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As filed with the Securities and Exchange Commission on November 13, 1995
REGISTRATION NO. 33-63119
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BROOKE GROUP LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 100 S.E. SECOND STREET 51-0255124
(State or other jurisdiction MIAMI, FLORIDA 33131 (I.R.S. Employer
of incorporation or (305) 579-8000 Identification Number)
organization) (Address, including zip code,
and telephone number, including
area code, of Registrant's
principal executive offices)
</TABLE>
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MARC N. BELL
GENERAL COUNSEL
BROOKE GROUP LTD.
100 S.E. SECOND STREET
MIAMI, FLORIDA 33131
(305) 579-8000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
MARK L. WEISSLER
MILBANK, TWEED, HADLEY & McCLOY
1 CHASE MANHATTAN PLAZA
NEW YORK, NEW YORK 10005
(212) 530-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered pursuant to dividend or reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
-----------
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
-----------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
NOVEMBER 13, 1995
SUBJECT TO COMPLETION
PROSPECTUS
1,000,000 SHARES
BROOKE GROUP LTD.
COMMON STOCK
(PAR VALUE $.10)
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This Prospectus relates to 1,000,000 shares of Common Stock,
par value $.10 per share (the "Shares"), of Brooke Group Ltd. (the
"Company") which may be offered for sale from time to time by the
Selling Stockholder named herein, or by such Selling Stockholder's
pledgees, donees, transferees or other successors in interest, to or
through underwriters or directly to other purchasers or through agents
in one or more transactions at varying prices determined at the time
of sale or at negotiated prices. The Company will not receive any of
the proceeds from any such sales. See "Selling Stockholder" and "Plan
of Distribution".
The Company's common stock is listed on the New York Stock
Exchange under the symbol "BGL". The last reported sale price of the
Common Stock on the New York Stock Exchange on November 10, 1995 was
$8.00 per share.
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SEE "RISK FACTORS" (LOCATED ON PAGES 3-8 OF THIS PROSPECTUS)
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED
BY POTENTIAL PURCHASERS OF THE SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------
THE DATE OF THIS PROSPECTUS IS NOVEMBER 13, 1995
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the SEC in Washington,
D.C., and at the SEC's Regional Offices at 7 World Trade Center, New York, New
York and 500 West Madison Street, Chicago, Illinois. Copies of such
information can be obtained from the Public Reference Section of the SEC,
Washington, D.C. 20549 at prescribed rates. In addition, reports, proxy
statements and other information concerning the Company may be inspected and
copied at the offices of The New York Stock Exchange, 20 Broad Street, New
York, New York. Any interested parties may inspect the Registration Statement,
without charge, at the public reference facilities at the SEC, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004, and may obtain
copies of all or any part of it from the Public Reference Section of the SEC at
the above address upon payment of the fees prescribed by the SEC.
The Company has filed with the SEC a registration statement on Form
S-3 under the Securities Act (together with any amendments thereto, the
"Registration Statement") with respect to the Shares being offered pursuant to
this Prospectus. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is hereby made to the Registration Statement and the documents
incorporated herein by reference.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained herein, and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company, the Selling Stockholder or any underwriter.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities other than the Shares or an offer to sell, or a
solicitation of an offer to buy, Shares in any jurisdiction in which, or to any
person to whom, such offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Company documents filed with the SEC (File No. 1-5759)
are incorporated herein by reference: (1) Annual Report on Form 10-K for the
fiscal year ended December 31, 1994; (2) Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995 and June 30, 1995, respectively; (3) Current
Report on Form 8-K dated January 13, 1995; (4) Current Report on Form 8-K dated
January 25, 1995; (5) Current Report on Form 8-K dated October 2, 1995; (6) the
description of the Common Stock contained in a registration statement filed
under the Exchange Act, including any amendment or reports filed for the
purpose of updating such description; and (7) all other documents filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Shares.
Any statement incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person including a
beneficial owner to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
which are incorporated by reference herein, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference
into such documents). Written or telephone requests should be directed to
Marc N. Bell, Brooke Group Ltd., 100 S.E. Second Street, Miami, Florida 33131,
telephone (305) 579-8000.
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RISK FACTORS
Before purchasing the Shares offered hereby, a prospective investor
should consider, among other things, the following factors set forth below, as
well as the other information set forth elsewhere in the Prospectus, in
evaluating the Company, its business prospects and the Shares.
