- ----------
Gross profit 69,474 66,599 182,952 184,537
Selling, general and administrative expenses 58,818 57,564 173,322 162,220
---------- ----------- ----------- ----------
Operating income 10,656 9,035 9,630 22,317

Other income (expenses):
Interest income 43 49 893 119
Interest expense (13,952) (14,156) (43,369) (41,502)
Equity in earnings of affiliate 1,561 3,598
Other, net 962 (9,992) 2,039 (9,435)
---------- ----------- ----------- ----------
(Loss) from continuing operations before income taxes (730) (15,064) (27,209) (28,501)
Provision (benefit) for income taxes 394 (24,177) 464 (24,517)
---------- ----------- ----------- ----------
(Loss) income from continuing operations (1,124) 9,113 (27,673) (3,984)
---------- ----------- ----------- ----------
Discontinued operations:
Income (loss) from discontinued operations, net of
income taxes of $11 and $567 for the three and nine
months ended September 30, 1995, respectively,
and $(380) and $2,962 for the three and nine
months ended September 30, 1994, respectively 98 (654) 2,860 1,944
Gain on disposal 10,459 13,138 18,135
---------- ----------- ----------- ----------
Income from discontinued operations 98 9,805 15,998 20,079
---------- ----------- ----------- ----------
(Loss) income before extraordinary item (1,026) 18,918 (11,675) 16,095

Extraordinary (loss) from the early
extinguishment of debt (1,118)
---------- ----------- ----------- ----------
Net (loss) income (1,026) 18,918 (11,675) 14,977

Proportionate share of New Valley capital transaction,
retirement of Class A Preferred Shares 2,798 16,802
---------- ----------- ----------- ----------
Net income applicable to common shares $ 1,772 $ 18,918 $ 5,127 $ 14,977
=========== =========== =========== ==========
Per common share:

Income (loss) from continuing operations $ 0.09 $ 0.52 $ (0.60) $ (0.23)
=========== =========== =========== ==========
Income from discontinued operations $ 0.01 $ 0.55 $ 0.88 $ 1.15
=========== =========== =========== ==========
Extraordinary item $ $ $ $ (0.06)
=========== =========== =========== ==========
Net income applicable to common shares $ 0.10 $ 1.07 $ 0.28 $ 0.86
=========== =========== =========== ==========
Weighted average common shares and common
stock equivalents outstanding 18,247,094 17,617,629 18,248,673 17,483,163
=========== =========== =========== ==========
</TABLE>
_____________________________
* Revenues and Cost of goods sold include federal excise taxes of
$32,643 and $33,932 for the three months ended September 30, 1995 and 1994,
respectively, and $92,238 and $99,450 for the nine months ended September 30,
1995 and 1994, respectively.

The accompanying notes are an integral part
of the consolidated financial statements.

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<PAGE> 6

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)

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 loss (11,675) (11,675)

Distributions on common stock of BGL
($0.075 per share,
per quarter) (4,106) (4,106)

Stock grant to directors 20,000 2 (2) 94 94

Stock grant to consultant 939 (609) 330

MAI spin-off 27,286 (201) 27,085

Net unrealized holding gain on
investment in New Valley 12,815 12,815

Effect of New Valley capital
transactions 17,043 6,591 23,634

Other, net (1) 386 385

Treasury stock, at cost (33,748) (3) 3 (135) (135)
---------- ------ ------- --------- -------- ------- ---------
Balance, September 30, 1995 18,247,096 $1,825 $80,121 $(404,749) $(33,583) $29,961 $(326,425)
========== ====== ======= ========= ======== ======= =========
</TABLE>

The accompanying notes are an integral part
of the consolidated financial statements.

- 6 -
<PAGE> 7

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>
Nine Months Ended
------------------------------
September 30, September 30,
1995 1994
------------------------------
<S> <C> <C>
Net cash (used in) operating activities $(23,706) $(36,037)
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets/equipment 14,149 17,334
Dividends from New Valley 61,832
Investment in New Valley (1,965)
Capital expenditures (5,008) (467)
Impact of discontinued operations (990)
-------- --------

Net cash provided by investing activities 69,008 15,877
-------- --------
Cash flows from financing activities:
Proceeds from debt 3,028 9,261
Deferred financing costs (2,397)
(Repayment) borrowing under revolver (3,449) 4,532
Repayments of debt (25,080) (1,303)
Decrease in cash overdraft (2,817) (12,477)
Dividends paid on Series G preferred stock (4,999)
CVR settlement, net 1,875
Distributions on common stock (4,107)
Treasury stock purchases (135) (82)
Stockholder loan and interest repayments 17,774
Impact of discontinued operations (2,644)
Other, net (20)
-------- --------
Net cash (used in) provided by financing activities (32,580) 9,540
-------- --------
Effects of exchange rate changes on cash and cash equivalents 3
-------- --------
Net increase (decrease) in cash and cash equivalents 12,722 (10,617)
Cash and cash equivalents, beginning of period 4,276 15,773
-------- --------
Cash and cash equivalents, end of period $ 16,998 $ 5,156
======== ========
</TABLE>

The accompanying notes are an integral part
of the consolidated financial statements.

- 7 -
<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)
(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 Annual Report on Form 10-K for the year ended December 31, 1994, as
filed with the Securities and Exchange Commission ("SEC") 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. ("NV Holdings") and other
less significant subsidiaries.

As a result of the spinoff 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.
("SkyBox"), both entities are reported as discontinued operations for the
periods prior to their disposal by the Company. Results of discontinued
operations for the three and nine months ended September 30, 1995 also
reflect the Company's proportionate interest in the discontinued operations
of New Valley Corporation ("New Valley"). See Note 3. Revenues for MAI were
$6,652 for the period January 1, 1995 to February 6, 1995 and $49,766 for
the nine months ended September 30, 1994.

3. INVESTMENT IN NEW VALLEY CORPORATION

The Company's investment in New Valley as of and for the nine months ended
September 30, 1995 is summarized as follows:

Equity in Continuing
Number of Shares Carrying Value Operations
---------------- -------------- -----------
<S> <C> <C> <C>
Common shares 79,794,229 $ (37,475) $(18,377)
Class A Preferred shares 618,326 115,492 21,975
Class B Preferred shares 250,885 4,486
--------- --------
$ 82,503 $ 3,598
========= ========
</TABLE>

The $15.00 Class A Increasing Rate Cumulative Senior Preferred Shares
($100 Liquidation Value), $.01 par value (the "Class A Preferred Shares"),
and the $3.00 Class B Cumulative Convertible Preferred ($25 Liquidation
Value), $.10 par value per share (the "Class B Preferred Shares"), are

- 8 -
<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)

accounted for pursuant to the requirements of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", and are classified as
available-for-sale. Because the Class A Preferred Shares are thinly traded,
their fair value has been estimated with reference to the securities'
preference features, including dividend and liquidation preferences, and the
composition and nature of the underlying net assets of New Valley. The net
unrealized holding gain on these securities, in the amount of $23,979, is
accounted for as a separate component of stockholders' equity. Of this amount,
$21,347 relates to the Class A Preferred Shares and $2,632 relates to the
Class B Preferred Shares. At September 30, 1995, the Company's shares of New
Valley common stock, representing a 41.7% common interest and which are
accounted for under the equity method pursuant to APB 18, had a quoted market
value of $32,716.

Summarized income statement information for New Valley for the three
and nine month periods ended September 30, 1995 is as follows:

<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
Sept. 30, 1995 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Revenues $21,514 $39,215
======= =======
Cost and expenses 18,436 28,233
======= =======
Income from continuing operations 2,784 11,699
======= =======
Net income 3,019 16,014
======= =======
</TABLE>

In February 1995, New Valley repurchased 54,445 Class A Preferred Shares
pursuant to a tender offer made as part of the New Valley First Amended
Joint Chapter 11 Plan of Reorganization, as amended (the "Joint Plan").
During the nine months ended September 30, 1995, New Valley's Board of
Directors authorized the repurchase of an additional 500,000 Class A
Preferred Shares. At September 30, 1995, 339,400 of such shares had been
repurchased on the open market at an aggregate cost of $43,405 or an
average cost of $127.89 per share. 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 credit to additional paid-in
capital in the amount of $16,802, along with other New Valley capital
transactions of $241 for the nine months ended September 30, 1995.

In August 1995, New Valley received approval from the Federal Trade
Commission to purchase up to 15% of the voting securities of RJR Nabisco
Holdings Corp. ("RJR Nabisco"). As of September 30, 1995, New Valley held
approximately 3,300,000 shares of RJR Nabisco common stock, par value $.01
per share (the "RJR Nabisco Common Stock"), with a market value of $106,000
(cost of $97,000). New Valley's investment in RJR Nabisco collateralizes
margin loan financing of $54,900 at September 30, 1995.

As a result of recent asset dispositions pursuant to the Joint Plan,
New Valley has accumulated a significant amount of cash which it may be
required to reinvest in operating companies in the near future in order to
avoid potentially burdensome regulation under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Investment
Company Act and the rules and regulations thereunder require the
registration of, and impose various substantive restrictions on, companies
that engage primarily in the business of investing, reinvesting or trading
in securities or engage in the business of investing, reinvesting, owning,
holding or trading in securities and own or propose to acquire "investment
securities" having a value in excess of 40% of a company's "total assets".
New Valley, which is now above this threshold as a result of dispositions
of its operating businesses pursuant to the Joint Plan, is relying on
the temporary exemption from registration under

- 9 -
<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)

the Investment Company Act provided by Rule 3a-2 thereunder. New
Valley will attempt to be engaged, within the one-year period prescribed by
Rule 3a-2, primarily in a business of businesses other than that of
investing, reinvesting, owning, holding or trading in securities, or in
the alternative, if New Valley is unable to accomplish this, it will seek
to obtain an extension of such date or an exemption from the SEC or
no-action position from the SEC staff with respect to registration under the
Investment Company Act. However, no assurance can be given that New Valley
will be successful in becoming engaged in such business or in obtaining an
extension of such one-year period, and accordingly, there may be a risk
that New Valley will become subject to the Investment Company Act. If
either New Valley or the Company were required to register under the
Investment Company Act, such company would be subject to a number
of severe substantive restrictions on its operations, capital structure
and management, including without limitation entering into transactions
with affiliates. If New Valley were required to register under the
Investment Company Act, the Company (as well as BGLS) would also have to
register and, therefore, would be subject to the same substantive
restrictions described above. In addition, registration under the
Investment Company Act by BGLS would constitute a violation of certain of
the indentures to which BGLS is a party.

Subsequent Event: On October 17, 1995, New Valley entered into an
agreement, as amended (the "Agreement"), with High River Limited Partnership
("High River"), an entity owned by Carl C. Icahn. (The Company and BGLS
also entered into a separate agreement with High River (see Note 10)).
Pursuant to the agreement, New Valley sold approximately 1,600,000 shares
of RJR Nabisco Common Stock to High River for an aggregate purchase price
of $51,000 and the parties agreed that New Valley and High River would
each invest up to approximately $250,000 in shares of RJR Nabisco Common
Stock, subject to certain conditions and limitations. Any party to the
Agreement may terminate it at any time, although under certain
circumstances, the terminating party will be required to pay a fee of
$50,000 to the nonterminating party. The agreement also provides for the
parties to pay certain other fees to each other under certain
circumstances, including a fee to High River equal to 20% of New Valley's
profit in RJR Nabisco Common Stock, after certain expenses as defined in
the Agreement. As of November 1, 1995, New Valley held approximately
4,900,000 shares in RJR Nabisco Common Stock. New Valley's cost of such
shares and the amount of related margin loan financing were approximately
$148,900 and $74,200, respectively, at November 1, 1995.

On October 31, 1995, New Valley sold substantially all the assets of
its wholly owned subsidiary, Western Union Data Services Company, Inc.
(the "Messaging Service Business"), and conveyed substantially all of the
liabilities of the Messaging Service Business to First Financial Management
Corporation ("FFMC") for $20,000 in cash. New Valley estimates that it
will recognize a pre-tax gain on the sale of such business of approximately
$13,300 during the fourth quarter of 1995.

