<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ____)
<TABLE>
<CAPTION>
<S> <C>
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Brooke Group Ltd.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
BROOKE GROUP LTD.
100 S.E. SECOND STREET
MIAMI, FLORIDA 33131
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 15, 1998
To the Stockholders of Brooke Group Ltd.:
The Annual Meeting of Stockholders of Brooke Group Ltd., a Delaware
corporation (the "Company"), will be held at The Hyatt Regency Miami, 400 S.E.
Second Avenue, Miami, Florida 33131 on Thursday, October 15, 1998 at 11:00 a.m.
local time, and at any postponement or adjournment thereof, for the following
purposes:
1. To elect four directors to hold office until the next annual meeting of
stockholders and until their successors are elected and qualified.
2. To amend the Company's Certificate of Incorporation to increase the
authorized number of shares of Common Stock of the Company from 40,000,000 to
100,000,000.
3. To approve a proposed Brooke Group Ltd. 1998 Long-Term Incentive Plan.
4. To transact such other business as properly may come before the meeting
or any adjournments or postponements of the meeting.
Every holder of record of common stock, par value $.10 per share (the
"Common Stock"), of the Company at the close of business on September 14, 1998
is entitled to notice of the meeting and any adjournments or postponements
thereof and to vote, in person or by proxy, one vote for each share of Common
Stock held by such holder. A list of stockholders entitled to vote at the
meeting will be available to any stockholder for any purpose germane to the
meeting during ordinary business hours from October 5, 1998 to October 15, 1998,
at the headquarters of the Company located at 100 S.E. Second Street, 32nd
Floor, Miami, Florida 33131. A proxy statement, form of proxy and the Company's
Annual Report on Form 10-K, as amended, for the fiscal year ended December 31,
1997 are enclosed herewith.
By Order of the Board of Directors,
[LOGO]
Bennett S. LeBow
Chairman of the Board of Directors
Miami, Florida
September 15, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND RETURN THE ENCLOSED
PROXY AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
<PAGE> 3
BROOKE GROUP LTD.
100 S.E. SECOND STREET
MIAMI, FLORIDA 33131
---------------------------
PROXY STATEMENT
---------------------------
INTRODUCTION
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Brooke Group Ltd., a Delaware corporation (the "Company"). The proxy
is solicited for use at the annual meeting of stockholders (the "Annual
Meeting") to be held at The Hyatt Regency Miami, 400 S.E. Second Avenue, Miami,
Florida 33131 on Thursday, October 15, 1998, at 11:00 a.m. local time, and at
any postponement or adjournment thereof. The Company's principal executive
offices are located at 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131,
and its telephone number is (305) 579-8000.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Every holder of record of common stock, par value $.10 per share (the
"Common Stock"), of the Company at the close of business on September 14, 1998
(the "Record Date") is entitled to notice of the meeting and any adjournments or
postponements thereof and to vote, in person or by proxy, one vote for each
share of Common Stock held by such holder. At the Record Date, the Company had
outstanding 20,943,730 shares of Common Stock. The approximate date on which
this proxy statement, accompanying notice and proxy and the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Annual
Report") are first being mailed to stockholders is on or about September 16,
1998.
Any stockholder giving a proxy in the form accompanying this proxy
statement has the power to revoke the proxy prior to its exercise. A proxy can
be revoked by an instrument of revocation delivered at or prior to the Annual
Meeting to the Secretary of the Company, by a duly executed proxy bearing a date
or time later than the date or time of the proxy being revoked, or at the Annual
Meeting if the stockholder is present and elects to vote in person. Mere
attendance at the Annual Meeting will not serve to revoke a proxy. Abstentions
and shares held of record by a broker or its nominee ("Broker Shares") that are
voted on any matter are included in determining the number of votes present.
Broker Shares that are not voted on any matter will not be included in
determining whether a quorum is present.
All proxies received and not revoked will be voted as directed. If no
directions are specified, such proxies will be voted FOR the election of the
Board's nominees, FOR the amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock authorized for
issuance and FOR the approval of the Brooke Group Ltd. 1998 Long-Term Incentive
Plan. The nominees receiving a plurality of the votes cast will be elected as
directors. The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock will be required to approve the amendment to the
Company's Certificate of Incorporation. The affirmative vote of the majority of
votes cast at the meeting will be necessary for approval of any other matters to
be considered at the Annual Meeting. In all cases, shares with respect to which
authority is withheld, abstentions and Broker Shares that are not voted will not
be included in determining the number of votes cast.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, the beneficial
ownership of the Company's Common Stock (the only class of voting securities) by
(i) each person known to the Company to own beneficially more than five percent
of the Common Stock, (ii) each of the Company's directors and nominees, (iii)
each of the Company's named executive officers (as such term is defined in the
Summary Compensation Table below) and (iv) all directors and executive officers
as a group. Unless otherwise indicated, each person possesses sole voting and
investment power with respect to the shares indicated as beneficially owned, and
the business address of each person is 100 S.E. Second Street, Miami, Florida
33131.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
- ------------------------------------ --------- ----------
<S> <C> <C>
Bennett S. LeBow (1)(5)(6)............................... 9,180,008 43.8%
Richard S. Ressler(2).................................... 1,824,999 8.7%
Orchard Capital Corporation
10960 Wilshire Boulevard
Los Angeles, CA 90024
AIF II, L.P. and Lion Advisors, L.P.(3).................. 2,000,000 8.7%
Two Manhattanville Road
Purchase, NY 10577
High River Limited Partnership(4)........................ 1,500,000 7.2%
Riverdale LLC
Carl C. Icahn
100 South Bedford Road
Mt. Kisco, NY 10549
Robert J. Eide(5)........................................ 20,000 (*)
Aegis Capital Corp.
70 East Sunrise Highway
Valley Stream, NY 11581
Jeffrey S. Podell(5)..................................... 20,000 (*)
Newsote, Inc.
26 Jefferson Street
Passaic, NJ 07055
Jean E. Sharpe(5)........................................ 10,000 (*)
462 Haines Road
Mt. Kisco, NY 10549
Richard J. Lampen(6)(7).................................. 33 (*)
Joselynn D. Van Siclen(6)................................ -- --
Ronald S. Fulford(8)..................................... -- --
Liggett Group Inc.
700 West Main Street
Durham, NC 27702
All directors and executive officers as a group
(7 persons)............................................ 9,230,041 44.1%
</TABLE>
- ---------------
(*) The percentage of shares beneficially owned does not exceed 1% of the Common
Stock.
(1) Includes 8,633,008 shares of Common Stock held by LeBow Limited Partnership,
a Delaware limited partnership ("LLP"), and 547,000 shares of Common Stock
held by The Bennett and Geraldine LeBow Foundation, Inc., a Florida
not-for-profit corporation (the "Foundation"). Mr. LeBow indirectly
exercises sole voting power and sole dispositive power over the shares of
Common Stock held by LLP, 8,191,800 shares of which are pledged to U.S.
Clearing Corp. to secure a margin loan to Mr. LeBow. Mr. LeBow is a
director, officer and sole shareholder of LeBow Holdings, Inc., a Nevada
corporation
2
<PAGE> 5
("LHI"), the general partner of LLP. Mr. LeBow and family members serve as
directors and executive officers of the Foundation, and Mr. LeBow possesses
shared voting power and shared dispositive power with the other directors of
the Foundation with respect to the Foundation's shares of Common Stock. The
Foundation's principal business and office address is 1221 Brickell Avenue,
21st Floor, Miami, Florida 33131.
(2) Based upon Amendment No. 6 to Schedule 13D dated April 15, 1998, filed by
the named individual.
(3) Based upon Schedule 13D dated March 26, 1998, filed by the named entities.
These shares are issuable upon exercise of currently exercisable warrants to
purchase Common Stock expiring March 3, 2003. See "Certain Relationships and
Related Transactions".
(4) Based upon Schedule 13D dated January 28, 1998, filed by the named entities
and individual. Riverdale LLC is the general partner of High River Limited
Partnership and is wholly owned by Mr. Icahn. See "Certain Relationships and
Related Transactions".
(5) The named individual is a director of the Company.
(6) The named individual is an executive officer of the Company.
(7) Includes currently exercisable options to purchase Common Stock.
(8) The named individual is an executive officer of the Company's subsidiary,
Liggett Group Inc. ("Liggett").
In addition, by virtue of his controlling interest in the Company, Mr.
LeBow may be deemed to own beneficially the securities of the Company's
subsidiaries, including BGLS Inc. ("BGLS") and Liggett, and securities of New
Valley Corporation ("New Valley"), in which the Company holds an indirect voting
interest of approximately 42%. The disclosure of this information shall not be
construed as an admission that Mr. LeBow is the beneficial owner of any
securities of the Company's subsidiaries or New Valley under Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or for any
other purpose, and such beneficial ownership is expressly disclaimed. None of
the Company's other directors or executive officers beneficially owns any equity
securities of any of the Company's subsidiaries or New Valley.
NOMINATION AND ELECTION OF DIRECTORS
The By-Laws of the Company provide, among other things, that the Board,
from time to time, shall determine the number of directors of the Company. The
size of the Board is presently set at four. The present term of office of all
directors will expire at the Annual Meeting. Four directors are to be elected at
the Annual Meeting to serve until the next annual meeting of stockholders and
until their respective successors are duly elected and qualified.
It is intended that proxies received will be voted FOR election of the
nominees named below unless marked to the contrary. In the event any such person
is unable or unwilling to serve as a director, proxies may be voted for
substitute nominees designated by the present Board. The Board has no reason to
believe that any of the persons named below will be unable or unwilling to serve
as a director if elected.
The Board recommends that stockholders vote FOR election of the nominees
named below.
3
<PAGE> 6
INFORMATION WITH RESPECT TO NOMINEES
The following table sets forth certain information, as of the Record Date,
with respect to each of the nominees. Each nominee is a citizen of the United
States.
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE PRINCIPAL OCCUPATION
---------------- --- --------------------
<S> <C> <C>
Bennett S. LeBow....................... 60 Chairman of the Board, President and
Brooke Group Ltd. Chief Executive Officer
100 S.E. Second Street
Miami, FL 33131
Robert J. Eide......................... 45 Secretary and Treasurer, Aegis
Aegis Capital Corp. Capital Corp.
70 E. Sunrise Highway
Valley Stream, NY 11581
Jeffrey S. Podell...................... 57 Chairman of the Board and President,
Newsote, Inc. Newsote, Inc.
26 Jefferson Street
Passaic, NJ 07055
Jean E. Sharpe......................... 52 Private Investor
462 Haines Road
Mt. Kisco, NY 10549
</TABLE>
Each director is elected annually and serves until the next annual meeting
of stockholders and until his successor is duly elected and qualified.
BUSINESS EXPERIENCE OF NOMINEES
BENNETT S. LEBOW has been Chairman of the Board, President and Chief
Executive Officer of the Company since June 1990 and has been a director of the
Company since October 1986. Since November 1990, he has been Chairman of the
Board, President and Chief Executive Officer of BGLS, a wholly-owned subsidiary
of the Company, which directly or indirectly holds the Company's equity
interests in several private and public companies.
Mr. LeBow has been a director of Liggett, an indirect wholly-owned
subsidiary of the Company engaged in the manufacture and sale of cigarettes,
primarily in the United States, since June 1990 and Chairman of the Board of
Liggett from July 1990 to May 1993. He served as one of three interim Co-Chief
Executive Officers of Liggett from March 1993 to May 1993.
He has been Chairman of the Board of New Valley, a company engaged in the
investment banking and brokerage business, in real estate development in Russia
and Ukraine, in the ownership and management of commercial real estate in the
United States and in the acquisition of operating companies, in which the
Company holds an indirect voting interest of approximately 42%, since January
1988, and Chief Executive Officer since November 1994. In November 1991, an
involuntary petition seeking an order for relief under Chapter 11 of Title 11 of
the United States Code was commenced against New Valley. New Valley emerged from
bankruptcy reorganization proceedings in January 1995. He has been Chairman of
the Board, President and Chief Executive Officer of New Valley Holdings, Inc.,
an indirect wholly-owned subsidiary of the Company ("NV Holdings"), which holds
certain of the Company's equity interest in New Valley, since September 1994.
He was a director of MAI Systems Corporation ("MAI"), the Company's former
indirect majority-owned subsidiary, from September 1984 to October 1995,
Chairman of the Board from November 1990 to May 1995 and the Chief Executive
Officer from November 1990 to April 1993. In April 1993, MAI filed for
protection under Chapter 11 of Title 11 of the United States Code. In November
1993, MAI emerged from bankruptcy reorganization proceedings. MAI is engaged in
the development, sale and service of a variety of computer and software
products.
4
<PAGE> 7
ROBERT J. EIDE has been a director of the Company since November 1993. Mr.
