<PAGE> 1
As filed with the Securities and Exchange Commission on February 11, 1998
Registration No. 33-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BROOKE GROUP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 51-0255124
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
100 S.E. Second Street
Miami, Florida 33131
(305) 579-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Marc N. Bell
Vice President and General Counsel
Brooke Group Ltd.
100 S.E. Second Street
Miami, Florida 33131
(305) 579-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Mark L. Weissler
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
(212) 530-5000
Approximate date of commencement of proposed sale to the public: From time to
time following the effective date of the Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK,
$.10 PAR VALUE 482,970 $9.90625 $4,784,422 $1,412
===========================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) based on average high and low prices for
the Company's Common Stock on the New York Stock Exchange consolidated
reporting system on February 4, 1998.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE> 4
PROSPECTUS
SUBJECT TO COMPLETION, FEBRUARY 11, 1998
482,970 SHARES
BROOKE GROUP LTD.
COMMON STOCK
(PAR VALUE $.10)
----------------------------
This Prospectus relates to 482,970 shares of common stock, par value
$.10 per share (the "Shares"), of Brooke Group Ltd. (the "Company") which may be
offered for sale from time to time by the Selling Stockholders named herein, or
by such Selling Stockholders' pledgees, donees, transferees or other successors
in interest, to or through underwriters or directly to other purchasers or
through agents in one or more transactions at varying prices determined at the
time of sale or at negotiated prices. The Company will not receive any of the
proceeds from any such sales. See "Selling Stockholders" and "Plan of
Distribution".
The Company's common stock is listed on the New York Stock Exchange
under the symbol "BGL". The last reported sale price of the common stock on The
New York Stock Exchange on February 10, 1998 was $10.625 per share.
----------------------------
SEE "RISK FACTORS" (LOCATED ON PAGES 4-9 OF THIS PROSPECTUS) FOR A DISCUSSION OF
CERTAIN RISKS THAT SHOULD BE CONSIDERED BY POTENTIAL PURCHASERS OF THE SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 11, 1998
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the SEC in Washington, D.C., and at
the SEC's Regional Offices at 7 World Trade Center, New York, New York and 500
West Madison Street, Chicago, Illinois. Copies of such information can be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549 at
prescribed rates. The SEC maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information filed
by the Company with the SEC through its Electronic Data Gathering Analysis and
Retrieval (EDGAR) system. In addition, reports, proxy statements and other
information concerning the Company may be inspected and copied at the offices of
The New York Stock Exchange, 20 Broad Street, New York, New York. Any interested
parties may inspect the Registration Statement, without charge, at the public
reference facilities at the SEC, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549-1004 or through the SEC's Web site (http://www.sec.gov),
and may obtain copies of all or any part of it from the Public Reference Section
of the SEC at the above address upon payment of the fees prescribed by the SEC.
The Company has filed with the SEC a registration statement on Form S-3
under the Securities Act (together with any amendments thereto, the
"Registration Statement") with respect to the Shares being offered pursuant to
this Prospectus. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. For further information, reference is
hereby made to the Registration Statement and the documents incorporated herein
by reference.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained herein, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, the Selling Stockholders or any underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any securities other than the Shares or an offer to sell, or a
solicitation of an offer to buy, Shares in any jurisdiction in which, or to any
person to whom, such offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Company documents filed with the SEC (File No. 1-5759)
are incorporated herein by reference: (1) Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, as amended by Form 10-K/A dated April 11,
1997 and Form 10-K/A No. 2 dated January 30, 1998; (2) Quarterly Reports on Form
10-Q for the quarters ended March 31, 1997, June 30, 1997 and September 30,
1997, respectively; (3) Current Reports on Form 8-K dated January 31, 1997;
February 14, 1997; February 26, 1997; April 16, 1997; June 12, 1997; August 1,
1997; August 28, 1997; November 13, 1997; November 26, 1997; December 17, 1997;
January 12, 1998; January 14, 1998; January 15, 1998; January 16, 1998; January
21, 1998; February 2, 1998 and February 6, 1998; (4) the description of the
Common Stock contained in a registration statement filed under the Exchange Act,
including any amendment or reports filed for the purpose of updating such
description; and (5) all other documents filed by the Company pursuant to
Section
-2-
<PAGE> 6
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Shares.
Any statement incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person including a
beneficial owner to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
which are incorporated by reference herein, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Written or telephone requests should be directed to Marc N.
Bell, Brooke Group Ltd., 100 S.E. Second Street, Miami, Florida 33131, telephone
(305) 579-8000.