HIGH DEGREE OF LEVERAGE; NET WORTH DEFICIENCY; RECENT LOSSES
At June 30, 1995 the Company had total outstanding indebtedness of
$409,043,000 and a net worth deficiency of $336,039,000. The Company has
substantial near-term debt service requirements, with required principal
payments of $26,491,000, $7,985,000, $129,814,000 and $163,990,000 in the years
1995 through 1998, which principal payment include, as to 1995 only, the 13.75%
Series 1 Senior Secured Notes 1995 (the "Series 1 Notes"), which such Series 1
Notes are no longer outstanding. The Company has experienced losses from
continuing operations since 1991 and earnings have been insufficient to cover
fixed charges for the last 2 years and the first six months of the current year.
In addition, Liggett Group Inc. ("Liggett"), the Company's principal operating
subsidiary, had a net worth deficit at June 30, 1995 and for the period ended
December 31, 1993 experienced a net loss and a deficiency in earnings available
to cover fixed charges. See "Certain Risk Regarding Liggett and the Cigarette
Industry - Net Worth Deficit; Recent Losses and Interest Coverage Deficiency".
HOLDING COMPANY STRUCTURE; DEPENDENCE ON CASH FROM SUBSIDIARIES
AND CERTAIN INVESTMENTS; STRUCTURAL SUBORDINATION
The Company is a holding company and has no operations of its own.
Accordingly, the ability of the Company to pay dividends on the Shares is
substantially dependent on the ability of New Valley Corporation ("New Valley")
(in which the Company indirectly holds an approximate 42% voting interest) and
of Liggett and the Company's other subsidiaries to generate cash and the
availability of that cash to the Company. Certain covenants in Liggett's debt
instruments impose restrictions on, among other things, Liggett's ability to
declare and pay dividends or make other advances, payments or distributions to
the Company and its subsidiaries. As a result, Liggett has not paid dividends
since November 1992 and is not expected to pay dividends in the foreseeable
future. Additionally, certain covenants in an Indenture, dated as of September
30, 1994 between BGLS Inc., a wholly-owned subsidiary of the Company ("BGLS"),
and Shawmut Bank, N.A., as Trustee (the "Indenture") relating to the BGLS's
ability to pay or make dividends, distributions and other Restricted Payments
(as defined in the Indenture) restrict the ability of BGLS to distribute the
stock of Liggett held by it, but such covenants are subject to important
qualifications and limitations.
New Valley's First Amended Joint Chapter 11 Plan of Reorganization, as
amended (the "Joint Plan"), and the Indenture impose certain restrictions on
transactions with the Company and certain of its subsidiaries or affiliates,
including restrictions relating to payments and distributions to the Company
and certain of its subsidiaries and affiliates from New Valley and New Valley
Holdings, Inc., a wholly-owned subsidiary of BGLS ("NV Holdings"). Moreover, as
a controlling shareholder (through BGLS and NV Holdings) of New Valley, the
Company is under a legal obligation to deal fairly with New Valley, which may
limit its ability to enter into transactions with New Valley that result in the
receipt of cash from New Valley and to influence New Valley's dividend policy
in certain respects.
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In addition, the Company does not hold (directly or indirectly) a
majority of New Valley's voting power and may not be able to control New
Valley's dividend policy. Since the Company indirectly owns (through NV
Holdings and BGLS) less than an absolute majority of each class of New Valley
capital stock held by NV Holdings and BGLS (other than, due to recent share
repurchases by New Valley, the Class A Preferred Shares of New Valley), a
majority of any cash and other assets distributed by New Valley with respect
to any such class (other than such Class A Preferred Shares) will be
distributed to persons other than the Company and its subsidiaries.
The Company's receipt of income from its principal subsidiaries and
investments is an important source of its liquidity and capital resources, and,
as described above, its ability to receive such income is subject to a number
of risks and uncertainties. If the Company does not generate sufficient cash
flow from continuing operations to satisfy its debt service obligations, it
will be required to secure additional funds from other sources. There can be no
assurance that the Company will be able to secure such additional funds at all
or on terms acceptable to the Company.