4. BROOKE (OVERSEAS) LTD.

During the third quarter of 1995, Brooke (Overseas) Ltd., a
wholly-owned subsidiary of the Company, increased its investment in
Liggett-Ducat Ltd., a Russian joint stock company ("LDJSC") from
approximately 58% to 68% through a direct purchase of stock from other
shareholders. LDJSC has not been consolidated due to certain events which
impair the ability of the Company to control LDJSC. Amounts invested in
the Russian subsidiary's tobacco operation in 1994 and the nine months
ended September 30, 1995, which totaled $5,723 and $8,500, respectively,
were expensed based on the determination that there was significant
uncertainty as to the recoverability of the amounts invested. In addition,
the Company has invested $4,000 in the nine months ended September 1995
relating to the Russian subsidiary's real estate operations which amount
has been

- 10 -

<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)

capitalized. The Company continues to monitor this foreign subsidiary and
may consolidate it in the near future.

Subsequent Event: In October 1995, LDJSC entered into a loan
agreement with the Russian Federation Foreign Trade Bank, Moscow, Russia,
to borrow up to $20,000 to fund real estate development. Interest on
the note is based on the London Interbank Offered Rate ("LIBOR") plus 10%.
Principal repayments are due over the period April through October of
1997. The loan agreement was arranged through a third party for a net fee
of $4,044 payable ratably over the term of the loan. The Company has
guaranteed the payment of the note and the broker's fee. All of the stock
of BrookeMil Ltd. ("BrookeMil"), a wholly-owned subsidiary of LDJSC, has
been pledged as collateral for the loan.

Also in October 1995, BrookeMil purchased certain buildings, which it
had previously leased from the Moscow Property Committee, for $4,369 net
of related transaction costs. BrookeMil has developed, or is in the
process of developing, these buildings for commercial use.

5. INVENTORIES

Inventories consist of:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---------------------------
<S> <C> <C>
Finished goods $16,350 $18,374
Work in process 3,088 2,952
Raw materials 19,707 20,609
Replacement parts and supplies 3,846 3,754
------- -------
Inventories at current cost 42,991 45,689
LIFO adjustments 2,552 1,409
------- -------
$45,543 $47,098
======= =======
</TABLE>

At September 30, 1995, the Company had leaf tobacco purchase commitments of
approximately $23,900.

6. 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
generally described hereinafter as though having been commenced against
Liggett (without regard to whether such actually were commenced against
Liggett or the Company in its former name or in its present name), since
all involve the tobacco manufacturing and marketing activities currently
performed by Liggett. New cases continue to be commenced against Liggett
and other cigarette manufacturers. As new cases are commenced, the costs
associated with defending such cases and the risks attendant to 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

- 11 -
<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)

in settlement of any such claim has been made by Liggett nor, to
Liggett's knowledge, any other cigarette manufacturer.

In the action entitled Cipollone v. Liggett Group Inc., et al., the
United States Supreme Court, on June 24, 1992, issued an opinion regarding
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.
Relying on 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.

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, et al., 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 issues
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 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 and others. 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, disgorgement of
revenues and profits, and the imposition of a constructive trust. The
case is presently in the discovery phase.

On October 31, 1991 an action entitled Broin et al. v. Philip
Morris Companies, Inc., et al., Circuit Court of the 11th Judicial
District in and for Dade County, Florida, was filed against Liggett and
others. 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.

- 12 -

<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)

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 others. The class action complaint
was brought on behalf of plaintiffs and residents of the United States who
claim to be addicted to tobacco products, and survivors who claim their
decedents were also addicted. 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 February 17, 1995, the Court issued an Order that granted in part
Plaintiffs' motion for class certification for certain claims together with
punitive damages to the end of establishing a multiplier to compute
punitive damage awards. Defendants made application for discretionary
appeal to the Court of Appeals for the Fifth Circuit, which appeal has been
granted.

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 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
and allegedly have suffered personal injury as a result thereof. Plaintiff
seeks compensatory and punitive damages, equitable relief including but not
limited to establishing a medical fund for future health care 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 others. The State of Mississippi seeks restitution
and indemnity for medical payments and expenses made or incurred by it 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. In West Virginia, the trial Court, in a ruling issued on May 3,
1995, dismissed eight of the ten counts of the complaint filed therein,
leaving only two counts of an alleged conspiracy to control the market and
the market price of tobacco products and an alleged consumer protection
claim. In a recent ruling, the trial Court has adjudged the contingent fee
agreement entered into by the State of West Virginia and its counsel to be
unconstitutional under the Constitution of the State of West Virginia.

On September 10, 1993, an action entitled Sackman v. Liggett Group
Inc., United States District Court, Eastern District of New York, was filed
against Liggett alleging, as injury, lung cancer. Discovery is scheduled
to close on March 15, 1996. It is anticipated that the case will be
scheduled for trial during 1996.

- 13 -
<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)

legislation, and although the trial Court upheld portions of this
legislation, it adjudged the Agency For Health Care Administration to have
been unconstitutionally organized. All parties have taken an appeal from
the trial Court's rulings. On May 6, 1995, the Florida legislature voted
in favor of a bill to repeal this legislation, but the Governor of Florida
vetoed this repealer bill. It is uncertain at this time whether or not
and at what time the Florida legislature can or will take action to override
the Governor's veto. The Florida Legislature is not in session at this
time. On February 22, 1995, suit was commenced by the State of Florida
acting through the Agency For Health Care Administration, 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.

The Commonwealth of Massachusetts has enacted legislation authorizing
lawsuits similar to the suits filed by the States of Mississippi, Minnesota
and 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 at least nine other
states. These bills contain some or all of the following provisions:
eliminating certain 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.

Currently, in addition to Cordova, approximately 56 product liability
lawsuits which have been filed in various jurisdictions, are pending and
active in which Liggett is a defendant. Of these, 34 are pending in the
State of Florida, with 32 of these 34 having been commenced during 1995.
In most of these lawsuits, plaintiffs seek punitive as well as compensatory
damages.

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 certain information from Liggett. The request appears to focus on
United States tobacco industry activities in connection with product
development efforts regarding, 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

- 14 -
<PAGE> 15

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)

Kessler's claims. An FDA advisory panel has stated that it believes
nicotine is addictive. On August 10, 1995, the FDA filed in the Federal
Register a Notice of Proposed Rule-Making which would classify tobacco as a
drug, assert jurisdiction by the FDA over the manufacture and marketing of
tobacco products and impose restrictions on the sale, advertising and
promotion of tobacco products. The FDA's stated objective and focus for
its initiative is to limit access to cigarettes by minors by measures beyond
the restrictions either mandated by existing federal, state and local laws or
voluntarily implemented by major manufacturers in the industry. Liggett and
the other four major cigarette manufacturers responded by filing a civil
action in the United States District Court for the Middle District of
North Carolina on that day challenging the legal authority of the FDA to
assert such jurisdiction. Management is unable to predict whether such a
classification will be made. Management is also unable to predict the
effects of such a classification or of such regulations, if implemented,
were it to occur, on Liggett's operations, but such actions could have an
unfavorable impact thereon.

The Omnibus Budget Reconciliation Act of 1993 ("OBRA") required 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"
(penalty) based upon price differentials between foreign and domestic
tobacco and under certain circumstances make purchases of domestic tobacco
from the tobacco stabilization cooperatives organized by the United States
government. OBRA was repealed retroactively (as of December 31, 1994)
coincident in time with the recent issuance of a Presidential proclamation
effective September 13, 1995, imposing tariffs on imported tobacco in excess
of certain quotas.

On February 14, 1995, Liggett filed with the Department of Agriculture
its certification as to usage of domestic and imported tobaccos during 1994,
and an audit was conducted during August 1995 to verify this certification.
The audit has not yet been completed. Liggett is exploring avenues which
might be available to it to realize relief from any marketing assessment or
purchase requirement sanctions that may be imposed under OBRA. 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. If
sanctions were to be imposed upon Liggett, such sanctions could have an
unfavorable effect upon Liggett's financial position, results of operations
and cash flows. No amount has been accrued.

The President of the United States, after negotiations with the
affected countries, on September 13, 1995, declared a Tariff Rate Quota on
certain imported tobacco, imposing prohibitive tariffs on imports of
flue-cured and burley tobacco in excess of certain levels which vary from
country to country. Oriental (or Turkish) tobacco is exempt from the quota,
and all tobacco originating from Canada, Mexico or Israel is exempt.
Management believes that the negotiated levels are sufficiently high to allow
the company to operate without material disruption to the business.

With regard to each of the above cases 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 actions, adverse political decisions and other
unfavorable 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

- 15 -

<PAGE> 16

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)

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 in any of such 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 and results of operations.

On September 20, 1993, a group of Contingent Value Rights ("CVR")
holders and the CVR trustee filed an action in the Delaware Court of
Chancery, New Castle County, against the Company and certain of its present
and former directors, challenging and seeking to enjoin or rescind the
SkyBox 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
which expenses have been accrued. 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 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 September 30, 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.

7. LONG-TERM DEBT

On June 12, 1995, the Company redeemed all of the Series 1 Senior Secured
Notes due 1995 in the amount of $23,594 plus accrued interest of $670. In
addition, the Company filed a registration

- 16 -

<PAGE> 17

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)

statement with the SEC for certain of its Series 2 Senior Secured Notes
due 1997 which was declared effective September 7, 1995. Accordingly, the
interest rate on these Notes reverted to 13.75%.

8. INCOME TAXES

BGL maintains a full valuation allowance of its deferred tax assets
based on the Company's determination that it is more likely than not that
such future tax benefits will not be realized. The provision for income
taxes for the three and nine months ended September 30, 1995 does not bear a
customary relationship with pre-tax accounting income due principally to
state income taxes. In addition, during the three and nine month periods
ended September 30, 1994, the Company determined its reserves for income
taxes payable exceeded its current requirements by $24,200. As a result, the
Company has recorded a tax benefit of $24,200 related to the completion of an
audit by the Internal Revenue Service ("IRS") through December 31, 1991.

9. RESTRUCTURING AND OTHER

Liggett reduced its field sales force on January 10, 1994 by 150
permanent positions and added approximately 300 part-time positions. This
restructuring has significantly reduced operating costs and enabled Liggett
to expand its retail base coverage.

During the nine months ended September 30, 1995, Liggett completed a
severance and benefit program to reduce personnel costs on an ongoing basis.
The effect of this program resulted in a charge to operations of the Company
amounting to $2,562 in the second quarter.

During the third quarter of 1995, Liggett adjusted certain accrual
estimates recorded in prior quarters which had the effect of increasing
operating income by approximately $1,352 for the three months ended September
30, 1995.

10. SUBSEQUENT EVENTS

On October 17, 1995, the Company and BGLS Inc., a wholly owned
subsidiary, entered into an agreement, as amended (the "High River
Agreement"), with High River, an entity owned by Carl C. Icahn. (New Valley
also entered into a separate agreement with High River at that time (see
Note 3)). Pursuant to each of these agreements, the parties agreed to take
certain actions designed to cause RJR Nabisco to effectuate a spinoff of
its food business, Nabisco Holdings Corp. ("Nabisco"), at the earliest
possible date. Among other things, the Company agreed to solicit the
holders of RJR Nabisco Common Stock to adopt a spinoff resolution, which is
an advisory resolution to the Board of Directors of RJR Nabisco seeking a
spinoff of the 80.5% of Nabisco held by RJR Nabisco to stockholders. Among
other things, High River agreed in the High River Agreement to grant a
written consent to the proposals with respect to all shares of RJR Nabisco
Common Stock held by it and to grant a proxy with respect to all such
shares in the event that the Company seeks to replace the incumbent Board
of Directors of RJR Nabisco at the 1996 annual meeting of stockholders with
a slate of directors committed to effect the spinoff. The Company and BGLS
agreed not to engage in certain transactions with RJR Nabisco (including a
sale of Liggett or a sale of its RJR Nabisco Common Stock to RJR Nabisco)
and not to take certain other actions to the detriment of RJR Nabisco

- 17 -
<PAGE> 18

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)

stockholders. High River also agreed that it would not engage in such
transactions or take such other actions while the agreement was in effect. In
the event that any signatory engages in such transactions or takes such other
actions, the High River Agreement provides that the party so doing must pay a
fee of $50,000 to the other. Any party to the High River Agreement may
terminate it at any time, although under certain circumstances, the
terminating party will be required to pay a fee of $50,000 to the
nonterminating party. The High River Agreement also provides that BGLS pay
certain other fees to High River under certain circumstances.

On November 6, 1995 the Company filed preliminary copies of a
Solicitation of Written Consents with the SEC relating, among other things,
to the Spinoff Resolution.

- 18 -

<PAGE> 19

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

INTRODUCTION

The Company's Consolidated Financial Statements include
the accounts of Liggett Group Inc. ("Liggett"), New
Valley Holdings, Inc. ("NV Holdings") and other less
significant subsidiaries.