-3-
<PAGE> 7
RISK FACTORS
Before purchasing the Shares offered hereby, a prospective investor
should consider, among other things, the following considerations set forth
below, as well as the other information set forth elsewhere, or incorporated by
reference, in the Prospectus, in evaluating the Company, its business prospects
and the Shares.
HIGH DEGREE OF LEVERAGE; NET WORTH DEFICIENCY; SIGNIFICANT LOSSES
At September 30, 1997, the Company had total outstanding indebtedness
of $409,218,000 and a net worth deficiency of $463,111,000. The Company has
substantial debt service requirements on a consolidated basis, and has
experienced significant losses from continuing operations every year since 1991.
There can be no assurance that the Company will be able to satisfy its
obligations under the indebtedness. In addition, Liggett Group Inc. ("Liggett"),
the Company's principal operating subsidiary, had a net worth deficit at
September 30, 1997 and for the first nine months of 1997 experienced a net loss
and a deficiency in earnings available to cover fixed charges. Accordingly,
there can be no assurance that Liggett will be able to satisfy its obligations
under the Liggett Series B Notes (as defined herein), Liggett Series C Notes (as
defined herein) and the Liggett Facility (as defined herein). (For further
discussion of the Company's and Liggett's leverage, see "Certain Risks Regarding
Liggett and the Cigarette Industry" below.) Failure of the Company to satisfy
these debt service obligations would materially adversely affect the value of
the Common Stock.
HOLDING COMPANY STRUCTURE; DEPENDENCE ON CASH FROM SUBSIDIARIES AND CERTAIN
INVESTMENTS
The Company is a holding company and has no operations of its own.
Accordingly, the ability of the Company to pay dividends on the Shares is
substantially dependent on the ability of New Valley Corporation ("New Valley")
(in which the Company indirectly holds an approximately 42% voting interest) and
of Liggett and the Company's other subsidiaries to generate cash and the
availability of that cash to the Company. Certain covenants in Liggett's debt
instruments impose restrictions on, among other things, Liggett's ability to
declare and pay dividends or make other advances, payments or distributions to
the Company. As a result, Liggett has not paid dividends to the Company since
November 1992 and is not expected to pay dividends to the Company in the
foreseeable future. Additionally, certain covenants in an Indenture, dated as of
January 1, 1996, between BGLS Inc., a wholly-owned subsidiary of the Company
("BGLS"), and State Street Bank and Trust Company, N.A., as Trustee (the
"Indenture"), impose restrictions on, among other things, BGLS' ability to pay
or make dividends, distributions and other Restricted Payments (as defined in
the Indenture) and prohibit BGLS from disposing of Collateral (as defined in the
Indenture), including the stock of Liggett, Brooke (Overseas) Ltd. ("BOL"), New
Valley and NV Holdings (as defined herein), held by it, but such covenants are
subject to important qualifications and limitations.
New Valley's First Amended Joint Chapter 11 Plan of Reorganization, as
amended (the "Joint Plan"), and the Indenture impose certain restrictions on
transactions with the Company and certain of its affiliates, including
restrictions relating to payments and distributions to the Company from New
Valley (other than pro rata distributions to stockholders) and New Valley
Holdings, Inc., a wholly-owned subsidiary of BGLS ("NV Holdings"). Moreover, as
a significant stockholder (through BGLS and NV Holdings) of New Valley, the
Company is under a legal obligation to deal fairly with New
-4-
<PAGE> 8
Valley, which may limit its ability to enter into transactions with New Valley
that result in the receipt of cash from New Valley and to influence New Valley's
dividend policy in certain respects.
In addition, the Company does not hold a majority of New Valley's
voting power and may not be able to control New Valley's dividend policy. Since
the Company indirectly owns (through BGLS and NV Holdings) a minority of each
class of New Valley capital stock (other than the Class A Preferred Shares) held
(directly and indirectly) by BGLS and NV Holdings, a majority of any cash and
other assets distributed by New Valley with respect to any such class (other
than the Class A Preferred Shares) will be distributed to persons other than the
Company and its subsidiaries.
The Company's receipt of income from its principal subsidiaries and
investments is an important source of its liquidity and capital resources, and,
as described above, its ability to receive such income is subject to a number of
restrictions, risks and uncertainties. If the Company does not generate
sufficient cash flow from continuing operations to satisfy its debt service
obligations, it will be required to secure additional funds from other sources.
There can be no assurance that the Company will be able to secure such
additional funds at all or on terms acceptable to the Company. The Company's
inability to service these obligations would materially adversely affect the
value of the Common Stock.