Eide has been a director of BGLS since November 1993, a director of NV Holdings
since September 1994, and Secretary and Treasurer of Aegis Capital Corp., a
registered broker-dealer, since before 1988. Mr. Eide also serves as a director
of Nathan's Famous, Inc., a restaurant chain.
JEFFREY S. PODELL has been a director of the Company since November 1993.
Mr. Podell has been a director of BGLS since November 1993, a director of NV
Holdings since September 1994 and the Chairman of the Board and President of
Newsote, Inc., a privately-held holding company, since 1989.
JEAN E. SHARPE has been a director of the Company and BGLS since May 1998.
Ms. Sharpe is a private investor and has engaged in various philanthropic
activities since her retirement in September 1993 as Executive Vice President
and Secretary of the Company and as an officer of various of its subsidiaries.
Ms. Sharpe previously served as a director of the Company from July 1990 until
September 1993.
BOARD OF DIRECTORS AND COMMITTEES
During 1997, the Board held five meetings. During 1997, the Compensation
Committee (currently composed of Messrs. Eide and Podell) and the Executive
Committee (currently composed of Messrs. Eide and LeBow) did not meet, while the
Audit Committee (currently composed of Messrs. Eide and Podell and Ms. Sharpe)
met once. Each director attended at least 75% of the aggregate number of
meetings of the Board and of each committee of which he was a member held during
such period. The Company does not have a nominating committee.
The Executive Committee exercises, in the intervals between meetings of the
Board, all the powers of the Board in the management and affairs of the Company.
The Audit Committee reviews, with the Company's independent auditors,
matters relating to the scope and plan of the audit, the adequacy of internal
controls and the preparation of financial statements, and reports and makes
recommendations to the Board with respect thereto.
The Compensation Committee reviews, approves and administers management
compensation and executive compensation plans. The Compensation Committee also
administers the Company's 1998 Long-Term Incentive Plan.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation awarded
to, earned by or paid during the past three years to those persons who were, at
December 31, 1997, the Company's Chief Executive Officer, the other two
executive officers of the Company and an executive officer of a subsidiary of
the Company whose cash compensation exceeded $100,000 (collectively, the "named
executive officers"):
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
--------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
------------------ ---- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Bennett S. LeBow............. 1997 3,113,281(2) 667,969(3) -- --
Chairman of the Board, 1996 3,484,375(2) 890,626(3) -- --
President and Chief 1995 3,082,823(2) 712,500(3) -- --
Executive Officer
Richard J. Lampen(4)......... 1997 650,000 -- -- 260,000(5)
Executive Vice President 1996 600,000 100,000 -- --
Joselynn D. Van Siclen(6).... 1997 140,000 -- -- --
Vice President, Chief 1996 131,667 10,000 -- --
Financial Officer and
Treasurer
Ronald S. Fulford(7)......... 1997 425,000 -- 247,961(8)(9) --
Chairman of the Board, 1996 157,530 -- 552,832(9) --
President and Chief
Executive Officer of
Liggett
</TABLE>
- ---------------
(1) Unless otherwise stated, the aggregate value of perquisites and other
personal benefits received by the named executive officers is not reflected
because the amount was below the reporting requirements established by the
rules of the Securities and Exchange Commission (the "SEC").
(2) Includes salary paid by New Valley of $2,000,000, $2,000,000 and $1,894,823
during 1997, 1996 and 1995, respectively.
(3) Includes payments equal to 10% of base salary ($111,328, $148,438 and
$118,750 during 1997, 1996 and 1995, respectively) in lieu of certain other
executive benefits. See "Employment Agreements".
(4) Effective July 1, 1996, Mr. Lampen was appointed Executive Vice President of
the Company. In 1997 and 1996, all of Mr. Lampen's salary and bonus were
paid by New Valley and 25% (or $162,500 and $175,000 in 1997 and 1996,
respectively) was subsequently reimbursed to New Valley by the Company. The
table reflects 100% of Mr. Lampen's salary and bonus.
(5) Represents options to purchase Common Stock. See "Stock Option Grants in
1997".
(6) Effective May 6, 1996, Ms. Van Siclen was appointed Vice President, Chief
Financial Officer and Treasurer of the Company.
(7) Effective September 5, 1996, Mr. Fulford was appointed Chairman of the
Board, President and Chief Executive Officer of Liggett.
(8) Represents an automobile allowance, living allowance and group term life
insurance provided to Mr. Fulford.
(9) Includes payments ($163,155 and $552,832 in 1997 and 1996, respectively)
made pursuant to a consulting agreement between Mr. Fulford and the Company,
which payments were reimbursed to the Company by New Valley. See "Employment
Agreements".
6
<PAGE> 9
The following table sets forth all grants of stock options to the named
executive officers during 1997.
STOCK OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
NUMBER
OF
SECURITIES
UNDERLYING PERCENT OF TOTAL GRANT
OPTIONS OPTIONS GRANTED EXERCISE DATE PRESENT
GRANTED TO EMPLOYEES IN PRICE EXPIRATION VALUE
NAME (#) 1997 ($/SHARE) DATE ($)(2)
---- ---------- ---------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Richard J. Lampen....................... 260,000(1) 61.6% $5.00 12/31/06 $1,118,000
</TABLE>
- ---------------
(1) Represents options to purchase shares of Common Stock, which were granted at
fair market value on January 1, 1997. Subject to earlier vesting upon a
change of control (as defined), the options vest and become exercisable in
six equal annual installments commencing on January 1, 1998.
(2) The estimated present value at grant date of options granted during 1997 has
been calculated using the Black-Scholes option pricing model, based upon the
following assumptions: volatility of 81.46%, a risk-free rate of 6.44%, an
expected life of 10 years, and no expected dividends or forfeiture. The
approach used in developing the assumptions upon which the Black-Scholes
valuation was done is consistent with the requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation".
The following table sets forth certain information concerning unexercised
options held by the named executive officers as of December 31, 1997. There were
no stock options exercised by any of the named executive officers during 1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard J. Lampen................................ -0 - 260,000 -- $942,500 *
</TABLE>
- ---------------
* Calculated using the closing price of $8 5/8 per share on December 31, 1997
less the option exercise price.
COMPENSATION OF DIRECTORS
Outside directors of the Company each receive $7,000 per annum as
compensation for serving as a director, $1,000 per annum for each Board
committee membership, $1,000 per meeting for each Board meeting attended, and
$500 per meeting for each committee meeting attended. In addition, each outside
director of BGLS receives $28,000 per annum as compensation for serving as a
director, $500 per annum for each Board committee membership, $500 per meeting
for each Board meeting attended, and $500 for each committee meeting attended.
Each outside director is reimbursed for reasonable out-of-pocket expenses
incurred in serving on the Board of the Company and/or BGLS.
In the second quarter of 1998, each outside director of the Company
received an award of 10,000 shares of Common Stock for services as a director.
Subject to earlier vesting upon a change of control (as defined), the shares
vest one-quarter on the date of grant and the remaining shares vest in three
equal annual installments commencing on the first anniversary of the date of
grant.
EMPLOYMENT AGREEMENTS
Brooke. Bennett S. LeBow is a party to an employment agreement with the
Company dated February 21, 1992, as amended effective as of July 20, 1998. The
agreement has a one-year term with
7
<PAGE> 10
automatic renewals for additional one-year terms unless notice of non-renewal is
given by either party six months prior to the termination date. As of January 1,
1998, Mr. LeBow's annual base salary was $1,391,601. He is also entitled to an
annual bonus for 1998 of $695,800 and an annual payment equal to 10% of his base
salary in lieu of certain other executive benefits such as club memberships,
company-paid automobiles and other similar perquisites. Following termination of
his employment without cause (as defined), he would continue to receive his then
current base salary and bonus for 24 months. Following termination of his
employment within two years of a change of control (as defined) or in connection
with similar events, he is entitled to receive a lump sum payment equal to 2.99
times his then current base salary and bonus. Under the terms of the Indenture
governing BGLS' 15.75% Senior Secured Notes due 2001 (the "BGLS Notes"), Mr.
LeBow's salary and bonus may not be increased from one year to the next by more
than 10% per annum, except that his salary and bonus may be increased in the
same percentage amount as any increase in the price of the Company's Common
Stock during a calendar year, subject to a maximum increase of 25% per annum.
His salary and bonus are subject to decrease if the price of the Common Stock
decreases by more than 10% during a calendar year, up to a maximum decrease of
25% per annum, but in no event lower than compensation earned in 1994
($1,425,000).
Ronald S. Fulford, Chairman of the Board, President and Chief Executive
Officer of Liggett, is a party to an employment agreement with Liggett, dated
September 5, 1996. As of January 1, 1998, Mr. Fulford's annual salary was
$425,000. Bonus payments are at the sole discretion of the Board of Liggett.
Effective as of March 1, 1996, the Company entered into a consulting agreement
with Mr. Fulford. Pursuant to this agreement, Mr. Fulford agreed to provide
various services in connection with the Company's investment in RJR Nabisco
Holdings Corp. ("RJR Nabisco") (including, without limitation, consulting
services, attendance at and participation in meetings related to the Company's
solicitation of proxies at RJR Nabisco's 1996 annual meeting and presentations
to financial analysts and institutional investors). During the term of the
agreement, which ended on March 31, 1997, Mr. Fulford received compensation
equal to UKL33,417 (or approximately $54,000) per month and reimbursement for
all reasonable business and travel expenses incurred in performing services
under the agreement. The Company also agreed to reimburse Mr. Fulford for any
reduction in pension benefits (currently estimated at approximately UKL14,400
(or approximately $23,000 per annum) which resulted from his terminating his
employment with Imperial Tobacco to enter into the agreement.
There are no employment agreements between BGLS and the named executive
officers.
New Valley. Mr. LeBow is a party to an employment agreement with New
Valley dated as of June 1, 1995, as amended effective as of January 1, 1996. The
agreement has an initial term of three years effective as of January 18, 1995
(the "Effective Date"), with an automatic one year extension on each anniversary
of the Effective Date unless notice of non-extension is given by either party
within the sixty-day period prior to such anniversary date. As of January 1,
1998, Mr. LeBow's annual base salary was $2,000,000. Following termination of
his employment without cause (as defined therein), he would continue to receive
his base salary for a period of 36 months commencing with the next anniversary
of the Effective Date following the termination notice. Following termination of
his employment within two years of a change of control (as defined therein), he
is entitled to receive a lump sum payment equal to 2.99 times his then current
base salary. The BGLS Notes Indenture and New Valley's First Amended Joint
Chapter 11 Plan of Reorganization dated November 1, 1994, as amended, provide
that the annual compensation paid to Mr. LeBow for services rendered in his
capacity as an officer or director of New Valley shall not exceed $2,000,000.
Richard J. Lampen is a party to an employment agreement with New Valley
dated September 22, 1995. The agreement has an initial term of two and a quarter
years from October 1, 1995 with automatic renewals after the initial term for
additional one-year terms unless notice of non-renewal is given by either party
within the ninety-day period prior to the termination date. As of January 1,
1998, his annual base salary was $750,000. In addition, the Board of Directors
of New Valley may award an annual bonus to Mr. Lampen at its sole discretion.
The Board shall review such base salary annually and may increase (but not
decrease) it from time to time, in its sole discretion. Following termination of
his employment without cause (as defined therein), he shall receive severance
pay in a lump sum equal to the amount of his base salary he would have received
if he was employed for one year after termination of his employment term.
8
<PAGE> 11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, Messrs. Eide, LeBow and Podell were members of the Company's
compensation committee. Messrs. Eide and Podell serve as directors of BGLS and
NV Holdings. Mr. Eide is a stockholder, and serves as the Secretary and
Treasurer of Aegis Capital Corp. ("ACC"), a registered broker-dealer, that has
performed services for the Company and/or its affiliates since before January 1,
1997. During 1997, ACC received commissions and other income in the aggregate
amount of approximately $522,000 from the Company and/or its affiliates. ACC, in
the ordinary course of its business in 1997, engaged in brokerage activities
with Ladenburg Thalmann & Co. Inc. ("Ladenburg"), a subsidiary of New Valley, on
customary terms.
Effective July 1, 1990, a former executive of the Company transferred his
equity in the Company to Mr. LeBow and resigned from substantially all of his
positions with the Company and its affiliates. In consideration for this
transfer, LLP, a partnership controlled by Mr. LeBow, agreed, among other
things, to make certain payments to the Company on account of the former
executive's outstanding indebtedness of $5,477,000. On March 7, 1997, LLP
satisfied its obligation with respect to the loan by transferring to the Company
400,000 shares of the Company's Common Stock, which shares had been pledged to
secure the non-recourse obligation, except as to the pledged shares.