The Company believes it will have sufficient liquidity
for 1995. This is based on, among other things, the
redemption/sale of the SkyBox International, Inc.
("SkyBox") preferred and common stock and certain funds
available from New Valley Corporation ("New Valley")
as described in the Company's indenture agreements and
New Valley's Joint Plan. Forecasts of cash flow for
the principal operating companies indicate that they
will be self-sufficient; however, due to Liggett's
leverage, if Liggett were to experience significant
losses due to further adverse change in conditions in
the tobacco industry or otherwise, it is possible that
Liggett could be in violation of certain debt covenants.
If its lenders were to exercise acceleration rights or
refuse to advance under the revolving credit facility,
Liggett may not be able to satisfy such demands.

For purposes of this discussion and other consolidated
financial reporting, the Company's significant business
segment is Tobacco.

RECENT DEVELOPMENTS

On October 17, 1995, BGL and the Company entered into
an agreement, as amended, with High River, an entity
owned by Carl C. Icahn. New Valley also entered into a
separate agreement with High River at that time.
Pursuant to each of these agreements, the parties agreed
to take certain actions designed to cause RJR Nabisco to
effectuate a spinoff of Nabisco at the earliest possible
date. For additional information, see Notes 3 and 10 to
the Consolidated Financial Statements.

In October 1995, Liggett-Ducat Ltd. ("LDJSC"), a
subsidiary of Brooke (Overseas) Ltd. ("BOL"), entered
into a loan agreement with the Russian Federation
Foreign Trade Bank, Moscow, Russia, to borrow up to
$20,000 to fund real estate development. Interest on
the note is based on the London Interbank Offered Rate
("LIBOR") plus 10%. Principal repayments are due over the
period April through October of 1997. The loan agreement
was arranged through a third party for a net fee of
$4,044 payable ratably over the term of the loan. The
Company has guaranteed the payment of the note and the
broker's fee. All of the stock of BrookeMil Ltd.
("BrookeMil"), a subsidiary of LDJSC, has been pledged as
collateral for the loan. LDJSC intends to repay the loan
out of proceeds from leased office space.

Also in October 1995, BrookeMil purchased certain
buildings on Gasheka Street in Moscow, Russia, which it
had previously leased from the Moscow Property Committee
for $4,369. BrookeMil has developed or is in the
process of developing these buildings for commercial use.

The Company is currently in discussion with the
majority of holders of the 13.75% Series 2 Senior
Secured Notes due 1997 (the "Series 2 Notes"), who
are also holders of certain of the 14.50%
Subordinated Debentures due 1998, regarding possible
restructuring of the Company's debt.

- 19 -

<PAGE> 20

RECENT DEVELOPMENTS IN THE CIGARETTE INDUSTRY

Price Increase. On May 5, 1995, R.J. Reynolds
Tobacco Company ("RJR") initiated a list price increase
on all brands of $.30/carton. Philip Morris and Brown
& Williamson Tobacco Company ("B&W"), which together
with RJR comprise 90% of the market, matched the
price increase on the same day. Liggett followed on
May 9, 1995.

Competitive Activity. In April 1994, BAT
Industries, the parent of B&W, acquired American
Brands' American Tobacco Company subsidiary for $1
billion cash.

Recent Legislation. The Omnibus Budget
Reconciliation Act of 1993 ("OBRA") 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
the stabilization cooperatives organized by the United
States government. OBRA was repealed retroactively (as
of December 31, 1994) coincident in time with the recent
issuance of a Presidential proclamation effective
September 13, 1995, imposing tariffs on imported tobacco
in excess of certain quotas.

On February 14, 1995, Liggett filed with the Department
of Agriculture its certification as to usage of domestic
and imported tobaccos during 1994 and an audit was
commenced during August 1995 to verify this
certification. The audit has not yet been completed.
Liggett is exploring avenues which might be 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. If sanctions were to be
imposed upon Liggett, such could have an unfavorable
effect upon Liggett's financial position, results of
operations and cash flows. No amount has been accrued.

The President of the United States, after negotiations
with the affected countries, on September 13, 1995,
declared a Tariff Rate Quota on certain imported
tobacco, imposing prohibitive tariffs on imports of
flue-cured and burley tobacco in excess of certain
levels which vary from country to country. Oriental
(or Turkish) tobacco is exempt from the quota and
all tobacco originating from Canada, Mexico or Israel
is exempt. Management believes that the negotiated
levels are sufficiently high to allow Liggett to operate
without material disruption to the business.

The State of Florida enacted legislation effective July
1, 1994 allowing certain state authorities or entities
to commence litigation seeking 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 imposes ultimate liability, if
the issue of liability is adjudged against the
manufacturers, based upon market share and would
include diseases allegedly caused by the smoking of
cigarettes. The statute purportedly abrogates certain
defenses typically available to defendants. A suit was
commenced to challenge the constitutionality of the
legislation and, although the trial court upheld
portions of this legislation, it adjudged the Agency
For Health Care Administration to have been
unconstitutionally organized. All parties to this suit
have taken appeal from the trial court's rulings. On
May 6, 1995, the Florida legislature voted in favor of
a bill to repeal this legislation, but the Governor
of Florida vetoed this repealer bill. It is
uncertain at this time whether or not and at what time
the Florida legislature can or will take action to
override the Governor's veto. On February 22, 1995,
suit was commenced pursuant to the above-referenced
enabling statute by the State of Florida, acting
through the Agency For Health Care Administration
against Liggett and others, seeking restitution of monies
expended in the past and which may be

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<PAGE> 21

RECENT DEVEOPMENTS IN THE CIGARETTE INDUSTRY (CONTINUED)

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 sale of cigarettes
in Florida.

Recent Litigation. In 1994, four class action
lawsuits were brought against Liggett and other
cigarette manufacturers, representing the first time
class actions were brought against the cigarette
industry. In the three of these cases which
remain pending, plaintiffs' motions for class
certification were granted in whole or in part, and the
defendants have appealed each of these rulings. In
addition, the states of Mississippi, Minnesota and West
Virginia brought actions against Liggett and other
cigarette manufacturers seeking restitution and
indemnity for certain Medicaid costs allegedly incurred
as a result of tobacco-related illnesses, and in 1995
Florida commenced a similar action.

In West Virginia, the trial court, in a ruling issued on
May 3, 1995, dismissed eight to the ten counts of the
complaint filed therein, leaving only two counts of an
alleged conspiracy to control the market and the market
price of tobacco products and an alleged consumer
protection claim. In a recent ruling, the trial Court
has adjudged the contingent fee agreement entered into
by the State of West Virginia and its counsel to be
unconstitutional under the Constitution of the State
of West Virginia. While Liggett is vigorously
contesting this litigation, litigation is subject to a
number of uncertainties, and accordingly there can be no
assurance that this litigation will be decided favorably
to Liggett and the industry in each instance.

Possible FDA Action. The Food and Drug
Administration ("FDA") has announced that it is
considering classifying tobacco as a drug, and an FDA
advisory panel has stated that it believes nicotine is
addictive. On August 10, 1995, the FDA announced that
it intended to propose regulations under which the FDA
would assert jurisdiction over the manufacture and
marketing of tobacco products. Liggett and the other
major manufacturers in the industry responded
immediately thereafter by the filing of a civil action
in United States District Court for the Middle
District of North Carolina challenging the legal
authority of the FDA to so assert such jurisdiction.
Management is unable to predict the effects of such a
classification or such regulations, if adopted, but such
a classification or such regulations, if adopted, could
have an unfavorable impact on Liggett's operations.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1994

Revenues. Consolidated total revenues were
$124,100 for the three months ended September 30, 1995
versus $124,446 for the same period last year. Liggett's
net sales were $122,648 for the three months ended
September 30, 1995 versus $121,380 for the same
period last year. The increase in revenues at Liggett
was primarily due to the May 9, 1995 list price increase
(see Recent Developments in the Cigarette Industry -
Price Increase) and additional increases in the
selling price of some of the Company's price/value
products, partially offset by a 1.1% decline in unit
sales volume. The decline in unit sales volume was
comprised primarily of declines in the full-price
branded, price/value (which includes generic, control
label and branded discount products) and military
categories. Both full-price branded and price/value
products suffered a decline, believed to be temporary,
in unit sales volume as a result of the
implementation of a new distribution and marketing
program in one of Liggett's sales zones during the
third quarter

- 21 -

<PAGE> 22

RESULTS OF OPERATIONS (continued)

of 1995. Additionally, full-price branded volume
declined in light of heavy discounting of a
competitor's product within the same consumer segment as
Eve. Although there was an overall decline in the
price/value category, Pyramid volume increased as a
result of increased promotional spending, a reflection
of Liggett's renewed emphasis on this product as its
primary price/value product. The military category
decline was due to increased competition.

Gross profit. Consolidated gross profit was
$69,474 for the three months ended September 30, 1995,
an increase of $2,875 from $66,599 for the same period
last year. Liggett's gross profit was $69,018 for the
three months ended September 30, 1995, an increase of
$3,874 from $65,144 for the same period last year.
Liggett's gross profit as a percent of revenues
(excluding federal excise taxes) for the period increased
to 76.7% compared to 74.5% last year, due primarily to
the May 9, 1995 list price increase and lower per unit
cost of sales. The reduction in cost of sales is a
result of the effects of Liggett's continuing cost
reduction programs begun in 1993. Liggett expects to
continue its cost reduction programs.

Expenses. Consolidated selling, general and
administrative expenses were $58,818 for the three
months ended September 30, 1995 compared to $57,564
for the same period last year. The increase of $1,254
includes a $4,300 increase in marketing expenses at
Liggett compared with the same period in the prior year
offset by lower expenses at headquarters and other, small
subsidiaries.

Other income (expenses). Consolidated interest
expense was $13,952 for the three months ended
September 30, 1995 compared to $14,156 for the same
period last year. The equity in earnings of
affiliate of $1,561 and the income from discontinued
operations of $98 for the three months ended September
30, 1995 relates to the Company's investment in New
Valley.

Other, net of $9,992 for the three months ended
September 30, 1994 primarily relates to additional
expense incurred as part of the Exchange and Termination
Agreement entered into on September 30, 1994.

The tax benefit of approximately $24,000 for the three
months ended September 30, 1994 related to the
completion of an audit in 1994 by the Internal Revenue
Service through the year ended December 31, 1991. The
Company determined its reserves for income taxes payable
exceeded its current requirements.

NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30,1994

Revenues. Consolidated revenues were $341,718
for the nine months ended September 30, 1995 compared
to $357,628 for the nine months ended September 30,
1994, a decrease of $15,950 primarily due to a decline
in sales at Liggett and other less significant
subsidiaries. Net sales at Liggett were $337,217 for
the nine months ended September 30, 1995 versus
$347,880 for the same period last year. This 3.1%
decrease in revenues was primarily due to a 7.1%
decline in unit sales volume, partially offset by the
effects of the May 9, 1995 list price increase and the
change in sales mix. The decline in unit sales volume
was comprised primarily of declines in the full-price
branded, price/value and military categories. Both
full-price branded and price/value products suffered a
decline, believed to be temporary, in unit sales
volume as a result of the implementation of a new
distribution and marketing program in one of Liggett's
sales zones during the third quarter of 1995. Also,
Liggett offered trade programs on full-price branded
and branded discount products to its direct customers
during the first quarter of 1994 with no comparable

- 22 -

<PAGE> 23

RESULTS OF OPERATIONS (continued)

programs offered during 1995. Increased competition in
the form of heavy discounting of a competitor's product
within the same consumer segment as Eve also
contributed to the full-price branded volume decline.
The decline in the military category was due to increased
competition.

Gross profit. Consolidated gross profit of
$182,952 for the nine months ended September 30, 1995
decreased $1,585 from gross profit of $184,537 for the
same period in 1994, reflecting a decrease in gross
profit at smaller subsidiaries somewhat offset by Liggett
which had a slight increase in gross profit ($996) for
the nine months ended September 30, 1995 compared to
the same period in the prior year. Gross profit at
Liggett as a percent of revenue (excluding federal excise
taxes) for the period increased to 74.1% compared to
72.7% last year, due primarily to the May 9, 1995 list
price increase and lower per unit cost of sales. The
reduction in cost of sales is a result of the effects
of Liggett's continuing cost reduction programs begun
in 1993. In connection therewith, Liggett recorded a
$621 charge to manufacturing operations in 1995.
Liggett expects to continue its cost reduction
programs.

