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OF THE SECURITIES EXCHANGE ACT OF 1934
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RJR NABISCO HOLDINGS CORP.
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(Name of Registrant as Specified in its Charter)
BROOKE GROUP LTD.
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(Name of Person(s) Filing Proxy Statement)
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For Immediate Release
Contact: George Sard/Anna Cordasco/Paul Caminiti
Sard Verbinnen & Co
212/687-8080
BROOKE AGREES TO SETTLE TOBACCO LITIGATION WITH 5 STATES
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MIAMI, FL, MARCH 15, 1996 -- Brooke Group Ltd. (NYSE: BGL) announced
today that it has entered into a settlement of tobacco litigation with the
Attorneys General of five states. Brooke had previously entered into a
settlement of the Castano class action which, subject to federal court approval,
releases Brooke and its Liggett Group tobacco subsidiary from all current and
future addiction-based claims by a nationwide class of smokers.
The settlement with the Attorneys General releases Brooke and Liggett
from all tobacco- related Medicaid reimbursement claims by the states of
Florida, Louisiana, Massachusetts, Mississippi and West Virginia.
The five states and the Castano plaintiffs have agreed that they will
not seek to enjoin the spinoff of Nabisco (NYSE: NA) to RJR Nabisco (NYSE: RN)
shareholders if Brooke's nominees are elected to the RJR Nabisco Board of
Directors. Brooke is proposing directors to replace the existing RJR Nabisco
Board at the Annual Meeting on April 17, 1996.
"This comprehensive settlement is good news for both Brooke and RJR
Nabisco shareholders, and it is also in the long-term financial interests of the
entire tobacco industry," said Bennett S. LeBow, chairman and chief executive
officer of Brooke Group. "A new economic model for the industry based on
responsible coexistence instead of scorched earth confrontation can
substantially increase stock valuations over time as the market begins to
realize that abnormally low cash flow multiples no longer make any sense. At the
same time, RJR shareholders have a clear choice. If they vote for our directors
they will get an immediate spinoff of Nabisco with no injunction risk, a $2 per
share tobacco dividend, Ron Fulford revitalizing the tobacco business, and
improved corporate governance. They will also get first option to benefit from
our favorable settlement -- which would cost RJR Nabisco only a little more than
a penny a pack -- on terms set by Dale Hanson and the other independent
directors. If they don't vote for us, they will get business as usual from the
existing RJR Nabisco Board."
-more-
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2
Under the agreement, the states would share an initial $5 million ($1
million up front and the balance over 10 years), as well as a percentage of
Liggett's pretax income each year from the second through the 25th year. This
annual percentage would range from 2-1/2% to 7-1/2% of Liggett's pretax income,
depending on the number of additional states joining this agreement.
Settlement funds received by the Attorneys General will be used to
reimburse the states' smoking-related healthcare costs. While neither consenting
to FDA jurisdiction nor waiving their objections thereto, Brooke and Liggett
have also agreed to phase in compliance with certain proposed interim FDA
regulations regarding smoking by children and adolescents, including a
prohibition on the use of cartoon characters in tobacco advertising and
limitations on the use of promotional materials and distribution of sample
packages where minors are present.
Brooke and Liggett have the right to terminate the settlement with
respect to any state participating in the settlement if any of the remaining
defendants in the litigation succeed on the merits. Brooke and Liggett may also
terminate the settlement if they conclude that too few additional states have
joined. As pioneers of the settlement, Brooke and Liggett are also entitled to
certain benefits not available to the other defendants that could reduce the
payment obligations of Brooke and Liggett (and any future affiliate) to the
plaintiffs in certain circumstances.
"This settlement gives Brooke the best of both worlds," said LeBow. "We
have capped our potential liability on favorable terms while retaining the right
to benefit from any legal victories by the remaining defendants. In addition, as
the market becomes more familiar with the agreement, it will become clear that
Liggett has not waived any legal privileges."
The settlement would also apply in the event of a merger or other
business combination between Liggett or Brooke and any of the other defendants
in the lawsuits, except any entity with a market share greater than 30%. The
combining defendant would receive the same settlement benefits enjoyed by Brooke
and Liggett. The five states would share an initial $135 million and other
states joining the settlement would share another $25 million.
The states would also share a percentage of the pretax income of the
combined tobacco companies from the second through the 25th year. The percentage
will range from 2-1/2% to 7-1/2% of pretax income depending on how many other
states join the settlement, but the amount will not be less than $30 million a
year. The initial five states will share 2-1/2% of pre-tax income and the other
states will share the next 5% according to a formula based on their Medicaid
populations. The five states will also share $3.75 million ($1.25 million a year
for three years) to monitor point-of-sale advertising by all companies close to
schools.
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3
Brooke Group controls Liggett Group, tobacco and real estate operations
in the former Soviet Union and has a substantial equity interest in New Valley
Corporation.
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