Moreover, holders of the Shares are in effect in a subordinate position
with respect to claims of creditors against the Company's subsidiaries. Liggett
had outstanding approximately $183,692,000 of secured indebtedness for borrowed
money at June 30, 1995, and is also subject to substantial contingent
litigation liabilities.
CERTAIN RISKS REGARDING LIGGETT AND THE CIGARETTE INDUSTRY
Net Worth Deficit; Recent Losses and Interest Coverage Deficiency. At
June 30, 1995, Liggett had a net worth deficiency of $156,020,000. During the
year ended December 31, 1993, Liggett incurred a net loss of $31,400,000, and
experienced deficiencies in earnings available to cover its own fixed charges
of $18,900,000. The Company's management believes that Liggett's 1993 loss
resulted primarily from dramatic pricing, volume and other changes affecting
the tobacco industry in general, although no assurance can be given that such
losses will not recur. Although Liggett had net income of $15,400,000 for the
year ended December 31, 1994, it showed a net loss of $759,000 for the first
six months of 1995, and earnings were inadequate to cover fixed charges by
$1,038,000 for this period. Liggett's leverage could impair its ability to
withstand competitive pressures or adverse economic conditions and to take
advantage of business opportunities. At June 30, 1995, Liggett had outstanding
approximately $126,337,000 of 11.5% Series B Senior Secured Notes due 1999 and
$32,350,000 of 19.75% Series C Senior Secured Notes due 1999. In addition,
Liggett has a $40,000,000 revolving credit facility (the "Liggett Facility"),
under which $22,600,000 was outstanding at June 30, 1995. The Liggett Facility
expires on March 8, 1997. While Liggett currently is in compliance with all
financial covenants (based on working capital and net worth ratios) under the
Liggett Facility, failure to remain in compliance, or having borrowings
outstanding in excess of the amount permitted based on the amount of eligible
receivables and inventory, could result in the inability to borrow further and
in the acceleration of outstanding indebtedness under the Liggett Facility. If
Liggett is unable to meet its earnings requirements due to additional changes
in industry conditions or otherwise, then Liggett could be in violation of
certain debt covenants, and, if the lenders were to exercise acceleration
rights or refuse to advance under the Liggett Facility, Liggett may not be able
to satisfy such demands. Liggett's ability to satisfy its debt service
obligations will depend on its operating performance and liquidity, as well as
on prevailing economic
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conditions and on financial, business, industry and other factors which may be
largely beyond Liggett's control.
Tobacco Industry Problems; Liggett's Competitive Position in Industry.
Liggett has suffered substantial losses and liquidity problems as a result of
severe adverse developments in the tobacco industry, including substantial
price reductions in full-price brands and certain leveraged trade programs of
its largest rivals. Liggett is substantially smaller and has fewer resources
than all its major competitors and has a correspondingly limited ability to
respond to market developments. The U.S. cigarette market is highly
concentrated and has extremely high barriers to entry. After the acquisition
by B.A.T. Industries plc of American Tobacco Company, three firms control
approximately 90% of the U.S. market. Philip Morris Companies Inc. ("Philip
Morris") is the largest and most profitable manufacturer in the market, and
its profits derive principally from its sale of lucrative premium cigarettes.
Philip Morris has in excess of 50% of the premium segment. Philip Morris and
RJR Nabisco Inc., the two largest cigarette manufacturers, have historically,
because of their dominant market share, been able to determine cigarette
prices for the various pricing tiers within the industry. The other cigarette
manufacturers have historically brought their prices into line with the levels
established by the two major manufacturers. Since at least 1993, management
believes that Philip Morris's market strategy has been to minimize the actual
price spread between discount and premium products and to curtail the sales
made by the makers of discount products. In part, Philip Morris sought to
minimize that spread by dropping its premium prices in early 1993. In
addition, that strategy has also been carried out through wholesale and retail
trade programs.
Liggett's overall market share for the 12 months ended June 30, 1995
was 2.2%, down from 2.4% for the prior 12 months ended June 30, 1994. Liggett's
share of the premium segment for the 12 months ended June 30, 1995 was .5%,
down from .6% for the prior 12-month period. Liggett's share of the discount
segment for the 12 months ended June 30, 1995 was 1.7%, down from 1.8% for the
prior 12-month period. Management believes that but for the above described
trade programs, the Company's performance, both as to profitability and volume,
would have been better.