Expenses. Consolidated selling, general and
administrative expenses were $173,322 for the nine
months ended September 30, 1995 compared to $162,220
for the same period last year, an increase of $11,102.
The increase resulted from increased legal fees due to
the increasing number of suits pending against Liggett,
increased spending on trade and promotional programs,
severance charges recorded in connection with the 1995
cost reduction programs at Liggett and increased
expenses relating to the Company's Russian ventures.

Other income (expenses). Consolidated interest
expense was $43,369 for the nine months ended September
30, 1995 compared to $41,502 for the same period last
year. The increase of $1,867 relates to the incurrence
of additional indebtedness by the Company for the Series
1 Notes (which were redeemed on June 12, 1995) and by
Liggett for the Series C Notes in November 1994,
increases in the interest rate on the Series 1 Notes and
the Series 2 Notes from February 1 through September 6,
1995 (or, in the case of the Series 1 Notes, through June
12, 1995) and an increase in the interest rate of the
Liggett Series C Notes, which were reset from 16.50% to
19.75% on February 1, 1995.

For the nine months ended September 30, 1995, equity in
earnings of affiliate (New Valley) of $3,598 relates to
income of $21,975 of such Class A Preferred Shares
offset by a loss to common stock of $18,377.

The gain on disposal of discontinued operations of
$13,138 for the nine months ended September 30, 1995 and
$18,135 for the same period in the prior year
primarily reflects the redemption/sale of SkyBox
preferred and common stock.

CAPITAL RESOURCES AND LIQUIDITY

Net cash and cash equivalents increased $12,722 for
the nine months ended September 30, 1995 as compared
with a decrease of $10,617 for the nine months ended
September 30, 1994.

Net cash used in operations for the nine months ended
September 30, 1995 was $23,706 compared to net cash
used in operations of $36,037 for the comparable period
of 1994. The net loss for the nine months ended
September 30, 1995 of $11,675 includes interest
expense of $43,369 and a decrease in accounts payable
and accrued expenses offset by a lease prepayment from
a third party for space in an office building in Russia
and a decrease in receivables.

- 23 -

<PAGE> 24

CAPITAL RESOURCES AND LIQUIDITY (continued)

In the period ended September 30, 1994, net cash used in
operations was $36,037 which included interest expense
of $41,502 and a decrease in accounts payable and
accrued expenses offset by a non-cash tax benefit of
approximately $24,500 in taxes.

Net cash provided by investing activities was $69,008
for the nine-month period ended September 30, 1995
compared to cash provided by investing activities of
$15,877 for the same period in 1994. Through the
nine-month period ended September 30, 1995, cash was
provided through a special $50.00 per share dividend in
January 1995, a $12.50 per share dividend in June 1995
and a $37.50 per share dividend in September 1995 on New
Valley's Class A Preferred Shares for a total of
$61,832, and the redemption of SkyBox preferred stock
for $4,000 and sale of the SkyBox common stock for
$9,282 slightly offset by capital expenditures,
particularly for leasehold improvements related to real
estate development in Russia. In the nine-month period
ended September 30, 1994, cash provided by investing
activities was largely the result of the sale/redemption
of SkyBox common and preferred stock offset by the
impact of the Company's discontinuation of investment in
MAI.

Cash used in financing activities for the nine months
ended September 30, 1995 was $32,580 reflecting the
redemption of the Series 1 Notes on June 12, 1995 in
the amount of $23,594, repayments under Liggett's
revolver of $3,449, distributions to stockholders of
$4,107 and a decrease in cash overdraft of $2,817
slightly offset by proceeds from debt of $3,028. Cash
provided for the same period in the prior year was
$9,540 consisting of proceeds from debt issuance at
Liggett, stockholder loan and interest repayments and
borrowings under the revolver offset by a decrease in
bank overdraft and dividends to preferred shareholders,
payments of financing costs and impact of discontinued
operations.

As discussed above, on June 12, 1995, the Company
redeemed the Series 1 Notes in the amount of $23,594
plus accrued interest of $670. Accordingly, the
Company's pledged equity interests in Liggett were
released and the Series 2 Notes now have a senior and
exclusive lien on the Pledged Collateral (as such term is
defined in the Indenture).

The interest rate on the Series 2 Notes is 13.75% per
annum, payable April 1 and October 1. Pursuant to the
Indenture and the terms of the Series 2 Notes, the
interest rate increased until a Registration Statement
relating to the Series 2 Notes was declared effective by
the SEC on September 7, 1995. As a result, interest on
the Series 2 Notes during the interest period ending on
October 1, 1995 (the first interest payment date
following the effectiveness of the Registration
Statement) reflects a blended rate of 14.17%.

The Series 2 Indenture places certain restrictions on
the application of any payment from NV Holdings. So
long as any Notes remain outstanding, the Company must
apply the amount received on account of any payment
paid out of current earnings of NV Holdings as follows:
(a) the first $5,000 in the aggregate of such amounts
may be retained by the Company for its own account
free of any restriction not expressly set forth in the
Indenture; (b) 50% of any payments in excess of the
amount set forth in the foregoing clause (a) may be
retained by the Company for its own account free of
any restriction not expressly set forth in the Indenture,
and the remaining 50% must be applied as follows: (i)
first, to the payment of any accrued and unpaid
interest then due on the Notes; (ii) second, to the
payment of any accrued and unpaid interest then due on
any other outstanding indebtedness of the Company; and
(iii) third, to the mandatory redemption of the Notes
until no Notes are outstanding. So long as any Notes
remain outstanding, the Company shall apply 100% of the
amount received on account of any payment which is paid
other than out of current earnings of NV Holdings solely
in accordance with clauses (i), (ii) and (iii) of the
preceding sentence.

- 24 -

<PAGE> 25

CAPITAL RESOURCES AND LIQUIDITY (continued)

On January 18, 1995, certain amendments (the "Indenture Amendments")
to the 16.125% Senior Subordinated Reset Notes due 1997 (the "16
1/8% Reset Notes") and the 14.50% Subordinated Debentures due 1998
(the "14 1/2% Subordinated Debt") (collectively, the "Subordinated
Debt Indentures") were effected. Generally, the Indenture Amendments
require the Company to apply any amounts distributed to it (directly
or through NV Holdings) from New Valley (i) by dividend or other
distribution (other than equity securities of New Valley), (ii)
through loans, advances or other payments or (iii) in connection
with the repurchase or redemption of New Valley common stock or
Class A Preferred Shares (collectively, "New Valley Distributions")
in excess of $10,000, subject to the terms of the Indenture, first
to the payment of interest on, and then to principal of, the Notes,
the 16 1/8% Reset Notes and 14 1/2% Subordinated Debentures. The
$10,000 threshold is increased on a dollar-for-dollar basis in
the amount of payments made in respect of principal or interest on
the Series 2 Notes or the Subordinated Indebtedness from sources
other than New Valley Distributions. At September 30, 1995, the
$10,000 threshold had been increased to approximately $21,701.

Pursuant to the Indenture Amendments, the Company may direct
BGLS to make distributions of up to $38,000 between September 2,
1994 and January 18, 1996 (the "Initial Period"). Any portion not
distributed during the initial period may be carried over to the
subsequent periods discussed below. As of September 30, 1995,
$17,956 had been distributed of which $9,608 were non-cash
transactions. Following the Initial Period, the Company may
distribute the sum of $3,000 per month with any unpaid portion of
the monthly amount carried over to succeeding months. Additional
distributions will be made from time to time as directed by the
Company based on the Company's current quarterly dividend
distribution of $1,369 (or $.075 per share) and corporate expense
requirements. Commencing on January 1, 1995, any additional
distributions in excess of the above-described distributions are
computed on the basis of 50% of the Company's Modified Consolidated
Net Income (as defined in the Subordinated Indentures). No
distributions have been made on this basis.

The Company believes that it will have sufficient liquidity for
1995. Company expenditures in 1995 (excluding Liggett) include debt
service estimated at $32,500 and redemption of all outstanding
Series 1 Notes in the amount of $23,594 plus accrued interest on
June 12, 1995. Current operations and debt service are being
financed through funds received from the redemption/sale of SkyBox
preferred and common stock in the amount of $13,284 and management
fees and other charges to subsidiaries of approximately $5,000. In
addition, the Company, through its subsidiary, NV Holdings, has
received approximately $61,832 in distributions from New Valley
since January 1995. Such distributions are required by the
Subordinated Debt Indentures to be applied as described above. (See
discussion of Indenture Amendments above).

For information concerning the possible regulation under the
Investment Company Act of 1940, see footnote 3 to the Consolidated
Financial Statements.

On March 8, 1994, Liggett entered into a revolving credit facility
(the "facility") under which it can borrow up to $40,000 (depending
on the amount of eligible inventory and receivables as determined by
the lenders) from a syndicate of commercial lenders. Availability
under the facility was approximately $13,814 at September 30, 1995.
The facility expires on March 8, 1997 and is collateralized by all
inventories and receivables of Liggett. Borrowings under the
facility bear interest at a rate equal to 1.5% above Philadelphia
National Bank's (the indirect parent of Congress Financial
Corporation, the lead lender) prime rate, which was 8.75% at
September 30, 1995. The facility requires Liggett's compliance
with certain financial and other covenants and limits the amount of
cash dividends and payments which can be made by Liggett. Liggett's
management believes that the facility will continue to address
adequately Liggett's liquidity requirements.

- 25 -

<PAGE> 26

CAPITAL RESOURCES AND LIQUIDITY (continued)

On February 14, 1992, Liggett issued $150,000 of Senior Secured
Notes (the "Series B Notes"). From the proceeds of $148,244, net of
an original issue discount, $144,054 was dividended to BGLS (which
reduced stockholder's equity) and $4,190 was paid as financing fees.
Interest on the Series B Notes is payable semiannually on February 1
and August 1 at an annual rate of 11.5%. The Series B Notes and the
Series C Notes, as defined below, require mandatory aggregate
principal redemptions of $7,500 on February 1 in each of the years
1993 through 1997 and $37,500 on February 1, 1998 with the balance
of the Notes due on February 1, 1999. The Series B and Series C
Notes are collateralized by substantially all of the assets of
Liggett, excluding accounts receivable and inventory. The Series B
and Series C Notes may be redeemed, in whole or in part, at a price
equal to 104%, 102% and 100% of the principal amount in the years
1996, 1997 and 1998, respectively, at the option of Liggett at any
time on or after February 1, 1996. The Series B and Series C Notes
contain restrictions on Liggett's ability to declare or pay cash
dividends, incur additional debt, grant liens and enter into any new
agreements with affiliates, among others.

On January 31, 1994, Liggett issued $22,500 of Series C Senior
Secured Notes (the "Series C Notes"). Liggett received $15,000 from
the issuance in cash and received $7,500 in Series B Notes which
were credited against the mandatory redemption requirements for
February 1, 1994. The Series C Notes have the same terms (other
than interest rate) and stated maturity as the Series B Notes. The
Series C Notes bore a 16.5% interest rate, which was reset on
February 1 1995 to 19.75%. Liggett had received the necessary
consents from the required percentage of holders of its Series B
Notes allowing for an aggregate principal amount up to but not
exceeding $32,850 of Series C Notes to be issued under the Series C
Notes indenture. In connection with the consents, holders of Series
B Notes received Series C Notes totaling two percent of their
current Series B Notes holdings. The total principal amount of such
Series C Notes issued was $2,842.

On November 20, 1994, Liggett issued the remaining $7,508 of
Series C Notes in exchange for an equal amount of Series B Notes and
cash of $375. The Series B Notes were credited against the
mandatory redemption requirements for February 1, 1995.

If Liggett were to experience significant losses due to further
adverse changes in conditions in the tobacco industry or otherwise,
it is possible that Liggett could be in violation of certain debt
covenants. If as a result of any such violations Liggett creditors
were to exercise acceleration rights or refuse to advance funds
under the Liggett Facility, Liggett may not be able to satisfy its
obligations. Liggett's ability to satisfy its debt service
obligations will depend on Liggett's liquidity, its ability to
improve its operating performance as well as on prevailing economic
conditions and on financial, business, industry and other factors
which may be largely beyond Liggett's control.

The Company and its subsidiaries have substantial near-term
debt service requirements with aggregate required principal payments
of $315,494 due in the years 1996 through 1998, they expect to
finance their long-term growth, working capital requirements,
capital expenditures and debt service requirements through a
combination of cash provided from operations, negotiation of secured
bank credit lines, additional public or private debt financing and
distributions from New Valley and possible restructuring of the
Company's debt (see "Recent Developments", above). New Valley plans
to use the cash from the sale of its money transfer business to
acquire operating businesses through merger, purchase of assets,
stock acquisition or other means, or to acquire control of operating
companies through one of such means, with the purpose of being
primarily engaged in a business or businesses other than that of
investing, reinvesting, owning, holding or trading in securities.