CERTAIN RISKS REGARDING LIGGETT AND THE CIGARETTE INDUSTRY
NET WORTH DEFICIENCY; RECENT LOSSES AND FIXED CHARGE COVERAGE
DEFICIENCY. At September 30, 1997, Liggett had a net worth deficiency of
$180,011,000 and a working capital deficiency of $47,292,000. During the first
nine months of 1997, Liggett incurred a net loss of $1,333,000. Liggett's high
degree of leverage could impair its ability to withstand competitive pressures
or adverse economic conditions and to take advantage of business opportunities.
At September 30, 1997, Liggett had outstanding approximately $112,612,000 of
11.5% Liggett Series B Senior Secured Notes due 1999 (the "Liggett Series B
Notes") and $32,279,000 of 19.75% Series C Senior Secured Notes due 1999 (the
"Liggett Series C Notes" and together with the Liggett Series B Notes, the
"Notes"). The Liggett Series B Notes and the Liggett Series C Notes required a
mandatory principal redemption of $37,500,000 on February 1, 1998 with the
balance of the Liggett Series B and Series C Notes due on February 1, 1999, but
the holders of the requisite majority of Notes have consented to the deferral of
that $37,500,000 redemption payment until the final maturity date. In connection
with this deferral, the indenture under which the Notes are outstanding was
amended to prohibit, with limited exceptions, payments of dividends and
incurrence of new debt by Liggett and to tighten restrictions on the disposition
of proceeds of asset sales. The Company and BGLS also agreed to guarantee the
payment by Liggett of the August 1, 1998 interest payment on the Liggett Series
B Notes and Series C Notes. In addition, Liggett has a $40,000,000 revolving
credit facility expiring March 8, 1999 (the "Liggett Facility"), under which
$31,214,000 was outstanding at September 30, 1997. Due to the many risks and
uncertainties associated with the cigarette industry, the impact of recent
tobacco litigation settlements and increased tobacco costs, there can be no
assurance that Liggett will be able to meet its future goals, and it is unlikely
that Liggett will be able to make the required payments on the Notes at maturity
with cash from operations. Consequently, if Liggett is unable to restructure the
terms of the Liggett Notes, or otherwise make all payments thereon,
substantially all of Liggett's long-term debt and the Liggett Facility would be
in default and holders of such debt could accelerate its maturity. In such
event, Liggett may be forced to
-5-
<PAGE> 9
seek protection from creditors under applicable laws. These matters raise
substantial doubt about Liggett meeting its liquidity needs and its ability to
continue as a going concern.
The Company also engaged in negotiations with the principal holders of
the BGLS 15.75% Series B Senior Secured Notes (the "BGLS Notes"), $232,864,000
of which were outstanding on September 30, 1997, with respect to certain related
modifications to the terms of such debt. During such negotiations, BGLS
postponed making the interest payments of approximately $18,338,000 for the BGLS
Notes due on July 31, 1997. A Standstill Agreement and Consent (the "Standstill
Agreement") was reached on August 28, 1997, as amended, among the holders of
more than 83% of the BGLS Notes and BGLS whereby each of such principal holders
of the BGLS Notes waived the right to receive on August 29, 1997 its pro rata
share of the July 31, 1997 interest payment (in total, $15,340,000). On August
29, 1997, BGLS made the interest payment on the BGLS Notes to all holders other
than the principal holders. Pending completion of the negotiations with the
principal holders, such holders agreed with BGLS that they would be entitled to
receive their portion of the July 31, 1997 interest payment only after giving
BGLS 20 days' notice but, in any event, by February 6, 1998. On that date, the
holder of $97,551,000 principal amount of the BGLS Notes was paid its pro rata
share of the July 31, 1997 interest payment, and the other principal holders,
with approximately $97,239,000 principal amount of the BGLS Notes, agreed to
extend the provisions of the Standstill Agreement through March 2, 1998. Pending
completion of these negotiations, BGLS has postponed the making of interest
payments due on January 31, 1998 on all the BGLS Notes. The BGLS indenture
provides for a 30-day grace period before failure to pay interest will become an
event of default.
TOBACCO INDUSTRY PROBLEMS; LIGGETT'S COMPETITIVE POSITION IN INDUSTRY.