Industry-wide shipments of cigarettes in the United States have been
steadily declining for several years. Even though The Maxwell Consumer Report,
a recognized industry publication estimates that domestic industry-wide
shipments actually increased by 6.2% in 1994, the Company does not believe this
trend will continue. Liggett's management believes that future shipments will
return to historical decline rates as a result of numerous factors, including
health considerations, diminishing social acceptance of smoking, legislative
limitations on smoking in public places and federal and state excise tax
increases which have augmented cigarette price increases. Unlike its major
competitors, Liggett does not have significant operations overseas, where
cigarette consumption is still growing, and there can be no assurance that
Liggett will be in a position to compete overseas.
Certain Litigation. Since 1954, Liggett 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 so-called secondary smoke from
cigarettes. These cases are reported hereinafter as though having been
commenced against Liggett (without regard to
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whether such actually were commenced against the Company in its former name or
in its present name or against Liggett), since all involve the tobacco
manufacturing and marketing activities currently performed by Liggett. The
number of such cases pending against Liggett and the other cigarette
manufacturers had decreased generally since early 1987, after several years of
increases, but new cases continue to be brought against Liggett and other
cigarette manufacturers, with the number of such cases now pending against
Liggett being significantly greater than in 1993. As new cases are initiated,
the costs associated with defending such cases and the risks attendant on the
inherent unpredictability of litigation continue. 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. Four states have actions against Liggett
and the other named cigarette manufacturers seeking restitution and indemnity
for certain Medicaid costs allegedly incurred as a result of tobacco-related
illnesses. In one of these actions (Florida), the case was commenced pursuant
to an enabling statute. Currently, 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. The Company is
unable to make a meaningful estimate of the amount or range of loss that could
result from an unfavorable outcome of the cases pending against Liggett. It is
possible that Liggett's financial position, results of operations or cash
flows could be materially affected by an ultimate unfavorable outcome of any of
this certain pending litigation.
Recent Regulatory and Legislative Developments. The State of Florida
enacted legislation, effective July 1, 1994, allowing certain state authorities
or entities to commence litigation to seek recovery of Medicaid payments made
on behalf of Medicaid recipients as a result of disease allegedly caused
by liable third parties. Though not limited to the tobacco industry, the
statutory scheme would impose, if ultimate liability of the cigarette industry
was established in litigation, a liability based upon market share for such
payments made for diseases allegedly caused by the smoking of or exposure to
cigarettes. The statute abrogates comparative negligence, assumption of risk
and other defenses typically available for liable third parties and, by its
stated language, permits the use of statistical evidence to prove causation. In
addition, the State of Massachusetts has recently enacted legislation
authorizing lawsuits by the attorney general of Massachusetts to recover
certain medical assistance payments paid by such state to medical assistance
payment recipients as a result of diseases allegedly caused by liable third
parties. On May 6, 1995, the Florida legislature voted favorably on a bill to
repeal the legislation referred to herein. The governor of Florida has vetoed
the repealing legislation and it is uncertain at this time if and when the
Florida legislature may override this veto. The Florida legislature is not in
session at this time. Recent federal legislation imposing domestic tobacco
content requirements on cigarette manufacturers was repealed retroactively
(as of December 31, 1994) coincident in time with the recent issuance of a
Presidential proclamation imposing tariffs on imported tobacco in excess of
certain quotas. In March 1994, the Food and Drug Administration (the "FDA")
began an investigation of whether cigarettes should be regulated by that
agency. 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
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challenging the legal authority of the FDA to assert such jurisdiction.
Management is unable to predict the outcome of this litigation. Management is
also unable to predict the effects of such a classification or of such
regulations, if implemented, on Liggett, but such actions could have an
unfavorable impact thereon.
Potential Increases in Excise Tax. The sale of cigarettes is subject to
substantial federal excise taxes as well as various state and local government
excise taxes. The price of cigarettes includes federal excise taxes at the rate
of $12.00 per 1,000 cigarettes. This tax, which was levied as of January 1,
1993, increased the previous federal excise tax which had been at the rate of
$10.00 per 1,000 cigarettes. In the prior session of Congress, health care
legislation was introduced which would have substantially increased excise taxes
currently on cigarettes. While that legislation was not enacted, proposals to
increase federal excise taxes are pending before Congress and there remains a
possibility that additional proposals to increase excise taxes may be put
forward. A substantial excise tax increase could accelerate the trend away from
smoking and could have an unfavorable effect on Liggett's sales. Excise and
similar taxes on cigarettes, which are levied upon and typically paid by the
distributors, are also in effect in the 50 states, the District of Columbia and
many municipalities. These state and local taxes range from approximately $1.25
to $37.50 per 1,000 cigarettes.