- 26 -

<PAGE> 27

CAPITAL RESOURCES AND LIQUIDITY (continued)

Liggett (and, in certain cases, the Company) and other
United States cigarette manufacturers have been named as
defendants in a number of direct and third-party
actions (and purported class 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 exposure
to so-called secondary smoke (environmental tobacco
smoke) from cigarettes. As new cases are commenced,
the costs associated with defending such cases and the
risk 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 Liggett nor, to the Company's
knowledge, any other cigarette manufacturer.

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 it. 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
adverse regulatory, 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. Neither the Company
nor Liggett is 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
in any of such pending litigation.

- 27 -

<PAGE> 28

PART II.
OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to information entitled "Contingencies" in
Note 6 to the Company's Consolidated Financial Statements included
elsewhere in this report on Form 10-Q.

Item 3. Defaults Upon Senior Securities

As of September 30, 1995, New Valley Corporation, the Company's
affiliate, had the following respective accrued and unpaid
dividend arrearages on its 1,107,566 outstanding shares of $15.00
Class A Increasing Rate Cumulative Senior Preferred Shares ($100
Liquidation Value), $.01 par value per share (the "Class A Shares")
and 2,790,776 outstanding shares of $3.00 Class B Cumulative
Convertible Preferred Shares ($25 Liquidation Value), $.10 par
value per share (the "Class B Shares"): (1) $111.2 million or
$100.42 per Class A Share; and (2) $90.3 million or $32.34 per
Class B Share.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10(a) Letter Agreement among Brooke Group
Ltd., BGLS Inc. and High River Limited
Partnership, dated November 5, 1995.

10(b) Agreement among Brooke Group Ltd., BGLS
Inc. and High River Limited
Partnership, dated October 17, 1995.

10(c) Second Amendment to Services
Agreement, dated as of October 1,
1995, by and between Brooke Management
Inc., Brooke Group Ltd. and Liggett
Group Inc.

10(d) Expense Sharing Agreement, made and
entered into as of January 18, 1995, by
and between Brooke Group Ltd. and New
Valley Corporation.

27 Financial Data Schedule (for SEC use
only)

(b) Reports on Form 8-K

No current reports on Form 8-K were filed during
the third quarter of 1995.

- 28 -

<PAGE> 29

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: November 14, 1995 By: /s/ Gerald E. Sauter
------------------- ----------------------------------
Gerald E. Sauter
Vice President and Chief Financial
Officer

- 29 -

<PAGE> 1
EXHIBIT 10(a)

High River Limited Partnership
100 South Bedford Road
Mount Kisco, New York 10549

November 5, 1995

Brooke Group Ltd.
BGLS Inc.
100 S. E. Second Street
Miami, Florida 33131
Attn: Bennett S. LeBow

Dear Bennett:

By executing this letter in the space provided below, Brooke
Group Ltd., a Delaware corporation ("BGL"), BGLS Inc., a Delaware
corporation and a direct wholly-owned subsidiary of BGL ("BGLS")
and High River Limited Partnership, a Delaware limited partnership
("High River"), each hereby agree as follows:

1. All capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Agreement by and
among BGL, BGLS and High River, dated October 17, 1995 (the "BGL
Agreement").

2. Section 1(a) of the BGL Agreement is deleted in its entirety
and all reference thereto in the BGL Agreement is likewise deleted.

3. Section 1(c)(ii)(B) of the BGL Agreement is hereby amended to
delete the subsection in its entirety and to substitute in lieu thereof
the following:

"(B) Prior to the consummation of the Spinoff, the BGL Group
will (I) not directly or indirectly exercise any management
control over Nabisco or Nabisco, Inc., a Delaware corporation
("Nabisco, Inc."), (II) refrain from becoming involved in the ordinary
course of business of Nabisco or Nabisco, Inc. and (III) use its best
efforts to ensure that a majority of the directors of Nabisco
and Nabisco, Inc. consists of individuals who are presently
members of the board of directors of Nabisco and Nabisco,
Inc., respectively and"

4. Section 3(c)(ix)(C) of the BGL Agreement is hereby amended to
delete the subsection in its entirety and to substitute in lieu thereof
the following:

"(C) fail to file the Solicitation Statement relating to the
Annual Meeting preliminarily with the SEC prior to the earlier of
(I) February 15, 1996 and (II) sixty (60) days following the
record date for the solicitation of Written Consents with
respect to the Spinoff Proposal and the By-Law Amendment
Proposal,"
<PAGE> 2

5. In the event that prior to February 1, 1996 (i) the BGL
Group provides High River Group with notice of termination of the BGL
Agreement or New Valley Group (as defined below) provides High River Group
with notice of termination of the Agreement by and among New Valley
Corporation, ALKI Corp. and High River, dated October 17, 1995 (the "New
Valley Agreement") at a time when a Termination Event set forth in
Section 3(c)(vii) or 3(c)(viii) of the BGL Agreement has occurred
or (ii) High River Group provides BGL Group with notice of
termination of the BGL Agreement or provides New Valley Group with
notice of termination of the New Valley Agreement at a time when a
Termination Event set forth in Section 3(c)(ix)(A) of the BGL Agreement
has occurred, BGL Group shall not transfer any Shares beneficially owned
by BLG Group until February 1, 1996 in consequence of or in reliance
upon such notice of termination. If the notice of termination specified
in clause (i) of the preceding sentence is provided after January 16,
1996, and the aggregate number of shares of common stock, par value $.01
per share, of RJR Nabisco Holdings Corp. ("Shares") beneficially owned
by High River Group exceeds the aggregate number of Shares beneficially
owned by (A) New Valley Corporation, ALKI Corp. and any assignee of the
foregoing ("New Valley Group") plus (B) BGL Group (collectively,
the "Aggregate LeBow Shares"), BGL Group shall not Transfer any
Shares beneficially owned by BGL Group for fifteen (15) days
following receipt by High River Group of BGL Group's or New Valley
Group's notice of termination; provided, however, that on such date
not before February 1, 1996 that the aggregate number of Shares
beneficially owned by High River Group is equal to or less than the
Aggregate LeBow Shares, and thereafter, BGL Group may Transfer any
Shares beneficially owned by BGL Group.

6. In the event that High River Group provides BGL
Group with notice of termination of the BGL Agreement or provides
New Valley Group with notice of termination of the New Valley Agreement
at a time when a Termination Event under any of Sections 3(c)(ix)(B)
through (E) of the BGL Agreement has occurred and the aggregate number
of shares beneficially owned by High River Group exceeds the Aggregate
LeBow Shares, BGL Group shall not Transfer any Shares beneficially owned
by BGL Group in consequence of or in reliance upon such notice of
termination until the earlier of (i) fifteen (15) days following receipt
by BGL Group or New Valley Group of High River Group's notice of
termination specified in the preceding sentence and (ii) the date that
the aggregate number of Shares beneficially owned by High River Group is
equal to or less than the Aggregate LeBow Shares.

7. BGLS shall promptly make any payments due under Section 4(c) of
the BGL Agreement. In the event that the High River Group believes that
BGLS has breached any of its obligations under Section 4(c) of the BGL
Agreement, the parties shall promptly follow the procedures set forth in
Section 1(c)(v) of the New Valley Agreement in order to resolve the
dispute. If the Arbitrator (as defined in the New Valley Agreement)
determines that BGLS is required to make a payment pursuant to Section
4(c) of the BGL Agreement, BGLS shall make or cause to be made to High
River Group such payment within twenty (20) days after receiving the
Arbitrator's notice of decision. In the event that BGLS fails to make such
payment within twenty (20) days after receipt of the Arbitrator's notice
of decision, BGLS shall immediately pay or cause to be paid to High River
Group an additional sum in the amount of $50 million.

<PAGE> 3

8. Section 9(k) shall be added to the BGL Agreement
to read as follows:

"(k) Anything in this agreement to the contrary
notwithstanding, High River shall have no obligation with
respect to the selection of the BGL Nominees or the
solicitation of Written Consents or Proxies."

9. Nothing herein contained shall be construed to
otherwise abrogate the rights and obligations of the parties to
this letter agreement with respect to all other provisions of the
BGL Agreement, the New Valley Agreement and the letter agreement by
and among New Valley, ALKI Corp. and High River, dated October 17,
1995 ("the Letter Agreement").

If the foregoing reflects your understanding, please
sign this letter below. Upon your execution hereof, this letter
agreement will become a binding contract between us.

Very truly yours,

HIGH RIVER LIMITED PARTNERSHIP

By: RIVERDALE INVESTORS CORP., INC.
Its: General Partner

By:__________________________________
Name:
Title:

Agreed to and Accepted:

BROOKE GROUP LIMITED

By:_____________________________
Name:
Title:

BGLS INC.

By:_____________________________
Name:
Title:

[Signature page for letter agreement by and among Brooke Group
Limited, BGLS Inc. and High River Limited Partnership, dated
November 5, 1995]

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EXHIBIT 10(b)

AGREEMENT

This AGREEMENT among Brooke Group Ltd., a Delaware corporation
("BGL"), BGLS Inc., a Delaware corporation and a direct wholly owned
subsidiary of BGL ("BGLS"), and High River Limited Partnership, a
Delaware limited partnership ("High River"), dated October 17, 1995

W I T N E S S E T H:

WHEREAS, High River, directly or indirectly, and BGL and BGLS,
indirectly through their ownership of stock of New Valley Corporation,
a New York corporation ("New Valley"), are stockholders of RJR Nabisco
Holdings Corp., a Delaware corporation ("RJRN");

WHEREAS, the parties hereto believe that the value of RJRN
stockholders' investment can be substantially increased through a
spinoff (the "Spinoff") of all or substantially all of RJRN's remaining
investment in Nabisco Holding Corp., a Delaware corporation ("Nabisco");

WHEREAS, BGL and BGLS desire to obtain the assistance and advice
of High River with respect to measures designed to effectuate the
Spinoff at the earliest possible date;

WHEREAS, High River is willing to give such assistance and advice
to BGL and BGLS in consideration of the agreements by BGL and BGLS set
forth herein;

NOW, THEREFORE, in consideration of the foregoing and of the
mutual promises set forth herein, the parties hereto, intending to
be legally bound, agree as follows:

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Section 1. Solicitation of Other Investors and RJRN Stockholders.
(a) Each of the parties hereto intends to use its best efforts to
encourage other investors to acquire shares of common stock, par value
$.01 per share ("Shares"), of RJRN and to persuade such investors and
other major stockholders of RJRN to cooperate with the parties hereto in
order to cause RJRN to effectuate the Spinoff. The parties hereto
anticipate that, as an inducement to such investors and stockholders,
the parties hereto may enter into binding contractual arrangements with
such investors and stockholders on terms which may but need not be
similar to the terms of this Agreement, and that this Agreement may be
amended or supplemented from time to time to reflect such arrangements.
The parties hereto agree that, in the event any party hereto proposes to
enter into any such contractual arrangement or so to amend or supplement
this Agreement, the parties hereto shall attempt in good faith to reach
mutually acceptable terms with respect to any such proposed arrangement,
amendment or supplement.

(b) BGL and BGLS intend to seek RJRN stockholder approval, either
at RJRN's 1996 annual meeting of stockholders (the "1996 Annual
Meeting") or at a special meeting of RJRN stockholders (a "Special
Meeting") or through action by written consent of the RJRN stockholders
without a meeting, of any or all of the following proposals (the
"Proposals"): (i) a proposal to recommend that the Board of Directors of
RJRN (the "RJRN Board") cause RJRN to effectuate the Spinoff (the
"Spinoff Proposal"), (ii) a proposal to remove the entire RJRN Board and
to elect as directors of RJRN a slate of nominees who shall be selected
by BGL (the "BGL Nominees") and who shall pledge to carry out the
Spinoff as promptly as practicable following their election (the
"Election Proposal"), (iii) a proposal for the combination, incident to
the Spinoff, of the tobacco business of Liggett Group Inc., a Delaware
corporation ("Liggett"), with the tobacco business of RJRN and (iv) a
proposal to amend the by-laws of RJRN in any manner that may be
necessary in order to ensure that RJRN stockholders are permitted to
call a Special Meeting and to vote freely at such Special Meeting or at
the 1996 Annual Meeting on any or all of the Proposals, or in any other
way necessary to facilitate the Proposals (the "By-Law Amendment
Proposal"). In

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connection with the foregoing, BGL and BGLS may seek written demands or
requests from RJRN stockholders ("Stockholder Demands") that a Special
Meeting be held for the purpose of voting on any or all of the Proposals.
BGL and BGLS may also seek written consents from RJRN stockholders
("Written Consents") to adopt any or all of the Proposals.