Liggett has suffered significant losses and has a significant working capital
deficiency as a result of, among other things, its highly leveraged capital
structure as well as severe adverse developments in the tobacco industry,
intense competition and changes in consumer preferences causing a substantial
decline in sales volume. Liggett is considerably smaller and has fewer resources
than all its major competitors and has a correspondingly limited ability to
respond to market developments. The United States cigarette market is highly
concentrated and has extremely high barriers to entry. Since the acquisition by
Brown & Williamson Tobacco Company ("B&W") of American Tobacco Company, three
firms control approximately 90% of the United States market. Philip Morris
Companies Inc. ("Philip Morris") is the largest and most profitable manufacturer
in the market, and its profits are derived principally from its sale of
lucrative premium cigarettes. According to The Maxwell Consumer Report (the
"Maxwell Report"), a recognized industry publication, dated November 12, 1997,
Philip Morris had in excess of 57% of the premium segment and in excess of 48%
of the total domestic market for the 12 months ended September 30, 1997. Philip
Morris and R.J. Reynolds Tobacco Co. ("RJR"), the two largest cigarette
manufacturers, have historically, because of their dominant market share, been
able to determine cigarette prices for the various pricing tiers within the
industry. The other cigarette manufacturers historically have brought their
prices into line with the levels established by the two major manufacturers.
Liggett is more reliant upon sales in the discount segment of the market,
relative to the full-price premium segment, than its competitors. Since at least
1993, Liggett's management believes that Philip Morris's market strategy has
been to minimize the actual price spread between discount and premium products
and to curtail the sales made by the makers of discount products. In part,
Philip Morris sought to minimize that spread by dropping its premium prices in
early 1993. In addition, that strategy has also been carried out through
wholesale and retail trade programs.
-6-
<PAGE> 10
According to the Maxwell Report, Liggett's overall market share for the
12 months ended September 30, 1997 was 1.5%, down from 1.9% for the prior 12
months ended September 30, 1996. According to the Maxwell Report, Liggett's
share of the premium segment for the 12 months ended September 30, 1997 was .5%,
down from .7% for the prior 12-month period, and its share of the discount
segment for the 12 months ended September 30, 1997 was 3.9%, down from 4.9% for
the prior 12-month period.
Industry-wide shipments of cigarettes in the United States have been
steadily declining for several years. The Maxwell Report estimates that domestic
industry-wide shipments decreased by .4% for the nine months ended September 30,
1997, compared to the same period for the prior year. Liggett's management
expects that industry-wide unit sales of cigarettes in the United States will
continue to remain flat or decline as a result of numerous factors, including
health considerations, diminishing social acceptance of smoking, legislative
limitations on smoking in public places and federal and state excise tax
increases which have augmented cigarette price increases.
LEGISLATION, REGULATION AND LITIGATION. The cigarette industry
continues to be challenged on numerous fronts. New product liability cases
continue to be commenced against Liggett and the Company and other cigarette
manufacturers. As of September 30, 1997, there were 218 individual suits, 39
class actions or actions where class certification has been sought and 38 state
(and numerous municipality and other third-party payor) health care cost
reimbursement actions pending in the United States in which Liggett is a named
defendant and has been served. As new cases are commenced, the costs associated
with defending such cases and the risks attendant to the inherent
unpredictability of litigation continue to increase. Recently, there have been a
number of restrictive regulatory actions from various Federal administrative
bodies, including the United States Environmental Protection Agency ("EPA") and
the Food and Drug Administration ("FDA"), adverse political and legal decisions
and other unfavorable developments concerning cigarette smoking and the tobacco
industry, including the commencement and certification of class actions and the
commencement of Medicaid reimbursement suits by various states' Attorneys
General. These developments generally receive widespread media attention. The
Company is not able to evaluate the effect of these developing matters on
pending litigation or the possible commencement of additional litigation, but it
is possible that the Company's financial position, results of operations and
cash flows could be materially adversely affected by an ultimate unfavorable
outcome in any of such pending litigation. See Note 11 to the Company's
Consolidated Financial Statements included in the Quarterly Report on Form 10-Q
for the period ended September 30, 1997 incorporated by reference herein for a
description of legislation, regulation and litigation.
OTHER MATTERS. On June 20, 1997, Philip Morris, RJR, B&W, Lorillard and
the United States Tobacco Company, along with the Attorneys General for the
States of Arizona, Connecticut, Florida, Mississippi, New York and Washington
and the CASTANO Plaintiffs' Litigation Committee, executed a Memorandum of
Understanding to support the adoption of federal legislation and necessary
ancillary undertakings, incorporating the features described in a proposed
resolution mandating a total reformation and restructuring of how tobacco
products are manufactured, marketed and distributed in the United States. The
proposals are currently being reviewed by the White House, Congress and various
public interest groups. Separately, the other tobacco companies negotiated
settlements of the Attorneys General health care cost recovery actions in
Mississippi, Florida and Texas. The Company is unable to predict the ultimate
effect, if any, of the enactment of legislation adopting the proposed
-7-
<PAGE> 11
resolution. The Company is also unable to predict the ultimate content of any
such legislation. However, adoption of any such legislation could have a
material adverse effect on the business of the Company and Liggett.