CERTAIN AFFILIATE TRANSACTIONS
Certain affiliates of the Company have entered into various transactions
with the Company and with other affiliates of the Company. Existing contracts
with such companies include services agreements under which Liggett and
COM Products Inc. (a direct subsidiary of BGLS) receive financial and
administrative services from the Company, a tax-sharing agreement between
Liggett and the Company, expense sharing arrangements between BGLS and the
Company and the provision of certain services by Liggett to a Russian joint
stock company, a majority of whose equity is indirectly owned by BGLS. In
addition, the Company has entered into certain arrangements with individuals
who serve as officers or directors of companies affiliated with the Company,
certain portions of the cost of which have been charged by the Company to such
affiliated companies.
The Indenture, the Liggett Indenture and certain other indentures to
which BGLS is a party contain restrictions on the ability of BGLS and Liggett to
enter into additional transactions with their respective affiliates, including
the Company. In addition, the Joint Plan imposes certain restrictions on the
ability of New Valley to enter into transactions with affiliates, and the
Company, as the indirect controlling shareholder of New Valley, is under a legal
obligation to deal fairly with New Valley, which obligation may limit the
Company's ability to enter into certain transactions with New Valley or to
influence New Valley's dividend policy. The restrictions described in this
paragraph are subject to important limitations and qualifications.
UNCERTAINTY OF OTHER POTENTIAL ACQUISITIONS
New Valley currently holds a substantial amount of cash and marketable
securities. This subjects investors to increased risk and uncertainty, because
they are unable to evaluate the manner in which this cash will be invested and
the economic merits of particular investments. There may be substantial delay
in locating suitable investment opportunities. In addition, New Valley may not
have relevant management experience in the areas in which New
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Valley may become involved. No assurance can be given that New Valley will be
successful in targeting, consummating or managing any of these investments.
UNCERTAINTIES RELATING TO OPERATIONS IN RUSSIA
The Company and certain of its subsidiaries have significant
investments in cigarette manufacturing and real estate development operations
in Russia and are considering additional investment in Russia. To date, such
operations in Russia have not been profitable. Business operations in Russia
are subject to a high level of risk. Since the breakup of the Soviet Union at
the end of 1991, Russia has experienced dramatic political, social and economic
change, including severe inflation. The political system in Russia is emerging
from a long history of extensive state involvement in economic affairs and is
undergoing a rapid transition from a centrally controlled command system to a
more market-oriented model. The Company may be affected unfavorably by
political or diplomatic developments, regional tensions, currency repatriation
restrictions, foreign exchange fluctuations and other political or diplomatic
developments in the law or regulations in Russia and, in particular, the risks
of expropriation, nationalization and confiscation of assets and changes in
legislation relating to foreign ownership. In addition, an undeveloped system
of commercial laws (including the enforcement of laws) and markets adds to the
risk of investments in Russia. No assurance can be given as to the potential
profitability (if any) and effect on liquidity and cash flow that investments
in Russia may have on the Company.
POSSIBLE REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940
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 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 or 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 the
Indenture and certain other indentures to which BGLS is a party.
DEPENDENCE ON CERTAIN MANAGEMENT
The Company is dependent upon the services of Bennett S. LeBow
(the "Chairman"), Chairman of the Board, President and Chief Executive Officer
of the Company and BGLS. The loss to the Company of the Chairman could have a
material adverse effect on the Company's operations.
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THE COMPANY
The Company, a Delaware corporation founded in 1980, is principally
engaged in the manufacture and sale of cigarettes and the acquisition of
operating companies through a controlled subsidiary. The Company also has
investments in a number of additional companies engaged in a diverse group of
businesses. The Company's principal executive offices are located at 100 S.E.
Second Street, Miami, Florida 33131, and its telephone number is (305)
579-8000. The Company is a publicly held corporation with its common stock
listed on The New York Stock Exchange under the symbol "BGL".