(c) Prior to the 1996 Annual Meeting, BGL or BGLS shall solicit
Written Consents in favor of the Spinoff Proposal and the By-Law
Amendment Proposal. BGL or BGLS may also, in its sole discretion,
conduct solicitations, in addition to the solicitation described in the
preceding sentence, of Stockholder Demands or Written Consents in favor of
the other Proposals, or of proxies to be voted in favor of one or more
of the Proposals at the 1996 Annual Meeting or a Special Meeting
("Proxies"). In respect of any such solicitation of Stockholder Demands,
Written Consents or Proxies:

(i) BGL or BGLS shall prepare and file with the
Securities and Exchange Commission (the "SEC") and mail to
RJRN stockholders, a solicitation statement under Regulation 14A of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
relating to such solicitation (the "Solicitation Statement");

(ii) the Solicitation Statement relating to any solicitation of
Written Consents or Proxies seeking RJRN stockholder approval of the
Election Proposal, or of Stockholder Demands for a Special Meeting at
which RJRN stockholder approval of the Election Proposal will be
sought, shall contain a pledge (the "BGL Pledge") by BGL and BGLS
stating, in substance, that (A) BGL, BGLS and their affiliates (the
"BGL Group") will not engage in any Business Combination (as defined
below in Section 3(a)) other than a Permitted Business Combination
(as defined below in Section 3(b)) at any time (I) prior to the
earlier of (x) the 1996 Annual Meeting and (y) the occurrence of a
Termination Event (as defined below in Section 3(c)) described in
Section 3(c)(iii) (in the case of a solicitation of Stockholder
Demands), Section 3(c)(iv) (in the case of a solicitation of

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Written Consents) or Section 3(c)(v) (in the case of a solicitation
of Proxies), or (II) when BGL Nominees constitute a majority of the
RJRN Board, (B) the BGL Group will not exercise any management
control over Nabisco prior to the consummation of the Spinoff and (C)
the BGL Group will halt its solicitation of Stockholder Demands,
Written Consents or Proxies, as the case may be, if the RJRN Board
takes any action described in Section 3(c)(vi); and

(iii) if BGL and BGLS take the actions described in clause (ii)
with respect to any solicitation described in clause (i), then (A)
promptly upon the request of BGL or BGLS, High River shall (and shall
cause each of its affiliates to) execute and deliver to BGL or BGLS a
valid Stockholder Demand, Written Consent or Proxy, as the case may
be (and not withdraw such Stockholder Demand, Written Consent or
Proxy), with respect to all of the Shares and all of the depositary
shares representing Series C Conversion Preferred Stock, par value
$.01 per share ("Series C Depositary Shares"), of RJRN beneficially
owned by it and (B) each of BGL and BGLS shall (and shall cause each of
its affiliates to) vote in favor of such Proposal all Shares and
all Series C Depositary Shares beneficially owned by it.

Section 2. Termination. (a) This Agreement shall automatically
terminate upon the earlier of (i) the first anniversary of the date
hereof and (ii) the termination of the Agreement dated as of October 17,
1995 among New Valley, ALKI Corp., a Delaware corporation ("NV Sub"),
and High River (the "New Valley Agreement") by High River, and any
party hereto may terminate this Agreement sooner at any time in its
sole discretion by written notice to the other parties hereto, provided,
however, that if New Valley or NV Sub terminates the New Valley
Agreement, then BGL and BGLS shall be deemed to have simultaneously
terminated this Agreement.

(b) If this Agreement is terminated pursuant to this Section 2,
this Agreement shall forthwith become null and void, and there shall be
no liability or obligation on the part of any party hereto, except for
the obligations of the parties hereto

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pursuant to Section 4, Section 5 and Section 8, which shall remain
in full force and effect for the periods set forth therein.

Section 3. Certain Definitions. For purposes of this
Agreement, the following terms shall have the meanings indicated below:

(a) "Business Combination," with respect to any party
hereto, means:

(i) Any material sale of capital stock or other equity
interests of RJRN beneficially owned by such party or any of such
party's affiliates to RJRN or any of RJRN's affiliates, other than a
sale effected on a registered securities exchange or through the
NASDAQ system that satisfies the following conditions: (A) such sale
is not pursuant to any agreement, understanding or arrangement with
RJRN or any of its affiliates, agents or representatives, (B) either
(I) such party and its affiliates do not know that RJRN or one of its
affiliates is the buyer or (II) such sale is pursuant to a market
repurchase program which has previously been publicly announced by RJRN
or one of its affiliates and (C) such party has given notice to the
other parties at least one day prior to such sale of its intention to
sell such Shares (which notice shall the approximate number of Shares
to be sold and the approximate time period in which such sales will
be made, but need not specify the exact number of Shares to be sold
or the exact timing of such sales);

(ii) Any material sale of capital stock or other equity
interests of such party or any of such party's affiliates to RJRN or
any of RJRN's affiliates, other than pursuant to a sale effected on a
registered securities exchange or through the NASDAQ system which is
not pursuant to any agreement, understanding or arrangement with RJRN
or any of its affiliates, agents or representatives and such party
and its affiliates do not know that RJRN or one of its affiliates is
the buyer;

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(iii) Any merger, consolidation or combination of such party or
any of such party's material affiliates with RJRN or any of RJRN's
affiliates;

(iv) Any material borrowings by such party or any of such
party's affiliates from RJRN or any of RJRN's affiliates, or by RJRN
or any of RJRN's affiliates from such party or any of such party's
affiliates, other than credit in the ordinary course of business
substantially in accordance with industry practice or past practice;

(v) Any sale or other disposition of any material assets or
properties of such party or any of such party's affiliates to RJRN or
any of RJRN's affiliates, or of any material assets or properties of
RJRN or any of RJRN's affiliates to such party or any of such party's
affiliates, other than in the ordinary course of business substantially
in accordance with industry practice or past practice; or

(vi) Any receipt by such party or any of such party's
affiliates of any material benefit, including any material payment in
cash or in kind from RJRN, other than benefits or payments in the
ordinary course of business substantially in accordance with industry
practice or past practice;

except, in each case, for a transaction that is made available to all
other holders of Shares substantially at the same time on substantially
equivalent terms.

(b) "Permitted Business Combination" means any Business
Combination which is either (i) consummated substantially simultaneously
with or subsequently to (A) a dividend or other distribution to RJRN's
stockholders of all or substantially all of RJRN's remaining equity
interest in Nabisco or (B) another transaction with respect to RJRN's
investment in Nabisco which would provide substantially equivalent value
to RJRN's stockholders or (ii) approved by the holders of a majority of
the outstanding Shares not then beneficially owned by the BGL

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Group or by New Valley and its affiliates (the "New Valley Group").

(i) Any judgment, ruling, order or decree of any court or any
other governmental agency or authority prohibiting, enjoining or
restraining, or which has the effect of prohibiting, enjoining or
restraining, any party to this Agreement or the New Valley Agreement
from fulfilling its material obligations under this Agreement or the
New Valley Agreement, or which would otherwise render unlawful, the
fulfillment of any party's material obligations under this Agreement
or the New Valley Agreement, except any judgment, ruling, order or
decree (A) arising out of a breach of any representation contained in
Section 7 of this Agreement or in Section 8 of the New Valley
Agreement or (B) prohibiting, enjoining or restraining, or which has
the effect of prohibiting, enjoining or restraining, or otherwise
rendering unlawful any Business Combination other than a Permitted
Business Combination (an "Order") is in effect and such party has not
appealed such Order by appropriate proceedings prior to or on the
tenth day after such Order is entered, or any Order has been in
effect for at least 30 days and has not been vacated or reversed, or
any governmental agency or authority has indicated to any party,
orally or in writing, its intention to issue or to seek to obtain an
Order (an "Order Threat"); provided, however, that any such event
shall be a Termination Event only if (x) in the case of any party
which is (or a member of whose Group is) the subject of an Order or
Order Threat, such party gives prompt notice thereof to the other
party and thereafter terminates this Agreement or the New Valley
Agreement prior to or on the tenth day after such event occurs and
(y) in the case of a party which is not (and all of the members of
whose Group are not) the subject of such an Order or Order Threat,
such party thereafter terminates this Agreement or the New Valley

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Agreement prior to or on the tenth day following the time such party
receives notice thereof from the subject party;

(ii) The Federal Trade Commission (the "FTC") or the Antitrust
Division of the Department of Justice (the "Antitrust Division") has
instituted any action or proceeding seeking to prohibit, enjoin or
restrain any party to this Agreement or the New Valley Agreement from
fulfilling its material obligations under this Agreement or the New
Valley Agreement or to require any such party or any of its
affiliates to make any material divestitures as a condition to the
fulfillment of such obligations, or otherwise to impose any
conditions or restrictions which could have a material adverse effect
on any party hereto or on the transactions contemplated by this
Agreement or the New Valley Agreement, or the FTC or the Antitrust
Division has indicated to any such party, orally or in writing, its
intention to institute any such action or proceeding, in each case
other than any action, proceeding, requirement, condition or
restriction with respect to any Business Combination except a
Permitted Business Combination; provided, however, that any such
event shall be a Termination Event only if the party which is the
subject of such action, proceeding, requirement, condition or
restriction thereafter terminates this Agreement or the New Valley
Agreement prior to or on the tenth day after such event occurs;

(iii) BGL or BGLS has commenced a solicitation of Stockholder
Demands and has failed to receive within 120 days after the date of
commencement the number of validly executed and unwithdrawn
Stockholder Demands necessary to require RJRN to hold a Special
Meeting, unless (A) the Special Meeting has otherwise been called or
held or (B) on or prior to such 120th day, BGL and BGLS have taken
all actions necessary to cause one or more of the Proposals to be
brought before the 1996 Annual Meeting;

(iv) BGL or BGLS has commenced a solicitation of Written
Consents with respect to one or more Proposals and

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has failed to receive within 120 days after the date of commencement
the number of validly executed and unwithdrawn Written Consents
necessary to approve at least one such Proposal, unless (A) at least
one such Proposal has been otherwise approved at the 1996 Annual
Meeting or a Special Meeting or (B) on or prior to such 120th day,
BGL and BGLS have taken all actions necessary to cause at least one
such Proposal to be submitted for a stockholder vote at the 1996
Annual Meeting or a Special Meeting;

(v) A Special Meeting or the 1996 Annual Meeting has been
held, and one or more of the Proposals has been voted upon thereat,
the BGL Nominees have not been elected to constitute a majority of the
RJRN directors then in office and either (A) BGL and BGLS have
determined not to pursue any further judicial review of the results of
the vote at the Special Meeting or the 1996 Annual Meeting, as the
case may be, or (B) no such further judicial review is available;

(vi) The RJRN Board has irrevocably declared a dividend or
other distribution to RJRN's stockholders of all or substantially all
of RJRN's remaining equity interest in Nabisco or has made any other
legally binding commitment to engage in a transaction with respect to
RJRN's investment in Nabisco which would provide substantially
equivalent economic benefits to RJRN's stockholders;

(vii) Any event has occurred, or RJRN has taken any action,
which is reasonably likely to have a material adverse effect on the
business, operations or financial condition of RJRN and its
subsidiaries, taken as a whole;

(viii) BGL or BGLS determines, reasonably and in good faith,
that any event has occurred as a result of which no solicitation of
Stockholder Demands, Written Consents or Proxies with respect to the
Proposals would have a reasonable chance of success; provided,
however, that any such event shall be a Termination Event only if BGL
or BGLS notifies High River of such determination (which notice

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shall specify in reasonable detail the nature of the event which has
occurred and the reasons for such determination) at least five
business days prior to terminating this Agreement or the New Valley
Agreement and thereafter BGL or BGLS terminates this Agreement, and
New Valley or NV Sub terminates the New Valley Agreement, on such fifth
business day; and provided that in any challenge by High River of a
termination under this subpart (viii), High River shall bear the
burden, in order to prevail, of establishing that BGL's or BGLS's
determination as first set forth in this subpart (viii) was
unreasonable or was made in bad faith;

(ix) BGL and BGLS (A) fail to nominate the BGL Nominees prior
to November 20, 1995, or such later date as may be designated by RJRN
as the final date for such nominations to be made, for election to
the RJRN Board at the 1996 Annual Meeting in accordance with the
procedures set forth in the most recent version of the by-laws of
RJRN filed with the SEC prior to such date, (B) fail to mail to RJRN
stockholders a Solicitation Statement relating to a solicitation of
Written Consents with respect to the Spinoff Proposal and/or the
By-Law Amendment Proposal prior to December 15, 1995, (C) fail to
file the Solicitation Statement relating to the Annual Meeting
preliminarily with the SEC prior to the earlier of (I) February 15,
1996 and (II) the date on which a Solicitation Statement described in
clause (B) of this Section 3(c)(ix) is first mailed to RJRN
stockholders, (D) fail to make the BGL Pledge in any Solicitation
Statement relating to any solicitation of Written Consents or Proxies
seeking RJRN stockholder approval of the Election Proposal, or of
Stockholder Demands for a Special Meeting at which RJRN stockholder
approval of the Election Proposal will be sought, or (E) take any
action in violation of the BGL Pledge after it is made; provided,
however, that any such event shall be a Termination Event only if
High River thereafter terminates this Agreement or the New Valley
Agreement prior to or on the tenth day after the first date that High
River becomes aware that such event has occurred, but in no event
shall the failure to terminate this Agreement after the occurrence of
any such event

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prohibit the termination of this Agreement upon the subsequent
occurrence of any other such event; or

(x) Either Group sells any Shares under the circumstances
described in clause (x) of the first proviso to the first sentence of
Section 1(d)(i) of the New Valley Agreement, or is required to offer
any Shares to another party pursuant to the first sentence of Section
1(d)(ii) of the New Valley Agreement; provided, however, that any
such event shall be a Termination Event only if a party to the New
Valley Agreement which is not a member of such Group thereafter
terminates the New Valley Agreement prior to or on the tenth day
after the first date that such party becomes aware that such event has
occurred.