Mr. LeBow is a director of Liggett. He is Chairman of the Board and Chief
Executive Officer of New Valley, BGLS and NV Holdings. Mr. Lampen, an executive
officer of the Company and BGLS, is an executive officer and director of New
Valley.
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
BGLS sponsors the Retirement Plan For Salaried Non-Bargaining Unit
Employees (the "Retirement Plan") of Liggett, which is a noncontributory,
defined benefit plan. Each salaried employee of the participating companies
becomes a participant on the first day of the month following one year of
employment with 1,000 hours of service and the attainment of age 21. A
participant becomes vested as to benefits on the earlier of his attainment of
age 65, or upon completion of five years of service. Benefits become payable on
a participant's normal retirement date, age 65, or, at the participant's
election, at his early retirement after he has attained age 55 and completed ten
years of service. A participant's annual benefit at normal retirement date is
equal to the sum of: (A) the product of: (1) the sum of: (a) 1.4% of the
participant's average annual earnings during the five-year period from January
1, 1986 through December 31, 1990 not in excess of $19,500 and (b) 1.7% of his
average annual earnings during such five-year period in excess of $19,500 and
(2) the number of his years of credited service prior to January 1, 1991; (B)
1.55% of his annual earnings during each such year after December 31, 1990, not
in excess of $16,500; and (C) 1.85% of his annual earnings during such year in
excess of $16,500. The maximum years of credited service is 35. If hired prior
to January 1, 1983, there is no reduction for early retirement. If hired on or
after January 1, 1983, there is a reduction for early retirement equal to 3% per
year for the number of years prior to age 65 (age 62 if the participant has at
least 20 years of service) that the participant retires. The Retirement Plan
also provides benefits to disabled participants and to surviving spouses of
participants who die prior to retirement. Benefits are paid in the form of a
single life annuity, with optional actuarially equivalent forms of annuity
available. Payment of benefits is made beginning on the first day of the month
immediately following retirement. As of December 31, 1993, the accrual of
benefits under the plan for Liggett employees was frozen.
As of December 31, 1997, none of the named executive officers was eligible
to receive any benefits under the Retirement Plan.
Under certain circumstances, the amount of retirement benefits payable
under the Retirement Plan to certain employees may be limited by the federal tax
laws. Any Retirement Plan benefit lost due to such a limitation will be made up
by BGLS through a non-qualified supplemental retirement benefit plan. BGLS has
accrued, but not funded, amounts to pay benefits under this supplemental plan.
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<PAGE> 12
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation arrangements for the Company's executive officers are usually
negotiated on an individual basis between Mr. LeBow and each executive. The
Company's executive compensation philosophy is to base management's pay, in
part, on achievement of the Company's goals, to provide incentives to enhance
stockholder value, to provide competitive levels of compensation, to recognize
individual initiative and achievement and to assist the Company in attracting
talented executives to a challenging and demanding environment and to retain
such executives for the benefit of the Company and its subsidiaries.
Compensation arrangements for the Company's executive officers are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual, and by reference to the competitive marketplace
for management talent. Annual salary adjustments are determined by evaluating
the competitive marketplace, the performance of the Company, the performance of
the executive, and any increased responsibilities assumed by the executive.
Bonus arrangements of certain executive officers are fixed by contract and are
not contingent. The Company, from time to time, considers the payment of
discretionary bonuses to its executive officers. Bonuses are determined based,
first, upon the level of achievement by the Company of its goals and, second,
upon the level of personal achievement by such executive officers.
The compensation package of Mr. LeBow was negotiated and approved by the
independent members of the Board in February 1992. The compensation of Mr. LeBow
is set forth in an employment agreement between Mr. LeBow and the Company and is
restricted by the BGLS Notes Indenture. See "Employment Agreements", above. In
1998, Mr. LeBow was also granted certain stock options, subject to stockholder
approval. See "Approval of Brooke Group Ltd. 1998 Long-Term Plan -- 1998 Stock
Option Grants Under the Plan".
The compensation package of Mr. Fulford, as Chairman of the Board,
President and Chief Executive Officer of Liggett, was negotiated and approved by
the Board of Directors of Liggett in September 1996. The compensation of Mr.
Fulford is set forth in an employment agreement between Mr. Fulford and Liggett.
See "Employment Agreements", above.
In 1993, Section 162(m) was added to the Internal Revenue Code of 1986, as
amended (the "Code"). This Section generally provides that no publicly held
company shall be permitted to deduct compensation in excess of $1 million paid
in any taxable year to its chief executive officer or any of its four highest
paid officers unless: (i) the compensation is payable solely on account of the
attainment of performance goals; (ii) the performance goals are determined by a
compensation committee of two or more outside directors; (iii) the material
terms under which compensation is to be paid are disclosed to and approved by
the stockholders of the Company; and (iv) the compensation committee certifies
that the performance goals were met. This limitation is applicable to the
compensation paid by the Company to the Chairman in 1997. The effect of the Code
Section 162(m) limitation is substantially mitigated by the Company's net
operating losses, although the amount of any deduction disallowed under Code
Section 162(m) could increase the Company's alternative minimum tax by up to 2%
of such disallowed amount. For information relating to the Company's net
operating losses, see Note 12 to the Company's Consolidated Financial
Statements, which Note is set forth in the Annual Report enclosed herewith.
The foregoing information is provided by the Compensation Committee of the
Company.
Robert J. Eide
Jeffrey S. Podell
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<PAGE> 13
PERFORMANCE GRAPH
The following graph compares the total annual return of the Company's
Common Stock, the S&P 500 Index, the S&P MidCap 400 Index and the S&P Tobacco
Index for the five years ended December 31, 1997. The graph assumes that $100
was invested on December 31, 1992 in the Company's Common Stock and each of the
indices, and that all dividends were reinvested. Information for the Company's
Common Stock includes (i) the value of the October 7, 1993 distribution to the
Company's stockholders of SkyBox International Inc. ("SkyBox") common stock
assuming such stock was held until April 30, 1995 (the date on which Marvel
Entertainment Group, Inc. completed its acquisition of SkyBox pursuant to, among
other things, a cash tender offer of $16 per share) and the proceeds from the
tender offer were reinvested on that date in the Company's Common Stock; and
(ii) the value of the February 13, 1995 distribution to the Company's
stockholders of MAI common stock, assuming such stock was held until December
31, 1997.
<TABLE>
<CAPTION>
Measurement Period Brooke Group
(Fiscal Year Covered) Ltd. S&P 500 S&P MidCap S&P Tobacco
<S> <C> <C> <C> <C>
12/92 $100 $100 $100 $100
12/93 $305 $110 $114 $78
12/94 $537 $112 $110 $85
12/95 $1839 $153 $138 $134
12/96 $1077 $188 $172 $170
12/97 $1925 $251 $227 $211
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 16, 1996, the Company entered into a Stock Option Agreement
(the "Agreement") with Howard M. Lorber, a consultant who serves as a director
and President of New Valley. The Agreement granted such consultant non-qualified
stock options to purchase 1,000,000 shares of the Company's Common Stock at an
exercise price of $1.00 per share. The options, which have a ten-year term, vest
and become exercisable in six equal annual installments beginning on July 1,
1997. Pursuant to the Agreement, Common Stock dividend equivalents are paid on
each vested and unexercised option. During 1997 and in 1998, the consultant has
received consulting fees of $40,000 per month from the Company and a subsidiary.
In January 1998, the consultant and the Company entered into an amendment to his
consulting agreement whereby he is entitled on an annual basis to receive
additional payments in an amount necessary to reimburse him, on an after-tax
basis, for all applicable taxes incurred by him during the prior calendar year
as a result of the grant to him, or vesting, of a 1994 award of 500,000
restricted shares of the Company's Common Stock, a 1995 award of 500,000 options
to acquire shares of the Company's Common Stock and the 1996 award of 1,000,000
options pursuant to the Agreement. The consultant received an additional
consulting payment of $425,000 in January 1998, which the consultant and the
Company have agreed will constitute full satisfaction of the Company's
obligations under the amendment with respect to 1997.
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<PAGE> 14
In 1995, the Company and New Valley entered into an expense sharing
agreement pursuant to which certain lease, legal and administrative expenses are
allocated to the entity incurring the expense. The Company was reimbursed
$375,000 under this agreement for the year ended December 31, 1997.
On December 18, 1996, New Valley loaned BGLS $990,000 under a short-term
promissory note due January 31, 1997 and bearing interest at 14% per annum. On
January 2, 1997, New Valley loaned BGLS an additional $975,000 under another
short-term promissory note due January 31, 1997 and bearing interest at 14% per
annum. Both loans, including interest, were repaid on January 31, 1997. In
September 1998, New Valley made a one-year $950,000 loan to BGLS which bears
interest at 14% per annum.
On January 31, 1997, Brooke (Overseas) Ltd. ("BOL"), a wholly-owned
subsidiary of the Company, entered into a stock purchase agreement (the
"Purchase Agreement") with New Valley, pursuant to which BOL sold 99.1% of the
shares (the "BML Shares") of the common stock of BrookeMil Ltd. ("BML"), a
subsidiary of BOL engaged in real estate development in Russia, to New Valley.
New Valley paid a purchase price of $55 million, consisting of $21.5 million in
cash and a $33.5 million 9% promissory note of New Valley (the "Note"). The Note
has been paid in full. The transaction was approved by the independent members
of the Board of BOL. BOL retained independent legal counsel in connection with
the evaluation and negotiation of the transaction. See Item 1.
"Business -- Brooke (Overseas) Ltd. -- Sale of BrookeMil Ltd." as well as Notes
4 and 16 to the Company's Consolidated Financial Statements for information
concerning the transaction and a pending lawsuit relating to New Valley's
purchase of the BML Shares, each of which is set forth in the Annual Report
enclosed herewith.
Richard S. Ressler, the beneficial owner of more than 5% of the Company's
Common Stock and a director of New Valley until September 1997, is Chairman of
the Board and the beneficial owner of 16.8% of the shares of MAI Systems
Corporation ("MAI"), which in 1996 entered into certain arrangements with
Ladenburg, whereby MAI has sold computer and software products and has been
providing related professional and support services to Ladenburg. During 1997,
Ladenburg paid MAI, in the aggregate, approximately $610,000 for such products
and services. In addition, during 1997, Ladenburg paid another company
controlled by Mr. Ressler approximately $143,000 for communications services.
In March 1997, New Valley acquired a membership interest in Orchard/JFAX
Investors, LLC, of which Mr. Ressler serves as a managing member, for $1
million. The LLC holds a controlling interest in a provider of telecommunication
services.
As of the Record Date, AIF II, L.P. and an affiliated investment manager,
Lion Advisors, L.P., on behalf of a managed account (the "Apollo Holders") were
the beneficial owners of 8.7% of the Company's Common Stock and held $97,239,000
principal amount of the BGLS Notes. On March 2, 1998, the Company entered into
an agreement with the Apollo Holders in which the Apollo Holders agreed to defer
the payment of interest on the BGLS Notes held by them, commencing with the
interest payment that was due July 31, 1997, which they had previously agreed to
defer, through the interest payment due July 31, 2000. The deferred interest
payments will be payable at final maturity of the BGLS Notes on January 31, 2001
or upon an event of default under the Indenture for the BGLS Notes. In
connection with the March 2, 1998 agreement with the Apollo Holders, the Company
issued to the Apollo Holders a five-year warrant to purchase 2,000,000 shares of
the Company's Common Stock at a price of $5.00 per share. The Apollo Holders
were also issued a second warrant expiring October 31, 2004 to purchase an
additional 2,150,000 shares of the Company's Common Stock at a price of $0.10
per share. The second warrant will become exercisable on October 31, 1999, and
the Company will have the right under certain conditions prior to that date to
substitute for that warrant a new warrant for 9.9% of the common stock of
Liggett.
The Company, New Valley and their affiliates have other business
relationships with affiliates of the Apollo Holders. On January 11, 1996, New
Valley acquired from an affiliate of the Apollo Holders eight shopping centers
for $72.5 million. New Valley and pension plans sponsored by BGLS have invested
in investment partnerships managed by an affiliate of the Apollo Holders. In
February 1998, New Valley and Apollo Real Estate Investment Fund III, L.P.
("Apollo"), an affiliate of the Apollo Holders, organized Western Realty
Development LLC ("Western Realty") to make real estate and other investments in
Russia. In connection with the formation of Western Realty, New Valley agreed,
among other things, to contribute to
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<PAGE> 15
Western Realty the real estate assets of BML, and Apollo agreed to contribute up
to $58 million. Western Realty has invested $20 million for a 30% profits
interest in a company organized by BOL which will, among other things, acquire
an interest in an industrial site and manufacturing facility being constructed
on the outskirts of Moscow by a subsidiary of BOL. For additional information
concerning Western Realty, see Item 1. "Business -- New Valley
Corporation -- Western Realty", as well as Note 2 to the Company's Consolidated
Financial Statements, each of which is set forth in the Annual Report enclosed
herewith.