The Company's tobacco business is conducted principally through its
wholly owned subsidiary, Liggett Group Inc. Liggett is the fifth
largest manufacturer of cigarettes in the United States in terms of unit sales.
Liggett produces both full-price branded cigarettes (L&M, Chesterfield, Lark
and Eve) as well as price/value cigarettes in over 300 combinations of lengths,
styles and packaging.
Additionally, the Company holds indirectly (through its subsidiaries,
BGLS and NV Holdings) an approximately 42% voting interest in New Valley. New
Valley emerged from bankruptcy reorganization proceedings in January 1995 and
currently holds primarily cash and marketable securities which it is seeking
to apply towards the acquisition of operating companies. See "RISK FACTORS"
generally. The Company also has interests in such diverse businesses as
computer output microfiche products and various businesses located in the
Russian Republic ("Russia"), including cigarette manufacturing and real estate
development. The Company is contemplating further investment in Russia and
other countries that were part of the former USSR.
RECENT DEVELOPMENTS
Proposal in respect of Spinoff of RJR's Nabisco Food Business. On
August 28, 1995, New Valley received approval from the Federal Trade Commission
to purchase up to fifteen percent (15%) of the voting securities of RJR Nabisco
Holdings Corp. ("RJR"). On October 30, 1995, the Company announced its
intention to solicit consents from stockholders of RJR in support of, among
other things, an advisory resolution approving an immediate spinoff of the
Nabisco food business to RJR stockholders (the "Spinoff"). In connection
therewith, the Company also indicated that it would propose a new slate of
directors to replace the incumbent RJR board at RJR's 1996 Annual Meeting of
Stockholders if such board does not commit prior to November 20, 1995, the
deadline for proposing new directors, to effect the Spinoff.
-9-
<PAGE> 12
Possible Reorganization of the Company's Corporate Structure. The
Company is considering a reorganization of the Company's operations whereby the
Company and its subsidiaries would become direct and indirect subsidiaries,
respectively, of a newly-formed holding company ("Holdco"). Pursuant to such a
reorganization (the "Reorganization"), the stockholders of the Company
immediately prior to the Reorganization would become stockholders of Holdco. The
corporate powers, limitations and rights of stockholders will be substantially
similar before and after the Reorganization. The consolidated assets and
liabilities of Holdco and its subsidiaries subsequent to the Reorganization
would be the same as the consolidated assets and liabilities of the Company and
its subsidiaries immediately prior thereto. However, in connection with the
Reorganization Holdco would purchase from BGLS all of BGLS's assets, other than
the shares of Liggett. In consideration for the BGLS assets, Holdco would enter
into supplemental indentures whereby Holdco would assume and novate the debt of
BGLS outstanding under indentures to which BGLS is a party, pursuant to the
existing provisions of those indentures. The Staff of the SEC has issued a
no-action letter with respect to certain securities law aspects of the
Reorganization.
Until June 1990, the Company was an operating company. At that time,
the Company contributed its tobacco operation to Liggett, then a newly formed
subsidiary. See "THE COMPANY". Although Liggett assumed the contingent
liabilities related to the tobacco operations when it acquired the Company's
tobacco assets (including contingent liabilities arising out of the Company's
operations up to that time), such assumption of liabilities by Liggett did not
have the effect of releasing the Company from these liabilities. See "RISK
FACTORS -- Certain Risks Regarding Liggett and the Cigarette Industry -- Certain
Litigation". Accordingly, although the Company currently conducts all its
material operations through its subsidiaries, it nonetheless remains subject to
contingent liabilities from its former operations and therefore is not a true
holding company. While the Company believes that it will not be subject to
material liability as a result of its former tobacco operations, the
Reorganization would have the effect of providing greater certainty to
investors, outside sources of financing and others doing business with the
Company and its non-tobacco businesses that they will not become ensnared in
litigation by reason of the Company's former tobacco business. Such a
Reorganization should enhance opportunities for future growth of the Company's
non-tobacco businesses, and would also simplify the reporting obligations of the
reorganized company under the securities laws and under indentures to which
BGLS is a party, thereby reducing legal and compliance costs. Furthermore, the
Company believes such a consolidation of its public equity and BGLS's debt into
a single entity would enhance the market's comprehension of Holdco and its
operations.