Section 4. Certain Fees and Percentage Payments. (a) BGLS shall
pay or cause to be paid to High River the sum of $50 million promptly
upon:

(i) any termination of this Agreement by BGL or BGLS at a time
when (A) no Termination Event has occurred and (B) High River is not
in material breach of its obligations (the "High River Obligations")
under Section 1(c)(iii) or Section 8 of this Agreement or Section
1(a), the fourth sentence of Section 1(c)(v), the ninth sentence of
Section 1(c)(v) or Section 1(d)(i) of the New Valley Agreement;

(ii) any termination of this Agreement by High River at a time
when (A) no Termination Event has occurred, (B) BGL or BGLS is in
material breach of its obligations (the "BGL Obligations") under
Section 1(c)(iii) of this Agreement and (C) High River is not in
material breach of the High River Obligations; or

(iii) the consummation of any Business Combination (including
any Permitted Business Combination) with respect to the BGL Group, if:

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(A) such Business Combination is consummated prior to the
later of (I) the date of RJRN's annual meeting of stockholders for
1997 and (II) the first anniversary of the date of termination of
this Agreement (the later of such dates being referred to herein
as the "Reference Date");

(B) a legally binding agreement to enter into such Business
Combination or any other Business Combination is entered into
prior to the Reference Date and such Business Combination is
consummated prior to the second anniversary of the date of such
agreement; or

(C) the BGL Nominees are elected to constitute a majority of
the RJRN Board prior to the Reference Date and such Business
Combination is consummated prior to the fifth anniversary of the
date of such election;

provided, however, that (x) High River shall not be entitled to more
than one fee under this Section 4(a), (y) High River shall not be
entitled to any fee under this Section 4(a) if BGL shall have
previously or shall concurrently become entitled to the fee described in
Section 4(b) of this Agreement or if New Valley shall have previously
become entitled to the fee described in Section 5(b) of the New Valley
Agreement and (z) the amount of any fee to which High River may be
entitled at any time pursuant to this Section 4(a) shall be reduced by
the amount of any fee (the "New Valley Fee") which High River shall
theretofore have been paid pursuant to Section 5(a) of the New Valley
Agreement and by any percentage payment (the "New Valley Percentage
Payment") which High River shall theretofore have been paid pursuant to
Section 5(d) of the New Valley Agreement, in either of which events BGL or
BGLS shall promptly upon request by New Valley reimburse New Valley for
all or any part of the New Valley Fee or the New Valley Percentage
Payment paid by or on behalf of New Valley.

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(b) High River shall pay or cause to be paid to BGL the sum of
$50 million promptly upon:

(i) any termination of this Agreement by High River at a time
when (A) no Termination Event has occurred, (B) BGL and BGLS are not
in material breach of any of the BGL Obligations and (C) New Valley
and NV Sub are not in material breach of any of their obligations
(the "New Valley Obligations") under Section 1(a), the fourth
sentence of Section 1(c)(v), the ninth sentence of Section 1(c)(v),
Section 1(d)(i) or Section 2 of the New Valley Agreement;

(ii) any termination of this Agreement by BGL or BGLS at a time
when (A) no Termination Event has occurred, (B) High River is in
material breach of its obligations under Section 1(c)(iii) or Section
8 of this Agreement, (C) BGL and BGLS are not in material breach of
the BGL Obligations and (D) New Valley and NV Sub are not in material
breach of the New Valley Obligations;

provided, however, that (x) BGL shall not be entitled to more than one
fee under this Section 4(b), (y) BGL shall not be entitled to any fee
under this Section 4(b) if High River shall have previously or shall
concurrently become entitled to the fee described in Section 4(a) of
this Agreement or the fee described in Section 5(a) of the New Valley
Agreement and (z) the amount of any fee to which BGL may be entitled at
any time pursuant to this Section 4(b) shall be reduced by the amount of
any fee which New Valley shall theretofore have been paid pursuant to
Section 5(b) of the New Valley Agreement.

(i) if the New Valley Group (as such term is defined in the New
Valley Agreement) or the BGL Group sells any Shares or any Other
Securities (as such term is defined in the New Valley Agreement) of
any class or series prior to the Reference Date, then BGLS shall pay
or cause to be paid to High River promptly upon the consummation of
such sale a

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percentage payment equal to the product of (A) the Net Profit
Override (as such term is defined in the New Valley Agreement)
realized in such sale, multiplied by (B) a fraction (the "Sale
Fraction," which shall be calculated separately for the Shares and
for each class or series of Other Securities), the numerator of which
is the number of Shares or such Other Securities (as the case may be)
held as of the date hereof, or hereafter acquired prior to such sale,
by the BGL Group and the denominator of which is the number of Shares
or such Other Securities (as the case may be) held as of the date
hereof, or hereafter acquired prior to such sale, by the BGL Group
and the New Valley Group; and

(ii) if the New Valley Group or the BGL Group holds any Shares
or any Other Securities of any class or series on the Reference Date,
then New Valley shall pay or cause to be paid to High River promptly
upon the Reference Date a percentage payment equal to the product of
(A) the Net Profit Override existing on the Reference Date in respect
of such Shares or such Other Securities, multiplied by (B) a fraction
(the "Holdings Fraction," which shall be calculated separately for
the Shares and for each class or series of Other Securities), the
numerator of which is the number of Shares or such Other Securities
(as the case may be) held as of the date hereof, or hereafter
acquired prior to the Reference Date, by the BGL Group and the
denominator of which is the number of Shares or such Other Securities
(as the case may be) held as of the date hereof, or hereafter
acquired prior to the Reference Date, by the BGL Group and the New
Valley Group;

provided, however, that (x) the amount of any percentage payment to
which High River is entitled at any time under this Section 4(c) shall
be reduced by the product of (1) the amount of any fee which High River
shall have theretofore been paid by or on behalf of New Valley under
Section 5(a) of the New Valley Agreement or by BGLS under Section 4(a)
of this Agreement, multiplied by (2) the Sale Fraction or the Holdings
Fraction, as the case may be, (y) High River shall not be entitled
to any percentage payment under this Section 4(c) if BGL shall have
previously become

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entitled to the fee described in Section 4(b) of this Agreement or
if New Valley shall have previously become entitled to the fee described
in Section 5(b) of the New Valley Agreement and (z) in the event that
the New Valley Group or the BGL Group realizes a Net Loss (as defined in
the New Valley Agreement) on any sale of any Shares or any Other
Securities of any class or series, or that any Net Loss exists on the
Reference Date in respect of any Shares or any Other Securities of any
class or series held by the New Valley Group or the BGL Group on the
Reference Date, then in each such event High River shall repay or cause
to be repaid to BGLS promptly upon receipt of notice from BGLS an amount
equal to the product of (1) the excess, if any, of (X) 20% of such Net
Loss over (Y) the aggregate amount of such percentage payments
theretofore received by High River, multiplied by (2) a fraction, the
numerator of which is the aggregate amount of such percentage payments
theretofore paid by or on behalf of BGLS and the denominator of which is
the aggregate amount of such percentage theretofore paid by or on behalf
of New Valley and BGLS. BGL and BGLS shall use their reasonable best
efforts to provide to High River (x) once each calendar week, commencing
from the date of this Agreement, a report containing a reasonably detailed
calculation of the number of Shares and the amount of Other Securities
then held by the BGL Group and the Weighted-Average Cost (as defined in
the New Valley Agreement) of such Shares and Other Securities and (y)
promptly after the close of business on each business day on which any
Shares are sold by the BGL Group, a report setting forth the number of
Shares or Other Securities sold since the close of business on the
previous business day, the aggregate price realized in such sales and
the aggregate commissions paid in such sales; provided, however, that
BGL and BGLS shall not incur any liability or suffer any prejudice as a
result of its provision of any such estimate.

(d) The parties hereto hereby acknowledge and agree that the
arrangements in Section 4(c) with respect to percentage payments
constitute a partnership for Federal income tax purposes and that
the parties hereto shall file income tax returns in a consistent manner.

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(e) Each of BGL and High River shall give notice to the other
promptly upon becoming aware that a Termination Event has occurred or
that any event has occurred that would be a Termination Event but for
the giving of notice or the termination of this Agreement.

Section 5. Costs and Expenses. (a) Except as set forth in Section
5(b), the BGL Group shall be responsible for all out-of-pocket costs and
expenses of soliciting Stockholder Demands, Written Consents and Proxies
from the stockholders of RJRN, including without limitation, to the
extent related thereto, (i) all registration and filing fees under the
Exchange Act or the Securities Act of 1933, as amended (the "Securities
Act"), (ii) all printing, messenger, telephone and delivery expenses,
(iii) all fees and disbursements of counsel and (iv) all fees and
disbursements of public relations firms, proxy solicitation firms,
investment bankers and other financial advisors.

(b) Notwithstanding the provisions of Section 5(a), each party
hereto shall be solely responsible for (i) all costs and expenses
relating to the acquisition of the Shares beneficially owned or
hereafter acquired by such party and its affiliates, (ii) its internal
expenses (including, without limitation, all salaries and expenses of
its officers and employees performing duties relating to the
transactions contemplated by this Agreement) and (iii) all other
expenses incurred by it, other than expenses described in Section
5(a), all of which shall be the sole responsibility of the BGL Group.

Section 6. Required Filings; Publicity. (a) Each of the parties
hereto shall (and shall cause each of its affiliates to) (i) take all
actions necessary to comply promptly with all legal requirements which
may be imposed on such party (or its affiliates) as a result of this
Agreement or any of the transactions contemplated hereby, and (ii)
without limiting the foregoing, make all required filings pursuant to
the Securities Act and the Exchange Act.

16
<PAGE> 17

(b) To the extent reasonably practicable, the parties hereto
shall consult with each other prior to all public statements or
filings to be issued or made by any of them or their affiliates
with respect to this Agreement and the transactions contemplated
hereby.

Section 7. Representations and Warranties. (a) Each of the
parties hereto hereby represents and warrants to the other parties
hereto as follows:

(i) Such party is a corporation or partnership duly organized,
validly existing and in good standing under the laws of the state of
its incorporation or organization, and has full corporate or
partnership power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the
transactions contemplated hereby.

(ii) The execution and delivery by such party of this
Agreement and the performance by such party of its obligations
hereunder have been duly and validly authorized by all necessary
corporate or partnership action. This Agreement has been duly and
validly executed and delivered by such party and constitutes a legal,
valid and binding obligation of such party enforceable against such
party in accordance with its terms.

(iii) The execution and delivery by such party of this
Agreement do not, and the performance by such party of its
obligations under this Agreement will not, conflict with or result in
a violation or breach of any of the provisions of the certificate of
incorporation, bylaws or other organizational documents of such
party, any law or order applicable to such party or any of such
party's contractual obligations to other persons, in each case, in
any manner that would prevent or materially impede such party from
fulfilling its obligations hereunder.