As of the Record Date, High River Limited Partnership ("High River") was
the beneficial owner of 7.2% of the Company's Common Stock and an affiliate,
Tortoise Corp., held $97,551,000 principal amount of the BGLS Notes. On January
16, 1998, the Company entered into a Stock Purchase Agreement under which High
River purchased 1,500,000 shares of the Company's Common Stock at $6.00 per
share for an aggregate purchase price of $9,000,000.
For information concerning certain agreements and transactions between the
Company, BGLS and New Valley relating to RJR Nabisco, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments -- New Valley -- Investment in RJR Nabisco"
and Note 3 and Note 17 to the Company's Consolidated Financial Statements, each
of which is set forth in the Annual Report enclosed herewith.
See also "Compensation Committee Interlocks and Insider Participation."
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board has adopted and declared advisable, subject to stockholder
approval, an amendment to the Company's Certificate of Incorporation to increase
the Company's number of authorized shares of Common Stock from 40,000,000 shares
to 100,000,000 shares.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock. Adoption
of the proposed amendment and issuance of the Common Stock would not affect the
rights of the holders of currently outstanding Common Stock, except for effects
incidental to increasing the number of shares of the Common Stock outstanding,
such as dilution of the earnings per share and voting rights of current holders
of Common Stock. The Common Stock has no preemptive rights. If the amendment is
adopted, it will become effective upon filing of a Certificate of Amendment of
the Company's Certificate of Incorporation with the Secretary of the State of
Delaware.
If the amendment to the Company's Certificate of Incorporation is approved,
the increased number of authorized shares of Common Stock will be available for
issuance, from time to time, for such purposes and consideration, and on such
terms, as the Board may approve and no further vote of the stockholders of the
Company will be sought, although certain issuances of shares may require
stockholder approval in accordance with the requirements of The New York Stock
Exchange or the Delaware General Corporation Law. Management believes that the
limited number of currently authorized but unissued and unreserved shares of
Common Stock may restrict the Company's ability to respond to business needs and
opportunities. The availability of additional shares of Common Stock for
issuance will afford the Company flexibility in the future by assuring that
there will be sufficient authorized but unissued shares of Common Stock for
possible acquisitions, financing requirements, stock splits and other corporate
purposes. The Company has no definite plans for the use of the Common Stock for
which authorization is sought.
The existence of additional authorized shares of Common Stock could have
the effect of rendering more difficult or discouraging hostile takeover
attempts. The Company is not aware of any existing or planned effort on the part
of any party to accumulate material amounts of voting stock, or to acquire the
Company by means of a merger, tender offer, solicitation of proxies in
opposition to management or otherwise, or to change the Company's management,
nor is the Company aware of any person having made any offer to acquire the
voting stock or assets of the Company.
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<PAGE> 16
In addition to the 20,943,730 shares of Common Stock outstanding at the
Record Date, the Board has reserved an aggregate of 12,273,868 additional shares
for future issuance, consisting of the following: (a) 1,873,868 shares reserved
for issuance upon exercise of options granted under stock option and consulting
agreements entered into by the Company with employees and consultants of the
Company and its subsidiaries; (b) 5,400,000 shares reserved for issuance upon
exercise of other outstanding warrants and options; and (c) 5,000,000 shares
reserved for issuance under the Brooke Group Ltd. 1998 Long-Term Incentive Plan
(subject to stockholder approval at the Annual Meeting).
As a result, the Company currently has only 6,782,402 authorized but
unissued shares of Common Stock (including treasury shares), which are
unreserved and available for future issuance.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock will be required to approve this amendment to the Company's
Certificate of Incorporation. As a result, shares with respect to which
authority is withheld, abstentions and Broker Shares that are not voted will
have the same effect as votes against this proposal.
The Board recommends a vote FOR amending the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock.
APPROVAL OF BROOKE GROUP LTD. 1998 LONG-TERM INCENTIVE PLAN
The Board has approved and the Company has adopted, subject to stockholder
approval, the Brooke Group Ltd. 1998 Long-Term Incentive Plan (the "Plan"). A
general description of the basic features of the Plan is set forth below. Such
description is qualified in its entirety by reference to the full text of the
Plan which is appended in full to this Proxy Statement.
PURPOSE
The purpose of the Plan is to further and promote the interests of the
Company, its subsidiaries and its stockholders by enabling the Company to
attract, retain and motivate officers, employees and consultants or those who
will become officers, employees or consultants, and to align the interests of
those individuals and the Company's stockholders. To do this, the Plan offers
equity-based opportunities to provide such persons with a proprietary interest
in maximizing the growth, profitability and overall success of the Company and
its subsidiaries.
NUMBER OF SHARES
The maximum number of shares of Common Stock as to which awards may be
granted will not exceed 5,000,000 shares. During any calendar year, no
individual may be granted stock options under the Plan to acquire more than
2,500,000 shares of Common Stock. In addition, during the term of the Plan, each
individual participant may not receive awards of stock options, stock
appreciation rights and/or restricted shares in excess of 2,500,000 shares. The
limits on the numbers of shares described in this paragraph are subject to
proportional adjustment to reflect certain stock changes, such as stock
dividends and stock splits.
If, however, any awards expire or terminate unexercised, the shares of
Common Stock allocable to the unexercised or terminated portion of such award
shall again be available for awards under the Plan to the extent of such
expiration or termination, subject to certain limitations under the Plan.
ADMINISTRATION
The administration, interpretation and operation of the Plan will be vested
in a Committee of the Board (the "Committee"). Members of the Committee will
serve at the pleasure of the Board, which may at any time remove or add members
to it. No member of the Committee will be eligible to receive an award under the
Plan. The day-to-day administration of the Plan may be carried out by officers
and employees of the Company designated by the Committee. The Board has
designated its Compensation Committee to administer the Plan.
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<PAGE> 17
ELIGIBILITY
All officers, employees and consultants of the Company are eligible to
receive awards under the Plan. Awards under the Plan will be made by the
Committee. Awards will be made pursuant to individual award agreements between
the Company and each participant.
AWARDS UNDER THE PLAN
Introduction. Awards under the Plan may consist of stock options, stock
appreciation rights or restricted shares, each of which is described below. All
awards will be evidenced by an agreement approved by the Committee. In the
discretion of the Committee, an eligible employee may receive awards from one or
more of the categories described below, and more than one award may be granted
to an eligible employee. In the event of any change in the outstanding shares of
Common Stock of the Company by reason of certain stock changes, including
without limitation stock dividends and stock splits, the terms of awards and
number of shares of any outstanding award may be equitably adjusted by the Board
in its sole discretion. Except as set forth below under "1998 Stock Option
Grants Under the Plan," no determination has been made as to future awards which
may be granted under the Plan, although it is anticipated that future recipients
of awards may include other current executive officers of the Company.
Stock Options and Stock Appreciation Rights. A stock option is an award
that entitles a participant to purchase shares of Common Stock at a price fixed
at the time the option is granted. Stock options granted under the Plan may be
in the form of incentive stock options (which qualify for special tax treatment)
or non-qualified stock options, and may be granted alone or in addition to other
awards under the Plan, or in tandem with stock appreciation rights ("SARs").
SARs entitle a participant to receive, upon exercise, cash, restricted
shares or unrestricted shares of Common Stock, or any combination thereof, as
provided in the relevant award agreement, with a value equal to (a) the
difference between (i) the fair market value on the exercise date of the shares
with respect to which an SAR is exercised and (ii) the fair market value on the
date the SAR was granted, multiplied by (b) the number of shares of Common Stock
for which the SAR has been exercised.
No SAR may be exercised until six months after its grant or prior to the
exercisability of the stock option with which it is granted in tandem, whichever
is later.
The exercise price and other terms and conditions of such options will be
determined by the Committee at the time of grant, and in the case of incentive
stock options, such exercise price will not be less than 100 percent of the fair
market value of the Common Stock on the date of the grant. No term of any
incentive stock options shall exceed ten years after grant. An option or SAR
grant under the Plan does not provide an optionee any rights as a shareholder
and such rights will accrue only as to shares actually purchased through the
exercise of an option or the settlement of an SAR.
Exercise of an option (or an SAR) will result in the cancellation of the
related option (or SAR) to the extent of the number of shares in respect of
which such option (or SAR) has been exercised. Unless otherwise determined by
the Committee or provided in the relevant award agreement, stock options shall
become exercisable over a three year period from the date of grant with 33 1/3%
vesting on each anniversary of the grant in that time period.
Payment for shares issuable pursuant to the exercise of an option may be
made either in cash, or if permitted by the Committee, by tendering either a
fully-secured promissory note or shares of Common Stock owned by a participant
for at least six months with a fair market value at the date of exercise equal
to the portion of the exercise price which is not paid in cash. The Committee
may also allow participants to simultaneously exercise stock options and sell
the shares of Common Stock acquired thereby, pursuant to a "cashless exercise"
arrangement.
Restricted Share Awards. Restricted share awards are grants of Common
Stock made to a participant subject to conditions established by the Committee
in the relevant award agreement. The restricted shares only become unrestricted
in accordance with the conditions and vesting schedule, if any, provided in the
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<PAGE> 18
relevant award agreement, but in no event shall restricted shares vest prior to
six months after the date of grant. A participant may not sell or otherwise
dispose of restricted stock until the conditions imposed by the Committee have
been satisfied. Restricted share awards under the Plan may be granted alone or
in addition to any other awards under the Plan. Restricted shares which vest
will be reissued as unrestricted Common Stock.
Each participant who receives a grant of restricted shares will have the
right to receive all dividends and vote or execute proxies for such shares. Any
stock dividends will be treated as additional restricted shares.
FORFEITURE UPON TERMINATION
Unless otherwise provided in the relevant award agreement or in a
participant's then-effective employment agreement, if a participant's employment
is terminated for any reason, any unexercisable option or SAR shall be forfeited
and canceled by the Company. Such participant's right to exercise any
then-exercisable option or SAR will terminate ninety days after the date of
termination (but not beyond the stated term of such stock option or SAR);
provided, however, the Committee may (to the extent options and/or SARs were
exercisable on the date of termination) extend such periods, but not beyond the
stated term of such option and/or SAR. If a participant dies, becomes totally
disabled or retires, such participant (or the estate or other legal
representative of the participant), to the extent the options of SARs are
exercisable immediately prior to the date of death, total disability or
retirement, will be entitled to exercise any stock options or SARs for a one
year period following such death, disability or retirement, but not beyond the
stated term of such option or SAR.
If a participant's employment is terminated for any reason (other than due
to death, total disability or retirement) prior to the satisfaction and/or lapse
of the restrictions, terms and conditions applicable to any grant of restricted
shares, such restricted shares will be immediately forfeited by such
participant; provided, however, that the Committee may, in its sole discretion,
determine within ninety days after such termination that all or a portion of
such restricted shares shall not be so forfeited. In the case of death, total
disability or retirement, the participant (or the estate or other legal
representatives of the participant) shall become 100% vested in any restricted
shares as of the date of termination.
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board of Directors may suspend or terminate the Plan (or any portion
thereof) at any time and may amend the Plan at any time in such respects as the
Board may deem advisable to insure that any awards conform to or otherwise
reflect any change in applicable law or regulations, or in any other respect the
Board may deem to be in the best interests of the Company or any subsidiary. No
amendment, suspension or termination by the Board of Directors shall (a)
materially adversely affect the rights of any option, SAR or restricted share
grants, without the consent of such participant, or (b) make any change that
would disqualify the Plan from the benefits or entitlements to deductions
provided under Sections 422 and 162(m) of the Code, respectively.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
Incentive Stock Options. Stock options granted under the Plan may be
incentive stock options (within the meaning of Section 422 of the Code) or
non-qualified stock options. Upon the grant of an incentive stock option, the
optionee will not recognize any income. No income is recognized by the optionee
upon the exercise of an incentive stock option if the holding period
requirements contained in the Plan and in the Code are met, including the
requirement that the optionee remain an employee of the Company (or a
subsidiary) during the period beginning with the date of the grant of the option
and ending on the day three months (one year if the optionee becomes disabled)
before the date the option is exercised. The optionee must increase his or her
alternative minimum taxable income for the taxable year in which he or she
exercised the incentive stock option by the amount that would have been ordinary
income had the option not been an incentive stock option.
Upon the subsequent disposition of shares acquired upon the exercise of an
incentive stock option, the federal income tax consequences will depend upon
when the disposition occurs and the type of disposition. If the shares are
disposed of by the optionee after the second anniversary of the date of grant of
the option or
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after the end of the one-year period beginning on the day after the day the
shares are issued to the optionee, any gain or loss realized upon such
disposition will be long-term capital gain or loss, and the Company (or a
subsidiary) will not be entitled to any income tax deduction in respect of the
option or its exercise. For purposes of determining the amount of such gain or
loss, the optionee's tax basis in the shares will be the option price.