The Company currently has no firm plans regarding consummation of the
Reorganization. The Company will determine whether to proceed with the
Reorganization based on considerations such as market factors and business
conditions generally.
USE OF PROCEEDS
The net proceeds from the sale of the Shares will be received by the
Selling Stockholder. None of the proceeds from any sales by the Selling
Stockholder will be received by the Company.
SELLING SECURITY HOLDER
The Shares registered pursuant to the Registration Statement are
being offered for the account of Howard M. Lorber (the "Selling Stockholder").
The Selling Stockholder acts as a consultant to the Company and also serves as
a member of the Board of Directors and President and Chief Operating Officer of
New Valley. Pursuant to the two agreements described in the following
paragraph, the Selling Stockholder owns or has the right to acquire 1,000,000
shares of the Company's common stock and the Shares offered hereby and by any
applicable prospectus supplement represent all of such Company common stock.
The Selling Stockholder will own no shares of the Company's common stock after
completion of the offering.
-10-
<PAGE> 13
The Selling Stockholder acquired beneficial ownership of 500,000 of
the Shares pursuant to an agreement dated as of January 1, 1994, as amended
(the "Consulting Agreement"), between the Selling Stockholder and the Company.
The Selling Stockholder acquired beneficial ownership of the remaining Shares
pursuant to an agreement dated January 25, 1995 (the "Stock Option Agreement").
The Stock Option Agreement granted the Selling Stockholder options to purchase
500,000 Shares at $2.00 per share. The options granted to the Selling
Stockholder under the Stock Option Agreement are exercisable over a ten year
period, with the Selling Stockholder having the right to purchase up to 20% on
the grant date and up to an additional 20% on each of the four anniversaries of
the grant date.
PLAN OF DISTRIBUTION
Any distribution of the Shares by the Selling Stockholder, or by
pledgees, donees, transferees or other successors in interest, may be effected
from time to time in one or more of the following transactions: (a) to
underwriters who will acquire the Shares for their own account and resell them
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale (any
public offering price and any discount or concessions allowed or reallowed or
paid to dealers may be changed from time to time); (b) through brokers, acting
as principal or agent, in transactions (which may involve block transactions)
on The New York Stock Exchange, in special offerings, exchange distributions
pursuant to the rules of the applicable exchanges or in the over-the-counter
market, or otherwise, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices or at
fixed prices; or (c) directly or through brokers or agents in private sales at
negotiated prices, or by any other legally available means. Unless otherwise
set forth in any prospectus supplement, (i) the obligations of any underwriter
to purchase any of the Shares will be subject to certain conditions precedent
and the underwriters will be obligated to purchase all of such Shares, if any
are purchased and (ii) any such agent will be acting on a best efforts basis
for the period of its appointment.
The Selling Stockholder and such underwriters, brokers, dealers or
agents, upon effecting the sale of the Shares, may be considered "underwriters"
as that term is defined by the Securities Act.
Underwriters participating in any offering made pursuant to this
Prospectus (as amended or supplemented from time to time) may receive
underwriting discounts and commissions, and discounts or concessions may be
allowed or reallowed or paid to dealers, and brokers or agents participating in
such transactions may receive brokerage or agent's commissions or fees.
At the time a particular offering of Shares is made, to the extent
required, a Prospectus Supplement will be distributed which will set forth the
amount of Shares being offered and the terms of the offering, including the
purchase price or public offering price, the name or names of any underwriters,
dealers or agents, the purchase price paid by any underwriter for Shares
purchased from the Selling Stockholder, any discounts, commissions and other
items constituting compensation
-11-
<PAGE> 14
from the Selling Stockholder and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is
available and complied with.
All costs, expenses and fees in connection with the registration of
the Shares will be borne by the Company. Commissions and discounts, if any,
attributable to the sale of the Shares will be borne by the Selling
Stockholder. The Selling Stockholder may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the
Shares against certain liabilities, including liabilities arising under the
Securities Act. The Company and the Selling Stockholder have agreed to
indemnify each other and certain other persons against certain liabilities in
connection with the offering of the Shares, including liabilities arising under
the Securities Act.