(b) BGL and BGLS hereby represent and warrant to High River that
as of the date hereof the BGL Group owns beneficially

17
<PAGE> 18

and of record 200 Shares, free and clear of all liens and encumbrances
whatsoever, which Shares were purchased by the BGL Group at an aggregate
cost (including all brokerage fees and commissions incurred in the
acquisition of such Shares) of $5,675, and in respect of which the BGL
Group has not received any dividends, except dividends of $75 received
on July 3, 1995 and dividends of $75 received on October 2, 1995.

(c) High River represents and warrants to BGL and BGLS that High
River has as of the date hereof, and will have on each prior to the
termination of this Agreement, net partners' equity of at least $22
million.

Section 8. Certain Actions. High River shall not (and shall cause
its affiliates not to) engage in, agree to engage in or propose (either
publicly or to RJRN or any of its affiliates) to engage in, individually
or in combination with any other person, any Business Combination at any
time prior to the earliest of (a) the Reference Date, (b) any
termination of this Agreement that occurs at or after the time when a
Termination Event has occurred and (c) any termination of this Agreement
by BGL or BGLS, or of the New Valley Agreement by New Valley or NV Sub,
at a time when High River is not in material breach of the High River
Obligations.

Section 9. Miscellaneous. (a) For purposes of this Agreement, (i)
the terms "affiliate" and "associate" have the meanings assigned to them
in Rule 12b-2 promulgated under the Exchange Act, provided, however,
that New Valley and NV Sub shall not be deemed to be "affiliates" or
"associates" of the BGL Group for any purpose of this Agreement, (ii)
Liggett shall be deemed to be a material affiliate of BGL and BGLS,
(iii) the term "shall" is used herein to refer to actions which are
compulsory and thus to create binding obligations among the parties
hereto, (iv) the terms "will," "expect," "expectation," "intend" and
"intention," and other terms of similar import, are used herein solely
to refer to the aspirations and objectives of the parties hereto and
thus are not used herein to create binding obligations among the parties
hereto and (v) the term "may" is used herein to refer solely to conduct
which is optional and not compulsory and

18
<PAGE> 19

thus is not used herein to create binding obligations among the parties
hereto.

(b) The parties hereto shall have no rights, power or duties
except as specified herein, and no such rights, powers or duties shall
be implied. Nothing herein shall give any party hereto the power to bind
any other party hereto to any contract, agreement or obligation to any
third party.

(c) All notices and other communications hereunder shall be in
writing and shall be deemed given when received by the parties hereto at
the following addresses (or at such other address for any party hereto
as shall be specified by like notice):

If to BGL or BGLS:

100 S.E. Second Street
Miami, Florida 33131
Attention: Bennett S. LeBow
Telecopy: (305) 579-8001

With a copy to:

Michael L. Hirschfeld, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005-1413
Telecopy: (212) 530-5219

If to High River:

c/o Icahn Associates Corp.
114 West 47th Street
19th Floor
New York, New York 10036
Attention: Carl C. Icahn
Telecopy: (212) 921-3359

19
<PAGE> 20

With a copy to:

Marc Weitzen, Esq.
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
20th Floor
New York, NY 10036
Telecopy: (212) 626-0799

(d) This Agreement may be executed in two or more counterparts,
all of which shall be considered one and the same agreement.

(e) This Agreement constitutes the entire agreement among the
parties hereto and supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.

(f) This Agreement shall be governed and construed in accordance
with the laws of the state of New York applicable to a contract executed
and performed in such State, without giving effect to the conflicts of
laws principles thereof.

(g) Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written
consent of the other parties hereto; provided, however, that High River
may assign any of its rights and interests hereunder to (i) any
corporation incorporated in any state of the United States or in the
District of Columbia if at least 98.5% of the shares of each class of
capital stock of such corporation are by Carl C. Icahn (a "wholly-owned
Icahn subsidiary"), either directly or through one or more wholly-owned
Icahn subsidiaries or (ii) any partnership whose partners are all
wholly-owned Icahn subsidiaries; and provided further that no such
assignment shall relieve High River of any of its obligations hereunder.
Subject to the preceding sentence, this Agreement shall be binding upon,
inure to the benefit of and

20
<PAGE> 21

be enforceable by the parties hereto and their respective successors and
assigns.

(h) This Agreement may be amended, supplemented or modified only
by a written instrument duly executed by or on behalf of each party
hereto. No waiver of any term or condition in this Agreement shall be
effective unless set forth in writing and signed by or on behalf of the
waiving party. No waiver by any party hereto of any term or condition of
this Agreement shall be deemed to be or construed as a waiver of the
same or any other term or condition of this Agreement on any future
occasion.

(i) The terms and provisions of this Agreement are intended solely
for the benefit of the parties hereto and their successors and permitted
assigns and are not intended to confer upon any other person any rights
or remedies hereunder, except that the provisions of clause (z) of the
proviso to Section 4(a), as they relate to the reimbursement obligations
of BGL and BGLS, are expressly for the benefit of New Valley and shall
be enforceable by New Valley against BGL and BGLS (but not against
High River) by appropriate proceedings in any court of competent
jurisdiction.

(j) In the event that any party hereto prevails in any or
proceeding alleging a breach of this Agreement, such party shall be
entitled to recover all reasonable attorney's fees and other costs of
prosecuting such action or proceeding and, in addition, shall be
entitled to receive simple interest on any damages awarded in such
action or proceeding at the rate of 10% per annum from the date of
such breach.

21
<PAGE> 22

IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their representatives thereunto duly authorized, all as
of the date first above written.

BROOKE GROUP LTD.

By:
-------------------------------

BGLS INC.

By:
-------------------------------

HIGH RIVER LIMITED PARTNERSHIP

By:
-------------------------------

[Signature page to Agreement among Brooke Group Ltd., BGLS Inc. and
High River Limited Partnership dated October 17, 1995]

<PAGE> 1

BGL
EXHIBIT 10(c)

SECOND AMENDMENT TO SERVICES AGREEMENT

SECOND AMENDMENT TO SERVICES AGREEMENT, dated as of October
1, 1995, by and between Brooke Management Inc., a Delaware
corporation ("BMI"), having an office at 100 S.E. Second Street,
32nd Floor, Miami, Florida 33131, Brooke Group Ltd., a Delaware
corporation ("BGL"), having an office at 100 S.E. Second Street,
32nd Floor, Miami, Florida 33131, and Liggett Group Inc., a
Delaware corporation (the "Company"), having an office at 700 West
Main Street, Durham, North Carolina 27702.

WITNESSETH:

WHEREAS, BMI and the Company are parties to a Services
Agreement, dated as of February 26, 1991, by and between BMI and
the Company, as amended by a First Amendment to Services Agreement,
dated as of November 30, 1993 (the Agreement, as so amended,
hereinafter referred to as the Services Agreement ).

WHEREAS, BMI desires to assign to BGL and BGL desires to
assume the rights and obligations embodied in the Services
Agreement (the Assignment );

WHEREAS, the Company desires to consent to the Assignment;
and

WHEREAS, upon giving effect to the Assignment, BGL and the
Company wish to extend the term of the Services Agreement on the
terms set forth below;

NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:

<PAGE> 2

1. Effective as of the date hereof, the Company hereby
consents to the Assignment and agrees that:

(i) BGL shall be a permitted assignee of the rights
and obligations of BMI pursuant to Section 6.02 of the
Services Agreement;
and
(ii) BMI shall have no further obligations under the
Services Agreement.

2. Section 2 of the Services Agreement is hereby amended
to provide for a termination date of November 30, 2001.

3. Except as amended hereby, the terms and provisions
of the Services Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have duly executed
this Amendment to the Services Agreement as of the date first above
written.

BROOKE MANAGEMENT INC.

By:
------------------------

BROOKE GROUP LTD.

By:
------------------------

LIGGETT GROUP INC.

By:
------------------------

<PAGE> 1

BGL
EXHIBIT 10(d)

EXPENSE SHARING AGREEMENT

THIS AGREEMENT, is made and entered into as of January 18, 1995
(the "Agreement"), by and between Brooke Group Ltd., a Delaware
corporation ("Brooke") and New Valley Corporation, a New York
corporation ("New Valley") (collectively, the "Parties").

R E C I T A L S :

WHEREAS, Brooke is the sublessee of 12,356 square feet of
office space, on the 32nd floor in the office building now known as
International Place, located at 100 S.E. 2nd Street, Miami, Florida
(the "Premises"), pursuant to that certain Sublease dated July
27, 1992 (the "Sublease") by and between Brooke and Carnival Cruise
Lines, Inc. (the "Sublessor"); and

WHEREAS, the Sublease expires on February 28, 1999 (the
"Expiration Date") and provides, among other things, for the payment
of rent by Brooke, to Sublessor, in the amount of $21,716.91 per
month (the "Rent") (escalating over the duration of the Sublease);
and

WHEREAS, the Sublease also requires a security deposit of
$492,000.00 (the "Security Deposit"), which amount has been paid by
Brooke and is currently held in an interest bearing escrow
account by Sublessor (the "Security Deposit Account"); and

WHEREAS, Brooke, in connection with its use and occupancy of
the Premises, incurs ordinary and customary expenses, including but
not limited to expenses for, office supplies and equipment,
telephone, maintenance, insurance and taxes (collectively,
the "Operating Expenses"); and

WHEREAS, Brooke, in connection with the operation of its
business and affairs, employs an in-house legal staff and various
other support personnel (the "Personnel") which Personnel spend
approximately fifty percent (50%) of their working day on New
Valley matters; and

WHEREAS, New Valley has relocated its principal offices to the
Premises, effective January 18, 1995, and in order to achieve
certain economies, desires to share in and reimburse Brooke for,
the Rent, Operating Expenses and utilization of Personnel.

1
<PAGE> 2

NOW THEREFORE, the Parties hereto, for good and adequate
consideration, agree as follows:

1. The Parties shall equally divide all Rent and Operating
Expenses from the date of this Agreement through the Expiration Date.

2. New Valley shall, via wire transfer, reimburse Brooke for
$263,369.40, which sum represents fifty percent (50%) of the
Security Deposit, with accrued interest, through May 26, 1995.
From the date hereof, the Parties shall jointly own all proceeds in
the Security Deposit Account and shall share in all distributions,
if any, equally.

3. Brooke shall be responsible for payment, on a current
basis, of one hundred percent (100%) of the Rent, Personnel and
monthly Operating Expenses.

4. New Valley shall reimburse Brooke for fifty percent (50%)
of the cost of the Rent, Personnel and monthly Operating Expenses,
within one (1) day of invoice by Brooke.

5. Brooke shall reimburse New Valley for twenty-five percent
(25%) of salaries, wages and benefits of certain New Valley
officers and employees performing services for Brooke, which
percentage represents the estimate of time spent by New Valley
personnel on Brooke matters, within one (1) day of invoice by New
Valley to Brooke.

6. New Valley has read and agrees to be bound by the terms,
conditions and restrictions contained in the Sublease, (including
those contained in the Master Lease, as defined in the and shall be
fully and completely responsible for any and all breaches of the
terms, conditions and restrictions contained therein.

7. Both New Valley and Brooke represent and warrant that
they have full authority to enter into this Agreement.

8. This Agreement contains the entire agreement between the
Parties and supersedes all previous negotiations and understandings
leading thereto. This Agreement may be modified only by an
agreement, in writing, signed by both parties. This Agreement shall
be governed by Florida law and shall bind and inure to the benefit
of the parties and their respective successors and assigns.

2
<PAGE> 3

IN WITNESS WHEREOF, the undersigned have, this date, set their
hands and seals

BROOKE GROUP LTD.

BY:
-----------------------

NEW VALLEY CORPORATION

BY:
-----------------------

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 16,998
<SECURITIES> 0
<RECEIVABLES> 20,253
<ALLOWANCES> 0
<INVENTORY> 45,543
<CURRENT-ASSETS> 86,870
<PP&E> 27,716
<DEPRECIATION> 0
<TOTAL-ASSETS> 211,281
<CURRENT-LIABILITIES> 99,334
<BONDS> 438,372
<COMMON> 1,825
0
0
<OTHER-SE> (328,250)
<TOTAL-LIABILITY-AND-EQUITY> 211,281
<SALES> 341,718
<TOTAL-REVENUES> 341,718
<CGS> 158,766
<TOTAL-COSTS> 332,088
<OTHER-EXPENSES> (6,530)
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<INCOME-PRETAX> (27,209)
<INCOME-TAX> 464
<INCOME-CONTINUING> (27,673)
<DISCONTINUED> 15,998
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<NET-INCOME> (11,675)
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</TABLE>