Generally, if the shares are disposed of by the optionee in a taxable
disposition within the two-year period beginning on the date of grant or within
the one-year period beginning on the day after the day the shares are issued to
the optionee, the excess, if any, of the amount realized (up to the fair market
value of the shares on the exercise date) over the option price will be
compensation taxable to the optionee as ordinary income, and the Company will be
entitled to a deduction (subject to the provisions of Section 162(m) of the Code
discussed below under the caption "Limits on Deductions") equal to the amount of
ordinary income realized by the optionee.
If an optionee has not remained an employee of the Company during the
period beginning with the grant of an incentive stock option and ending on the
day three months (one year if the optionee becomes disabled) before the date the
option is exercised, the exercise of such option will be treated as the exercise
of a non-qualified stock option with the tax consequences described below.
Non-Qualified Stock Options. Upon the grant of a non-qualified stock
option, an optionee will not recognize any income. At the time a nonqualified
option is exercised, the optionee will recognize compensation taxable as
ordinary income, and the Company will be entitled to a deduction (subject to the
provisions of Section 162(m) of the Code discussed below under the caption
"Limits on Deductions"), in an amount equal to the difference between the fair
market value on the exercise date of the shares acquired pursuant to such
exercise and the option price. Upon a subsequent disposition of the shares, the
optionee will recognize long- or short-term capital gain or loss, depending upon
the holding period of the shares. For purposes of determining the amount of such
gain or loss, the optionee's tax basis in the shares will be the fair market
value of such shares on the exercise date.
If an optionee elects to tender shares of Common Stock in partial or full
payment of the option price for shares to be acquired through the exercise of an
option, generally the optionee will not recognize any gain or loss on such
tendered shares. However, if the shares tendered in connection with any
share-for-share exercise were previously acquired upon the exercise of an
incentive stock option, and such share-for-share exercise occurs within two
years after the date of grant of the option or one year after the tendered
shares were acquired, the tender of such shares in partial or full payment of
the option price will be a taxable disposition with the tax consequences
described above under the caption "Incentive Stock Options" for taxable
dispositions within two years after the date of grant of the option or within
one year after shares are acquired upon the exercise of an incentive stock
option.
If the optionee tenders shares upon the exercise of an option which would
result in the receipt of compensation by the optionee, as described above under
the caption "Non-Qualified Stock Options", the optionee will recognize
compensation taxable as ordinary income and the Company will be entitled to a
deduction (subject to the provisions of Section 162(m) of the Code discussed
below under the caption "Limits on Deductions") in an amount equal only to the
fair market value of the number of shares received by the optionee upon exercise
which is in excess of the number of tendered shares, less any cash paid by the
optionee.
Stock Appreciation Rights. Generally, upon the grant of a stock
appreciation right, an optionee will not realize any income. At the time a stock
appreciation right is exercised, an optionee will realize compensation taxable
as ordinary income, and the Company will be entitled to a deduction, in an
amount equal to any cash received (before applicable withholding) plus the fair
market value on the exercise date of any shares of Common Stock received. The
optionee's tax basis in any such shares received upon the exercise of a stock
appreciation right will be the fair market value of such shares on the exercise
date and the holding period of such shares for capital gain purposes will begin
on such date.
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Restricted Stock. An employee will not realize any income upon an award of
Restricted Stock. At the time the terms and conditions applicable to a share of
Restricted Stock are satisfied, an employee will realize compensation taxable as
ordinary income, and the Company will be entitled to a deduction, equal to the
then fair market value of the shares of unrestricted Common Stock received by
the employee. The employee's tax basis for any such shares of Common Stock would
be their fair market value on the date such terms and conditions are satisfied.
An employee who receives an award of shares of Restricted Stock may
irrevocably elect under Section 83(b) of the Code to report compensation taxable
as ordinary income, and the Company will be entitled to a corresponding
deduction, in an amount equal to the fair market value of such shares of
Restricted Stock (determined without regard to any restrictions thereon) on the
date of the transfer of such shares to the employee upon such award. Such an
election must be made by the employee not later than 30 days after the date of
such award. If such an election is made, no income would be recognized by the
employee (and the Company will not be entitled to a corresponding deduction) at
the time the applicable terms and conditions are satisfied. The employee's tax
basis for the shares of Restricted Stock received and for any shares of Common
Stock subsequently held in respect thereof would be the fair market value of the
Restricted Stock (determined without regard to any restrictions thereon) on the
date of such award. If an employee makes such an election and subsequently all
or part of the award is forfeited, the employee will not be entitled to a
deduction as a result of such forfeiture.
Limits on Deductions. Under Section 162(m) of the Code, the amount of
compensation paid to the chief executive officer and the four other most highly
paid executive officers of the Company in the year for which a deduction is
claimed by the Company (including its subsidiaries) is limited to $1,000,000 per
person in any year, except that compensation which is performance-based will be
excluded for purposes of calculating the amount of compensation subject to this
$1,000,000 limitation. The ability of the Company to claim a deduction for
compensation paid to any other executive officer or employee of the Company
(including its subsidiaries) is not affected by this provision.
The Company has structured the Plan so that any compensation for which the
Company may claim a deduction in connection with the exercise of non-qualified
stock options and related SARs and the disposition by an optionee of shares
acquired upon the exercise of incentive stock options may be performance-based
within the meaning of Section 162(m) of Code. Because the restricted share
awards under the Plan are not deemed to be performance-based under Section
162(m) of the Code, amounts for which the Company may claim a deduction upon the
lapse of any restrictions on such restricted share awards will be subject to the
limitations on deductibility under Section 162(m).
The recognition by an employee of compensation income with respect to a
grant or an award under the Plan will be subject to withholding for federal
income and employment tax purposes. If an employee, to the extent permitted by
the terms of a grant or award under the Plan, uses shares of Common Stock to
satisfy the federal income and employment tax withholding obligation, or any
similar withholding obligation for state and local tax obligations, the employee
will recognize a capital gain or loss, short-term or long-term, depending on the
tax basis and holding period for such shares of Common Stock.
1998 STOCK OPTION GRANTS UNDER THE PLAN
On July 20, 1998, the Company granted a non-qualified stock option to each
of Bennett S. LeBow and Howard M. Lorber (the "Option Holders") pursuant to the
Plan. The grant of the options to the Option Holders is conditioned upon the
approval of the Plan by the Company's stockholders. Under the options, Messrs.
LeBow and Lorber have the right to purchase 2,500,000 shares and 500,000 shares,
respectively, of the Company's Common Stock at an exercise price of $9.75 per
share (the fair market value of a share of Common Stock on the date of grant).
The options have a ten-year term and become exercisable as to one-fourth of the
aggregate shares covered thereby on each of the first four anniversaries of the
date of grant. However, any then unexercisable portion of the option will
immediately vest and become exercisable upon (i) the occurrence of a "Change in
Control," or (ii) the termination of the Option Holder's employment or
consulting arrangement with the Company due to death or disability. Upon the
termination of the Option
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<PAGE> 21
Holder's employment or consulting arrangement for any reason, any then
unexercisable portion of the option will be forfeited and cancelled by the
Company. The Option Holder's right to exercise any then exercisable portion of
the option will terminate nine months after his date of termination (but not
beyond the stated term of the option). If an Option Holder dies or becomes
disabled, such Option Holder (or his estate or other legal representative), to
the extent the option is exercisable immediately prior to the date of his death
or disability, will be entitled to exercise the option for a one-year period
following the date of his death or disability (but not beyond the stated term of
the option).
---------------
At the Record Date, the total number of outstanding shares of Common Stock
was 20,943,730 shares. The closing price of the Common Stock on September 8,
1998 on The New York Stock Exchange was $5 3/8 per share.
EFFECTIVE DATE
The Plan became effective on May 8, 1998, the date of its adoption by the
Board of Directors, subject to stockholder approval. The Plan will terminate on
December 31, 2007, except with respect to awards then outstanding. After such
date no further awards will be granted under the Plan unless the Plan is
extended by the Board of Directors.
APPROVAL OF THE PLAN
To become effective, the Plan must be approved by the affirmative vote of a
majority of the votes cast at the Annual Meeting on this proposal by the holders
of the shares of Common Stock entitled to vote thereat.
The Board recommends a vote FOR approval of the Plan.
RELATIONSHIP WITH INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP has been the independent auditors for the
Company since December 1986 and will serve in that capacity for the 1998 fiscal
year unless the Board deems it advisable to make a substitution. It is expected
that one or more representatives of such firm will attend the Annual Meeting and
be available to respond to any questions. These representatives will be given an
opportunity to make statements at the Annual Meeting if they so desire.
MISCELLANEOUS
1997 ANNUAL REPORT ON FORM 10-K
The Company has mailed, with this proxy statement, a copy of the Annual
Report to each stockholder as of the Record Date. IF A STOCKHOLDER REQUIRES AN
ADDITIONAL COPY OF THE ANNUAL REPORT, THE COMPANY WILL PROVIDE ONE, WITHOUT
CHARGE, ON THE WRITTEN REQUEST OF ANY SUCH STOCKHOLDER ADDRESSED TO THE
COMPANY'S SECRETARY AT BROOKE GROUP LTD., 100 S.E. SECOND STREET, 32ND FLOOR,
MIAMI, FLORIDA 33131.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors and executive officers
of the Company, as well as persons who own more than 10% of a registered class
of the Company's equity securities (the "Reporting Persons"), to file reports of
initial beneficial ownership and changes in beneficial ownership on Forms 3, 4
and 5 with the SEC and the New York Stock Exchange. Such Reporting Persons are
also required by SEC regulations to furnish the Company with copies of all such
reports that they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and representations that no other reports were
required, during and with respect to the fiscal year
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<PAGE> 22
ended December 31, 1997, all Reporting Persons have timely complied with all
filing requirements applicable to them.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders of the Company pursuant to Rule 14a-8 under the
Securities Exchange of 1934 must be received by the Company at its principal
executive offices, 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131,
Attention: Marc N. Bell, Secretary, on or before May 19, 1999 in order to be
included in the Company's proxy statement and accompanying proxy card relating
to that meeting. Notice of a stockholder proposal submitted outside the
processes of Rule 14a-8 will be considered untimely unless submitted by August
2, 1999.
OTHER MATTERS
The cost of this solicitation of proxies will be borne by the Company. In
addition to the use of the mails, some of the directors, officers and regular
employees of the Company may, without additional compensation, solicit proxies
personally or by telephone. The Company will reimburse brokerage houses, banks
and other custodians, nominees and fiduciaries for customary and reasonable
expenses incurred in forwarding soliciting material to the beneficial owners of
Common Stock.
The Board knows of no other matters which will be presented at the Annual
Meeting. If, however, any other matter is properly presented at the Annual
Meeting, the proxy solicited by this proxy statement will be voted in accordance
with the judgment of the person or persons holding such proxy.
By Order of the Board of Directors,
[LOGO]
Bennett S. LeBow
Chairman of the Board of Directors
Dated: September 15, 1998
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APPENDIX A
BROOKE GROUP LTD.
1998 LONG-TERM INCENTIVE PLAN
* * * * *
1. Purpose. The purpose of the 1998 Long-Term Incentive Plan (the "Plan")
is to further and promote the interests of Brooke Group Ltd. (the "Company"),
its Subsidiaries and its shareholders by enabling the Company and its
Subsidiaries to attract, retain and motivate officers, employees and consultants
or those who will become officers, employees or consultants, and to align the
interests of those individuals and the Company's shareholders. To do this, the
Plan offers equity-based opportunities providing such officers, employees and
consultants with a proprietary interest in maximizing the growth, profitability
and overall success of the Company and its Subsidiaries.
2. Definitions. For purposes of the Plan, the following terms shall have
the meanings set forth below:
2.1 "Award" means an award or grant made to a Participant under Sections 6,
7 and/or 8 of the Plan.
2.2 "Award Agreement" means the agreement executed by a Participant
pursuant to Sections 3.2 and 15.6 of the Plan in connection with the granting of
an Award.
2.3 "Board" means the Board of Directors of the Company, as constituted
from time to time.
2.4 "Code" means the Internal Revenue Code of 1986, as in effect and as
amended from time to time, or any successor statute thereto, together with any
rules, regulations and interpretations promulgated thereunder or with respect
thereto.
2.5 "Committee" means the committee of the Board established to administer
the Plan, as described in Section 3 of the Plan.
2.6 "Common Stock" means the Common Stock, par value $.10 per share, of the
Company or any security of the Company issued by the Company in substitution or
exchange therefor.
2.7 "Company" means Brooke Group Ltd., a Delaware corporation, or any
successor corporation to Brooke Group Ltd.