EXPERTS
The consolidated financial statements included in the Company's Annual
Report on Form 10-K as of December 31, 1994 and 1993 and the related
consolidated statements of operations, stockholder's equity (deficit) and cash
flows of the Company for each of the three years in the period ended December
31, 1994 incorporated by reference herein in reliance on the report, which
includes explanatory paragraphs relating to uncertainty as to the ultimate
outcome of certain pending legislation against the Company and the Company's
change in accounting in 1993 for post-retirement benefits other than pensions
to conform with Statement of Financial Accounting Standards No. 106, of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of said firm
as experts in accounting and auditing. The consolidated financial statements
of New Valley included in the Company's Annual Report on Form 10-K as of
December 31, 1993 and 1994 and for each of the three years in the period then
ended incorporated by reference herein have been so included in reliance on the
report of Price Waterhouse LLP given on the authority of said firm as experts
in auditing and accounting.
VALIDITY OF SHARES
The validity of the Shares offered hereby is being passed upon
for the Company by Marc N. Bell, Esq., General Counsel of the Company.
-12-
<PAGE> 15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16.--EXHIBITS.
The following documents are filed as a part of this Registration
Statement or incorporated by reference herein:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
*5.1 Opinion of Marc N. Bell, Esq.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP
23.3 Consent of KPMG Peat Marwick LLP
*23.4 Consent of Marc N. Bell, Esq. (included in Exhibit 5.1)
*24.1 Power of Attorney (included in the signature page hereof)
</TABLE>
* Previously filed.
-12-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
undersigned registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, and State of
Florida, on the 13th day of November 1995.
BROOKE GROUP LTD.
By: /s/ BENNETT S. LeBOW
----------------------------
Bennett S. LeBow
Chairman of the board of
Directors, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on November 13, 1995.
* /s/ BENNETT S. LEBOW Chairman of the Board of
----------------------------- Directors, President and
Bennett S. LeBow Chief Executive Officer
(Principal Executive Officer)
* /s/ GERALD E. SAUTER Vice President, Chief Financial
----------------------------- Officer and Treasurer (Principal
Gerald E. Sauter Financial Officer and Principal
Accounting Officer)
* /s/ ROBERT J. EIDE Director
-----------------------------
Robert J. Eide
* /s/ JEFFREY S. PODELL Director
-----------------------------
Jeffrey S. Podell
* Marc N. Bell, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to a power of attorney duly executed
by such persons and filed with the Securities and Exchange Commission.
By: /s/ MARC N. BELL
-----------------------------------
Marc N. Bell
Attorney-In-Fact
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<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<S> <C>
*5.1 Opinion of Marc N. Bell, Esq.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP
23.3 Consent of KPMG Peat Marwick LLP
*23.4 Consent of Marc N. Bell, Esq. (included in Exhibit 5.1).
*24.1 Power of Attorney (included in the signature page hereof).
</TABLE>
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report, which includes explanatory paragraphs relating to
uncertainty as to the ultimate outcome of certain pending litigation against
the Company and to the Company's change in accounting in 1993 for
postretirement benefits other than pensions to conform with Statement of
Financial Accounting Standards No. 106, dated April 3, 1995 on our audits of
the consolidated financial statements and financial statement schedule of
Brooke Group Ltd. and Subsidiaries as of December 31, 1994 and 1993, and for
the years ended December 31, 1994, 1993, and 1992, which reports are included
in the annual report on Form 10-K of Brooke Group Ltd. and
Subsidiaries for the fiscal year ended December 31, 1994, filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934. We also consent to the reference to our firm under the caption
"Experts".
Coopers & Lybrand L.L.P.
Miami, Florida
November 10, 1995
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on Form S-3 (No.
33-63119) of our report dated March 24, 1995, relating to the financial
statements of New Valley Corporation and its subsidiaries, which appears on
page C-40 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Morristown, New Jersey
November 10, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Brooke Group Ltd.
We consent to the incorporation by reference of our report dated March 9, 1995
in the registration statement on Form S-3 (No. 33-3886) of Brooke Group Ltd.,
relating to the consolidated balance sheets of MAI Systems Corporation as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' deficiency and cash flows for the years ended
December 31, 1994 and 1993, the three month period ended December 31, 1992
and the fiscal year ended September 30, 1992, and related schedule, which
report appears in the December 31, 1994 annual report on Form 10-K/A
of MAI Systems Corporation.
KPMG Peat Marwick LLP
Orange County, California
November 9, 1995