2.8 "Disability" means disability as defined in the Participant's Award
Agreement or then effective employment agreement, or if the Participant's Award
Agreement does not define disability, or if the Participant is not then a party
to an effective employment agreement with the Company which defines disability,
"Disability" means disability as determined by the Committee in accordance with
standards and procedures similar to those under the Company's long-term
disability plan, if any. Subject to the first sentence of this Section 2.8, at
any time that the Company does not maintain a long-term disability plan,
"Disability" shall mean any physical or mental disability which is determined to
be total and permanent by a physician selected in good faith by the Company.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as in effect
and as amended from time to time, or any successor statute thereto, together
with any rules, regulations and interpretations promulgated thereunder or with
respect thereto.
2.10 "Fair Market Value" means on, or with respect to, any given date(s),
the closing price of the Common Stock, as reported on the consolidated
transaction reporting system for the New York Stock Exchange for such date(s)
or, if the Common Stock was not traded on such date(s), on the next preceding
day or days on which the Common Stock was traded. If at any time the Common
Stock is not traded on such exchange, the Fair Market Value of a share of the
Common Stock shall be determined in good faith by the Board.
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2.11 "Incentive Stock Option" means any stock option granted pursuant to
the provisions of Section 6 of the Plan (and the relevant Award Agreement) that
is intended to be (and is specifically designated as) an "incentive stock
option" within the meaning of Section 422 of the Code.
2.12 "Non-Qualified Stock Option" means any stock option granted pursuant
to the provisions of Section 6 of the Plan (and the relevant Award Agreement)
that is not (and is specifically designated as not being) an Incentive Stock
Option.
2.13 "Participant" means any individual who is selected from time to time
under Section 5 to receive an Award under the Plan.
2.14 "Plan" means the Brooke Group Ltd. 1998 Long-Term Incentive Plan, as
set forth herein and as in effect and as amended from time to time (together
with any rules and regulations promulgated by the Committee with respect
thereto).
2.15 "Restricted Shares" means the restricted shares of Common Stock
granted pursuant to the provisions of Section 8 of the Plan and the relevant
Award Agreement.
2.16 "Retirement" means the voluntary retirement by the Participant from
active employment with the Company and its Subsidiaries on or after the
attainment of (i) age 65, or (ii) 60, with the consent of the Board.
2.17 "Stock Appreciation Right" means an Award described in Section 7.2 of
the Plan and granted pursuant to the provisions of Section 7 of the Plan.
2.18 "Subsidiary(ies)" means any corporation (other than the Company) in an
unbroken chain of corporations, including and beginning with the Company, if
each of such corporations, other than the last corporation in the unbroken
chain, owns, directly or indirectly, more than fifty percent (50%) of the voting
stock in one of the other corporations in such chain, or any "subsidiary" of the
Company as defined in Rule 405 under the Securities Act of 1933, as amended.
3. Administration.
3.1 The Committee. The Plan shall be administered by the Committee. The
Committee shall be appointed from time to time by the Board and shall be
comprised of not less than two (2) of the then members of the Board who are
Outside Directors (within the meaning of Code Section 162(m) and the regulations
promulgated thereunder) of the Company. No member of the Committee shall be
eligible to receive awards under the Plan. Consistent with the Bylaws of the
Company, members of the Committee shall serve at the pleasure of the Board and
the Board, subject to the immediately preceding sentence, may at any time and
from time to time remove members from, or add members to, the Committee.
3.2 Plan Administration and Plan Rules. The Committee is authorized to
construe and interpret the Plan and to promulgate, amend and rescind rules and
regulations relating to the implementation, administration and maintenance of
the Plan. Subject to the terms and conditions of the Plan, the Committee shall
make all determinations necessary or advisable for the implementation,
administration and maintenance of the Plan including, without limitation, (a)
selecting the Plan's Participants, (b) making Awards in such amounts and form as
the Committee shall determine, (c) imposing such restrictions, terms and
conditions upon such Awards as the Committee shall deem appropriate, and (d)
correcting any technical defect(s) or technical omission(s), or reconciling any
technical inconsistency(ies), in the Plan and/or any Award Agreement. The
Committee may designate persons other than members of the Committee to carry out
the day-to-day ministerial administration of the Plan under such conditions and
limitations as it may prescribe, except that the Committee shall not delegate
its authority with regard to the selection for participation in the Plan and/or
the granting of any Awards to Participants. The Committee's determinations under
the Plan need not be uniform and may be made selectively among Participants,
whether or not such Participants are similarly situated. Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration, implementation or maintenance of the Plan shall
be final, conclusive and binding upon all Participants and any person(s)
claiming under or through any Participants. The Company shall effect the
granting of Awards under the Plan, in accordance with the determinations made by
the
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Committee, by execution of written agreements and/or other instruments in such
form as is approved by the Committee.
3.3 Liability Limitation. Neither the Board nor the Committee, nor any
member of either, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with the Plan (or
any Award Agreement), and the members of the Board and the Committee shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage or expense (including, without limitation, attorneys' fees)
arising or resulting therefrom to the fullest extent permitted by law and/or
under any directors and officers liability insurance coverage which may be in
effect from time to time.
4. Term of Plan/Common Stock Subject to Plan.
4.1 Term. The Plan shall terminate on December 31, 2007, except with
respect to Awards then outstanding. After such date no further Awards shall be
granted under the Plan.
4.2 Common Stock. The maximum number of shares of Common Stock in respect
of which Awards may be granted or paid out under the Plan, subject to adjustment
as provided in Section 13.2 of the Plan, shall not exceed 5,000,000 shares. In
the event of a change in the Common Stock of the Company that is limited to a
change in the designation thereof to "Capital Stock" or other similar
designation, or to a change in the par value thereof, or from par value to no
par value, without increase or decrease in the number of issued shares, the
shares resulting from any such change shall be deemed to be the Common Stock for
purposes of the Plan. Common Stock which may be issued under the Plan may be
either authorized and unissued shares or issued shares which have been
reacquired by the Company (in the open-market or in private transactions) and
which are being held as treasury shares. No fractional shares of Common Stock
shall be issued under the Plan.
4.3 Computation of Available Shares. For the purpose of computing the
total number of shares of Common Stock available for Awards under the Plan,
there shall be counted against the limitations set forth in Section 4.2 of the
Plan the maximum number of shares of Common Stock potentially subject to
issuance upon exercise or settlement of Awards granted under Sections 6 and 7 of
the Plan, and the number of shares of Common Stock issued under grants of
Restricted Shares pursuant to Section 8 of the Plan, in each case determined as
of the date on which such Awards are granted. If any Awards expire unexercised
or are forfeited, surrendered, cancelled, terminated or settled in cash in lieu
of Common Stock, the shares of Common Stock which were theretofore subject (or
potentially subject) to such Awards shall again be available for Awards under
the Plan to the extent of such expiration, forfeiture, surrender, cancellation,
termination or settlement of such Awards.
5. Eligibility. Individuals eligible for Awards under the Plan shall
consist of all officers, employees and consultants, or those who will become
such officers, employees or consultants, of the Company and/or its Subsidiaries
who are responsible for the management, growth and protection of the business of
the Company and/or its Subsidiaries or whose performance or contribution, in the
sole discretion of the Committee, benefits or will benefit the Company.
6. Stock Options.
6.1 Terms and Conditions. Stock options granted under the Plan shall be in
respect of Common Stock and may be in the form of Incentive Stock Options, or
Non-Qualified Stock Options (sometimes referred to collectively herein as the
"Stock Option(s))". Such Stock Options shall be subject to the terms and
conditions set forth in this Section 6 and any additional terms and conditions,
not inconsistent with the express terms and provisions of the Plan, as the
Committee shall set forth in the relevant Award Agreement.
6.2 Grant. Stock Options may be granted under the Plan in such form as the
Committee may from time to time approve. Stock Options may be granted alone or
in addition to other Awards under the Plan or in tandem with Stock Appreciation
Rights. Special provisions shall apply to Incentive Stock Options granted to any
employee who owns (within the meaning of Section 422(b)(6) of the Code) more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or its parent corporation or
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any subsidiary of the Company, within the meaning of Sections 424(e) and (f) of
the Code (a "10% Shareholder").
6.3 Exercise Price. The exercise price per share of Common Stock subject
to a Stock Option shall be determined by the Committee, including, without
limitation, a determination based on a formula determined by the Committee;
provided, however, that the exercise price of an Incentive Stock Option shall
not be less than one hundred percent (100%) of the Fair Market Value of the
Common Stock on the date of the grant of such Incentive Stock Option; provided,
further, however, that, in the case of a 10% Shareholder, the exercise price of
an Incentive Stock Option shall not be less than one hundred ten percent (110%)
of the Fair Market Value of the Common Stock on the date of grant.
6.4 Term. The term of each Stock Option shall be such period of time as is
fixed by the Committee; provided, however, that the term of any Incentive Stock
Option shall not exceed ten (10) years (five (5) years, in the case of a 10%
Shareholder) after the date immediately preceding the date on which the
Incentive Stock Option is granted.
6.5 Method of Exercise. A Stock Option may be exercised, in whole or in
part, by giving written notice of exercise to the Secretary of the Company, or
the Secretary's designee, specifying the number of shares to be purchased. Such
notice shall be accompanied by payment in full of the exercise price in cash, by
certified check, bank draft or money order payable to the order of the Company
or, if permitted by the Committee (in its sole discretion) and applicable law,
by delivery of, alone or in conjunction with a partial cash or instrument
payment, (a) a fully-secured promissory note or notes, (b) shares of Common
Stock already owned by the Participant for at least six (6) months, or (c) some
other form of payment acceptable to the Committee. The Committee may also permit
Participants (either on a selective or group basis) to simultaneously exercise
Stock Options and sell the shares of Common Stock thereby acquired, pursuant to
a "cashless exercise" arrangement or program, selected by and approved of in all
respects in advance by the Committee. Payment instruments shall be received by
the Company subject to collection. The proceeds received by the Company upon
exercise of any Stock Option may be used by the Company for general corporate
purposes. Any portion of a Stock Option that is exercised may not be exercised
again.
6.6 Exercisability. In respect of any Stock Option granted under the Plan,
unless otherwise provided in the Award Agreement or in the Participant's
employment agreement in respect of any such Stock Option, such Stock Option
shall become exercisable as to the aggregate number of shares of Common Stock
underlying such Stock Option, as determined on the date of grant, as follows:
- 33%, on the first anniversary of the date of grant of the Stock Option,
provided the Participant is then employed by the Company and/or one of
its Subsidiaries;
- 66%, on the second anniversary of the date of grant of the Stock Option,
provided the Participant is then employed by the Company and/or one of
its Subsidiaries; and
- 100%, on the third anniversary of the date of grant of the Stock Option,
provided the Participant is then employed by the Company and/or one of
its Subsidiaries.
6.7 Tandem Grants. If Non-Qualified Stock Options and Stock Appreciation
Rights are granted in tandem, as designated in the relevant Award Agreements,
the right of a Participant to exercise any such tandem Stock Option shall
terminate to the extent that the shares of Common Stock subject to such Stock
Option are used to calculate amounts or shares receivable upon the exercise of
the related tandem Stock Appreciation Right.
7. Stock Appreciation Rights.
7.1 Terms and Conditions. The grant of Stock Appreciation Rights under the
Plan shall be subject to the terms and conditions set forth in this Section 7
and any additional terms and conditions, not inconsistent with the express terms
and provisions of the Plan, as the Committee shall set forth in the relevant
Award Agreement.
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7.2 Stock Appreciation Rights. A Stock Appreciation Right is an Award
granted with respect to a specified number of shares of Common Stock entitling a
Participant to receive an amount equal to the excess of the Fair Market Value of
a share of Common Stock on the date of exercise over the Fair Market Value of a
share of Common Stock on the date of grant of the Stock Appreciation Right,
multiplied by the number of shares of Common Stock with respect to which the
Stock Appreciation Right shall have been exercised.
7.3 Grant. A Stock Appreciation Right may be granted in addition to any
other Award under the Plan or in tandem with or independent of a Non-Qualified
Stock Option.
7.4 Date of Exercisability. Unless otherwise provided in the Participant's
employment agreement or the Award Agreement in respect of any Stock Appreciation
Right, a Stock Appreciation Right may be exercised by a Participant, in
accordance with and subject to all of the procedures established by the
Committee, in whole or in part at any time and from time to time during its
specified term. Notwithstanding the preceding sentence, in no event shall a
Stock Appreciation Right be exercisable prior to the date which is six (6)
months after the date on which the Stock Appreciation Right was granted or prior
to the exercisability of any Non-Qualified Stock Option with which it is granted
in tandem. The Committee may also provide, as set forth in the relevant Award
Agreement and without limitation, that some Stock Appreciation Rights shall be
automatically exercised and settled on one or more fixed dates specified therein
by the Committee.
7.5 Form of Payment. Upon exercise of a Stock Appreciation Right, payment
may be made in cash, in Restricted Shares or in shares of unrestricted Common
Stock, or in any combination thereof, as the Committee, in its sole discretion,
shall determine and provide in the relevant Award Agreement.
7.6 Tandem Grant. The right of a Participant to exercise a tandem Stock
Appreciation Right shall terminate to the extent such Participant exercises the
Non-Qualified Stock Option to which such Stock Appreciation Right is related.
8. Restricted Shares.
8.1 Terms and Conditions. Grants of Restricted Shares shall be subject to
the terms and conditions set forth in this Section 8 and any additional terms
and conditions, not inconsistent with the express terms and provisions of the
Plan, as the Committee shall set forth in the relevant Award Agreement.
Restricted Shares may be granted alone or in addition to any other Awards under
the Plan. Subject to the terms of the Plan, the Committee shall determine the
number of Restricted Shares to be granted to a Participant and the Committee may
provide or impose different terms and conditions on any particular Restricted
Share grant made to any Participant. With respect to each Participant receiving
an Award of Restricted Shares, there shall be issued a stock certificate (or
certificates) in respect of such Restricted Shares. Such stock certificate(s)
shall be registered in the name of such Participant, shall be accompanied by a
stock power duly executed by such Participant, and shall bear, among other
required legends, the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including,
without limitation, forfeiture events) contained in the Brooke Group Ltd.
1998 Long-Term Incentive Plan and an Award Agreement entered into between
the registered owner hereof and Brooke Group Ltd. Copies of such Plan and
Award Agreement are on file in the office of the Secretary of Brooke Group
Ltd., 100 S.E. Second Street, Miami Florida 33131. Brooke Group Ltd. will
furnish to the recordholder of the certificate, without charge and upon
written request at its principal place of business, a copy of such Plan and
Award Agreement. Brooke Group Ltd. reserves the right to refuse to record
the transfer of this certificate until all such restrictions are satisfied,
all such terms are complied with and all such conditions are satisfied."
Such stock certificate evidencing such shares shall, in the sole discretion
of the Committee, be deposited with and held in custody by the Company until the
restrictions thereon shall have lapsed and all of the terms and conditions
applicable to such grant shall have been satisfied.
8.2 Restricted Share Grants. A grant of Restricted Shares is an Award of
shares of Common Stock granted to a Participant, subject to such restrictions,
terms and conditions as the Committee deems appropriate, including, without
limitation, (a) restrictions on the sale, assignment, transfer, hypothecation or
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other disposition of such shares, (b) the requirement that the Participant
deposit such shares with the Company while such shares are subject to such
restrictions, and (c) the requirement that such shares be forfeited upon
termination of employment for specified reasons within a specified period of
time or for other reasons (including, without limitation, the failure to achieve
designated performance goals).
8.3 Restriction Period. In accordance with Sections 8.1 and 8.2 of the
Plan and unless otherwise determined by the Committee (in its sole discretion)
at any time and from time to time, Restricted Shares shall only become
unrestricted and vested in the Participant in accordance with such vesting
schedule relating to such Restricted Shares, if any, as the Committee may
establish in the relevant Award Agreement (the "Restriction Period").
Notwithstanding the preceding sentence, in no event shall the Restriction Period
be less than six (6) months after the date of grant. During the Restriction
Period, such stock shall be and remain unvested and a Participant may not sell,
assign, transfer, pledge, encumber or otherwise dispose of or hypothecate such
Award. Upon satisfaction of the vesting schedule and any other applicable
restrictions, terms and conditions, the Participant shall be entitled to receive
payment of the Restricted Shares or a portion thereof, as the case may be, as
provided in Section 8.4 of the Plan.
8.4 Payment of Restricted Share Grants. After the satisfaction and/or
lapse of the restrictions, terms and conditions established by the Committee in
respect of a grant of Restricted Shares, a new certificate, without the legend
set forth in Section 8.1 of the Plan, for the number of shares of Common Stock
which are no longer subject to such restrictions, terms and conditions shall, as
soon as practicable thereafter, be delivered to the Participant.
8.5 Shareholder Rights. A Participant shall have, with respect to the
shares of Common Stock underlying a grant of Restricted Shares, all of the
rights of a shareholder of such stock (except as such rights are limited or
restricted under the Plan or in the relevant Award Agreement). Any stock
dividends paid in respect of unvested Restricted Shares shall be treated as
additional Restricted Shares and shall be subject to the same restrictions and
other terms and conditions that apply to the unvested Restricted Shares in
respect of which such stock dividends are issued.
9. Deferral Elections/Tax Reimbursements/Other Provisions.
9.1 Deferrals. The Committee may permit a Participant to elect to defer
receipt of any payment of cash or any delivery of shares of Common Stock that
would otherwise be due to such Participant by virtue of the exercise, earn out
or settlement of any Award made under the Plan. If any such election is
permitted, the Committee shall establish rules and procedures for such
deferrals, including, without limitation, the payment or crediting of reasonable
interest on such deferred amounts credited in cash, and the payment or crediting
of dividend equivalents in respect of deferrals credited in units of Common
Stock. The Committee may also provide in the relevant Award Agreement for a tax
reimbursement cash payment to be made by the Company in favor of any Participant
in connection with the tax consequences resulting from the grant, exercise,
settlement, or earn out of any Award made under the Plan.
9.2 Maximum Yearly Awards. The maximum annual Common Stock amounts in this
Section 9.2 are subject to adjustment under Section 13.2 and are subject to the
Plan maximum under Section 4.2. Each individual Participant may not receive in
any calendar year Awards of Options or Stock Appreciation Rights exceeding
2,500,000 underlying shares of Common Stock. In addition, during the Term of the
Plan, each individual Participant may not receive Awards of Options, Stock
Appreciation Rights and/or Restricted Shares exceeding one-half of the maximum
number of shares of Common Stock in respect of which Awards may be granted or
paid out under the Plan as provided in Section 4.2.
10. Dividend Equivalents. In addition to the provisions of Section 8.5 of
the Plan, Awards of Stock Options, and/or Stock Appreciation Rights, may, in the
sole discretion of the Committee and if provided for in the relevant Award
Agreement, earn dividend equivalents. In respect of any such Award which is
outstanding on a dividend record date for Common Stock, the Participant shall be
credited with an amount equal to the amount of cash or stock dividends that
would have been paid on the shares of Common Stock covered by such Award had
such covered shares been issued and outstanding on such dividend record date.
The Committee shall establish such rules and procedures governing the crediting
of such dividend equivalents,
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including, without limitation, the amount, the timing, form of payment and
payment contingencies and/or restrictions of such dividend equivalents, as it
deems appropriate or necessary.
11. Termination of Employment.
11.1 General. Except as is otherwise provided (a) in the relevant Award
Agreement as determined by the Committee (in its sole discretion), or (b) in the
Participant's then effective employment agreement, if any, the following terms
and conditions shall apply as appropriate and as not inconsistent with the terms
and conditions, if any, contained in such Award Agreement and/or such employment
agreement:
11.1.1 Options/SARs. If a Participant's employment with the Company
terminates for any reason any then unexercisable Stock Options and/or Stock
Appreciation Rights shall be forfeited and cancelled by the Company. Except
as otherwise provided in this Section 11.1.1, if a Participant's employment
with the Company and its Subsidiaries terminates for any reason, such
Participant's rights, if any, to exercise any then exercisable Stock
Options and/or Stock Appreciation Rights, if any, shall terminate ninety
(90) days after the date of such termination (but not beyond the stated
term of any such Stock Option and/or Stock Appreciation Right as determined
under Sections 6.4 and 7.4) and thereafter such Stock Options or Stock
Appreciation Rights shall be forfeited and cancelled by the Company. The
Committee, in its sole discretion, may determine that any such
Participant's Stock Options and/or Stock Appreciation Rights, if any, to
the extent exercisable immediately prior to any termination of employment
(other than a termination due to death, Retirement or Disability), may
remain exercisable for an additional specified time period after such
ninety (90) day period expires (subject to any other applicable terms and
provisions of the Plan and the relevant Award Agreement), but not beyond
the stated term of any such Stock Option and/or Stock Appreciation Right.
If any termination of employment is due to death, Retirement or Disability,
a Participant (and such Participant's estate, designated beneficiary or
other legal representative, as the case may be and as determined by the
Committee) shall have the right, to the extent exercisable immediately
prior to any such termination, to exercise such Stock Options and/or Stock
Appreciation Rights, if any, at any time within the one (1) year period
following such termination due to death, Retirement or Disability (but not
beyond the term of any such Stock Option and/or Stock Appreciation Right as
determined under Sections 6.4 and 7.4).
11.1.2 Restricted Shares. If a Participant's employment with the
Company and its Subsidiaries terminates for any reason (other than due to
Disability, Retirement or death) prior to the satisfaction and/or lapse of
the restrictions, terms and conditions applicable to a grant of Restricted
Shares, such Restricted Shares shall immediately be cancelled and the
Participant (and such Participant's estate, designated beneficiary or other
legal representative) shall forfeit any rights or interests in and with
respect to any such Restricted Shares. Notwithstanding anything to the
contrary in this Section 11, the Committee, in its sole discretion, may
determine, prior to or within ninety (90) days after the date of such
termination, that all or a portion of any such Participant's Restricted
Shares shall not be so cancelled and forfeited. If the Participant's
employment terminates due to death, Disability or Retirement, the
Participant shall become 100% vested in any such Participant's restricted
Shares as of the date of any such termination.
12. Non-transferability of Awards. Unless otherwise provided in the Award
Agreement, no Award under the Plan or any Award Agreement, and no rights or
interests herein or therein, shall or may be assigned, transferred, sold,
exchanged, encumbered, pledged, or otherwise hypothecated or disposed of by a
Participant or any beneficiary(ies) of any Participant, except by testamentary
disposition by the Participant or the laws of intestate succession. No such
interest shall be subject to execution, attachment or similar legal process,
including, without limitation, seizure for the payment of the Participant's
debts, judgements, alimony, or separate maintenance. Unless otherwise provided
in the Award Agreement, during the lifetime of a Participant, Stock Options and
Stock Appreciation Rights are exercisable only by the Participant.
13. Changes in Capitalization and Other Matters.
13.1 No Corporate Action Restriction. The existence of the Plan, any Award
Agreement and/or the Awards granted hereunder shall not limit, affect or
restrict in any way the right or power of the Board or the
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shareholders of the Company to make or authorize (a) any adjustment,
recapitalization, reorganization or other change in the Company's or any
Subsidiary's capital structure or its business, (b) any merger, consolidation or
change in the ownership of the Company or any Subsidiary, (c) any issue of
bonds, debentures, capital, preferred or prior preference stocks ahead of or
affecting the Company's or any Subsidiary's capital stock or the rights thereof,
(d) any dissolution or liquidation of the Company or any Subsidiary, (e) any
sale or transfer of all or any part of the Company's or any Subsidiary's assets
or business, or (f) any other corporate act or proceeding by the Company or any
Subsidiary. No Participant, beneficiary or any other person shall have any claim
against any member of the Board or the Committee, the Company or any Subsidiary,
or any employees, officers or agents of the Company or any subsidiary, as a
result of any such action.
13.2 Recapitalization Adjustments. In the event of any change in
capitalization affecting the Common Stock of the Company, including, without
limitation, a stock dividend or other distribution, stock split, reverse stock
split, recapitalization, consolidation, subdivision, split-up, spin-off,
split-off, combination or exchange of shares or other form of reorganization or
recapitalization, or any other change affecting the Common Stock, the Board
shall authorize and make such proportionate adjustments, if any, as the Board
deems appropriate to reflect such change, including, without limitation, with
respect to the aggregate number of shares of the Common Stock for which Awards
in respect thereof may be granted under the Plan, the maximum number of shares
of the Common Stock which may be granted or awarded to any Participant, the
number of shares of the Common Stock covered by each outstanding Award, and the
exercise price or other price per share of Common Stock in respect of
outstanding Awards.
13.3 Certain Mergers.
13.3.1 If the Company enters into or is involved in any merger,
reorganization or other business combination with any person or entity
(such merger, reorganization or other business combination to be referred
to herein as a "Merger Event") and as a result of any such Merger Event the
Company will be or is the surviving corporation, a Participant shall be
entitled, as of the date of the execution of the agreement evidencing the
Merger Event (the "Execution Date") and with respect to both exercisable
and unexercisable Stock Options and/or Stock Appreciation Rights (but only
to the extent not previously exercised), to receive substitute stock
options and/or stock appreciation rights in respect of the shares of the
surviving corporation on such terms and conditions, as to the number of
shares, pricing and otherwise, which shall substantially preserve the
value, rights and benefits of any affected Stock Options or Stock
Appreciation Rights granted hereunder as of the date of the consummation of
the Merger Event. Notwithstanding anything to the contrary in this Section
13.3, if any Merger Event occurs, the Company shall have the right, but not
the obligation, to pay to each affected Participant an amount in cash or
certified check equal to the excess of the Fair Market Value of the Common
Stock underlying any affected unexercised Stock Options or Stock
Appreciation Rights as of the Execution Date (whether then exercisable or
not) over the aggregate exercise price of such unexercised Stock Options
and/or Stock Appreciation Rights, as the case may be.
13.3.2 If, in the case of a Merger Event in which the Company will
not be, or is not, the surviving corporation, and the Company determines
not to make the cash or certified check payment described in Section 13.3.1
of the Plan, the Company shall compel and obligate, as a condition of the
consummation of the Merger Event, the surviving or resulting corporation
and/or the other party to the Merger Event, as necessary, or any parent,
subsidiary or acquiring corporation thereof, to grant, with respect to both
exercisable and unexercisable Stock Options and/or Stock Appreciation
Rights (but only to the extent not previously exercised), substitute stock
options or stock appreciation rights in respect of the shares of common or
other capital stock of such surviving or resulting corporation on such
terms and conditions, as to the number of shares, pricing and otherwise,
which shall substantially preserve the value, rights and benefits of any
affected Stock Options and/or Stock Appreciation Rights previously granted
hereunder as of the date of the consummation of the Merger Event.
13.3.3 Upon receipt by any affected Participant of any such cash,
certified check, or substitute stock options or stock appreciation rights
as a result of any such Merger Event, such Participant's affected
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Stock Options and/or Stock Appreciation Rights for which such cash,
certified check or substitute awards was received shall be thereupon
cancelled without the need for obtaining the consent of any such affected
Participant.
13.3.4 The foregoing adjustments and the manner of application of the
foregoing provisions, including, without limitation, the issuance of any
substitute stock options and/or stock appreciation rights, shall be
determined in good faith by the Committee in its sole discretion. Any such
adjustment may provide for the elimination of fractional shares.
14. Amendment, Suspension and Termination.
14.1 In General. The Board may suspend or terminate the Plan (or any
portion thereof) at any time and may amend the Plan at any time and from time to
time in such respects as the Board may deem advisable to insure that any and all
Awards conform to or otherwise reflect any change in applicable laws or
regulations, or to permit the Company or the Participants to benefit from any
change in applicable laws or regulations, or in any other respect the Board may
deem to be in the best interests of the Company or any Subsidiary. No such
amendment, suspension or termination shall (x) materially adversely effect the
rights of any Participant under any outstanding Stock Options, Stock
Appreciation Rights, or Restricted Share grants, without the consent of such
Participant, or (y) make any change that would disqualify the Plan, or any other
plan of the Company or any Subsidiary intended to be so qualified, from the
benefits provided under Section 422 of the Code, or any successor provisions
thereto.
14.2 Award Agreement Modifications. The Committee may (in its sole
discretion) amend or modify at any time and from time to time the terms and
provisions of any outstanding Stock Options, Stock Appreciation Rights, or
Restricted Share grants, in any manner to the extent that the Committee under
the Plan or any Award Agreement could have initially determined the
restrictions, terms and provisions of such Stock Options, Stock Appreciation
Rights, and/or Restricted Share grants, including, without limitation, changing
or accelerating (a) the date or dates as of which such Stock Options or Stock
Appreciation Rights shall become exercisable, or (b) the date or dates as of
which such Restricted Share grants shall become vested. No such amendment or
modification shall, however, materially adversely affect the rights of any
Participant under any such Award without the consent of such Participant.
15. Miscellaneous.
15.1 Tax Withholding. The Company shall have the right to deduct from any
payment or settlement under the Plan, including, without limitation, the
exercise of any Stock Option or Stock Appreciation Right, or the delivery,
transfer or vesting of any Common Stock or Restricted Shares, any federal,
state, local or other taxes of any kind which the Committee, in its sole
discretion, deems necessary to be withheld to comply with the Code and/or any
other applicable law, rule or regulation. If the Committee, in its sole
discretion, permits shares of Common Stock to be used to satisfy any such tax
withholding, such Common Stock shall be valued based on the Fair Market Value of
such stock as of the date the tax withholding is required to be made, such date
to be determined by the Committee. The Committee may establish rules limiting
the use of Common Stock to meet withholding requirements by Participants who are
subject to Section 16 of the Exchange Act.
15.2 No Right to Employment. Neither the adoption of the Plan, the
granting of any Award, nor the execution of any Award Agreement, shall confer
upon any employee of the Company or any Subsidiary any right to continued
employment with the Company or any Subsidiary, as the case may be, nor shall it
interfere in any way with the right, if any, of the Company or any Subsidiary to
terminate the employment of any employee at any time for any reason.
15.3 Unfunded Plan. The Plan shall be unfunded and the Company shall not
be required to segregate any assets in connection with any Awards under the
Plan. Any liability of the Company to any person with respect to any Award under
the Plan or any Award Agreement shall be based solely upon the contractual
obligations that may be created as a result of the Plan or any such Award or
Award Agreement. No such obligation of the Company shall be deemed to be secured
by any pledge of, encumbrance on, or other interest in, any property or asset of
the Company or any Subsidiary. Nothing contained in the Plan or any Award
Agreement shall be construed as creating in respect of any Participant (or
beneficiary thereof or any other
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person) any equity or other interest of any kind in any assets of the Company or
any Subsidiary or creating a trust of any kind or a fiduciary relationship of
any kind between the Company, any Subsidiary and/or any such Participant, any
beneficiary thereof or any other person.
15.4 Other Company Benefit and Compensation Programs. Payments and other
benefits received by a Participant under an Award made pursuant to the Plan
shall not be deemed a part of a Participant's compensation for purposes of the
determination of benefits under any other employee welfare or benefit plans or
arrangements, if any, provided by the Company or any Subsidiary unless expressly
provided in such other plans or arrangements, or except where the Board
expressly determines in writing that inclusion of an Award or portion of an
Award should be included to accurately reflect competitive compensation
practices or to recognize that an Award has been made in lieu of a portion of
competitive annual base salary or other cash compensation. Awards under the Plan
may be made in addition to, in combination with, or as alternatives to, grants,
awards or payments under any other plans or arrangements of the Company or its
Subsidiaries. The existence of the Plan notwithstanding, the Company or any
Subsidiary may adopt such other compensation plans or programs and additional
compensation arrangements as it deems necessary to attract, retain and motivate
employees.
15.5 Listing, Registration and Other Legal Compliance. No Awards or shares
of the Common Stock shall be required to be issued or granted under the Plan
unless legal counsel for the Company shall be satisfied that such issuance or
grant will be in compliance with all applicable federal and state securities
laws and regulations and any other applicable laws or regulations. The Committee
may require, as a condition of any payment or share issuance, that certain
agreements, undertakings, representations, certificates, and/or information, as
the Committee may deem necessary or advisable, be executed or provided to the
Company to assure compliance with all such applicable laws or regulations.
Certificates for shares of the Restricted Shares and/or Common Stock delivered
under the Plan may be subject to such stock-transfer orders and such other
restrictions as the Committee may deem advisable under the rules, regulations,
or other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Common Stock is then listed, and any applicable federal
or state securities law. In addition, if, at any time specified herein (or in
any Award Agreement or otherwise) for (a) the making of any Award, or the making
of any determination, (b) the issuance or other distribution of Restricted
Shares and/or Common Stock, or (c) the payment of amounts to or through a
Participant with respect to any Award, any law, rule, regulation or other
requirement of any governmental authority or agency shall require either the
Company, any Subsidiary or any Participant (or any estate, designated
beneficiary or other legal representative thereof) to take any action in
connection with any such determination, any such shares to be issued or
distributed, any such payment, or the making of any such determination, as the
case may be, shall be deferred until such required action is taken. With respect
to persons subject to Section 16 of the Exchange Act, transactions under the
Plan are intended to comply with all applicable conditions of SEC Rule 16b-3. To
the extent any provision of the Plan or any action by the administrators of the
Plan fails to so comply with such rule, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
15.6 Award Agreements. Each Participant receiving an Award under the Plan
shall enter into an Award Agreement with the Company in a form specified by the
Committee. Each such Participant shall agree to the restrictions, terms and
conditions of the Award set forth therein and in the Plan.
15.7 Designation of Beneficiary. Each Participant to whom an Award has
been made under the Plan may designate a beneficiary or beneficiaries to
exercise any option or to receive any payment which under the terms of the Plan
and the relevant Award Agreement may become exercisable or payable on or after
the Participant's death. At any time, and from time to time, any such
designation may be changed or cancelled by the Participant without the consent
of any such beneficiary. Any such designation, change or cancellation must be on
a form provided for that purpose by the Committee and shall not be effective
until received by the Committee. If no beneficiary has been designated by a
deceased Participant, or if the designated beneficiaries have predeceased the
Participant, the beneficiary shall be the Participant's estate. If the
Participant designates more than one beneficiary, any payments under the Plan to
such beneficiaries shall be made in equal shares unless the Participant has
expressly designated otherwise, in which case the payments shall be made in the
shares designated by the Participant.
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15.8 Leaves of Absence/Transfers. The Committee shall have the power to
promulgate rules and regulations and to make determinations, as it deems
appropriate, under the Plan in respect of any leave of absence from the Company
or any Subsidiary granted to a Participant. Without limiting the generality of
the foregoing, the Committee may determine whether any such leave of absence
shall be treated as if the Participant has terminated employment with the
Company or any such Subsidiary. If a Participant transfers within the Company,
or to or from any Subsidiary, such Participant shall not be deemed to have
terminated employment as a result of such transfers.
15.9 Loans. Subject to applicable law, the Committee may provide, pursuant
to Plan rules, for the Company or any Subsidiary to make loans to Participants
to finance the exercise price of any Stock Options, as well as the withholding
obligation under Section 15.1 of the Plan and/or the estimated or actual taxes
payable by the Participant as a result of the exercise of such Stock Option and
the Committee may prescribe the terms and conditions of any such loan.
15.10 Governing Law. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to the principles of conflict of laws thereof. Any titles and
headings herein are for reference purposes only, and shall in no way limit,
define or otherwise affect the meaning, construction or interpretation of any
provisions of the Plan.
15.11 Effective Date. The Plan shall be effective upon its approval by the
Board and adoption by the Company, subject to the approval of the Plan by the
Company's shareholders in accordance with Sections 162(m) and 422 of the Code.
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Appendix B
BROOKE GROUP LTD.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT
THE 1998 ANNUAL MEETING OF STOCKHOLDERS
OF BROOKE GROUP LTD.
The undersigned stockholder of Brooke Group Ltd. (the "Company") hereby
constitutes and appoints Joselynn D. Van Siclen and Marc N. Bell, attorney and
proxy of the undersigned, with power of substitution, to attend, vote and act
for the undersigned at the 1998 Annual Meeting of Stockholders of the Company, a
Delaware corporation, to be held at The Hyatt Regency Miami, 400 S.E. Second
Avenue, Miami, Florida 33131 on Thursday, October 15, 1998 at 11:00 a.m. local
time, and at any adjournments or postponements thereof, with respect to the
following on the reverse side of this proxy card and, in their discretion, on
such other matters as may properly come before the meeting and at any
adjournments or postponements thereof.
(TO BE CONTINUED AND SIGNED ON THE REVERSE SIDE)
<TABLE>
<CAPTION>
<S> <C>
[x] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
Item 1. Election of Directors:
FOR all nominees named at right (except as indicated to the contrary) [ ]
WITHHOLD AUTHORITY to vote for all nominees named at right [ ]
Nominees: Robert J. Eide, Bennett S. LeBow, Jeffrey S. Podell and Jean E. Sharpe
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's
name on the line provided below.)
- ---------------------------------------------------------------------------------------------------------
Item 2. Proposal to increase authorized Common Stock to 100,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Item 3. Proposal to approve Brooke Group Ltd. Long-Term Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
If not otherwise directed, this proxy will be voted FOR the election of
the nominees, FOR the increase in the authorized Common Stock and FOR the
approval of the Long-Term Incentive Plan.
The Board of Directors recommends a vote FOR all nominees in Item 1 and
FOR the approval of Items 2 and 3.
PLEASE DATE, SIGN AND MAIL AT ONCE IN THE ENCLOSED POSTPAID ENVELOPE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Signature ____________________ Date __________ Signature _____________________ Date _____________
IF HELD JOINTLY
</TABLE>
NOTE: Please sign exactly as your name appears hereon. If signing as attorney,
administrator, trustee, guardian or the like, please give full title as such. If
signing for a corporation, please give your title.