The sale of cigarettes is subject to substantial federal excise taxes
as well as various state and local government excise taxes. In a speech on
September 17, 1997, President Clinton called for federal legislation that, among
other things, would raise cigarette prices by up to $1.50 per pack. A
substantial excise tax increase could accelerate the trend away from smoking and
could have an unfavorable effect on Liggett's sales.
CERTAIN AFFILIATE TRANSACTIONS
Certain affiliates of the Company have entered into various
transactions with the Company and other affiliates of the Company. Existing
contracts with such companies include services agreements under which Liggett
receives financial and administrative services from the Company, tax-sharing
agreements between various subsidiaries of the Company, including Liggett, and
expense sharing arrangements between New Valley and the Company. In addition,
the Company has entered into certain arrangements with individuals who serve as
officers or directors of companies affiliated with the Company, certain portions
of the cost of which have been charged by the Company to such affiliated
companies.
The BGLS indenture and the Liggett indenture contain certain
restrictions on the ability of the Company and Liggett to enter into additional
transactions with their respective affiliates. In addition, the Joint Plan
imposes certain restrictions on the ability of New Valley to enter into
transactions with affiliates, and the Company, as a controlling stockholder of
New Valley, is under a legal obligation to deal fairly with New Valley, which
obligation may limit the Company's ability to enter into certain transactions
with New Valley or to influence New Valley's dividend policy. The restrictions
described in this paragraph are subject to important limitations and
qualifications.
UNCERTAINTY OF OTHER POTENTIAL ACQUISITIONS AND INVESTMENTS BY NEW VALLEY
New Valley currently holds a significant amount of marketable
securities and cash not committed to any specific investments. This subjects
investors to increased risk and uncertainty, because they are unable to evaluate
the manner in which this cash will be invested and the economic merits of
particular investments. There may be substantial delay in locating suitable
investment opportunities. In addition, New Valley may not have relevant
management experience in the areas in which New Valley may become involved. No
assurance can be given that New Valley will be successful in targeting,
consummating or managing any of these investments.
UNCERTAINTIES RELATING TO OPERATIONS IN RUSSIA
The Company has significant investments in its cigarette manufacturing
operations in Russia and, through its investment in New Valley, in real estate
development operations in Russia. Business operations in Russia are subject to a
high level of risk. Since the breakup of the Soviet Union at the end of 1991,
Russia has experienced dramatic political, social and economic change, including
severe inflation. The political system in Russia is emerging from a long history
of extensive state involvement
-8-
<PAGE> 12
in economic affairs and is undergoing a rapid transition from a centrally
controlled command system to a more market-oriented model. The Company may be
affected unfavorably by political or diplomatic developments, regional tensions,
currency repatriation restrictions, foreign exchange fluctuations, a relatively
untested judicial system, a still evolving taxation system subject to constant
changes which may be retroactive in effect, and other developments in the law or
regulations in Russia and, in particular, the risks of expropriation,
nationalization and confiscation of assets and changes in legislation relating
to foreign ownership. In addition, an undeveloped system of commercial laws
(including the enforcement of laws) and markets adds to the risk of investment
in Russia. No assurance can be given as to the potential profitability (if any)
and effect on liquidity and cash flow that investments in Russia may have on the
Company.
DEPENDENCE ON CERTAIN MANAGEMENT
The Company is dependent upon the services of Bennett S. LeBow (the
"Chairman"), Chairman of the Board, President and Chief Executive Officer of
both the Company and BGLS. The loss to the Company of the Chairman could have a
material adverse effect on the Company. If the Chairman ceased to control the
Company (other than by reason of death or incapacity), each holder of the BGLS
Notes would have the option to cause BGLS to repurchase their respective
holdings of such debt securities. As defined in the Indenture, "control" of a
company means the power to direct the management and policies of the Company,
directly or indirectly, whether through the ownership of voting securities, by
contract, or otherwise. Although this definition of control is identical to
commonly used definitions of control in the federal securities laws, there could
nonetheless be uncertainty as to whether particular factual circumstances
constituted such a change of control.
DILUTION AND SHARES AVAILABLE FOR RESALE
The Company entered into a Stock Purchase Agreement with High River
Limited Partnership ("High River") on January 16, 1998 pursuant to which the
Company issued 1,500,000 shares of the Company's Common Stock to High River (the
"High River Shares"), which represents 7.5% of the total outstanding shares and
14.9% of the float. In addition, the Company issued the Shares in connection
with the amendments to the Liggett Notes referred to above under "Certain Risks
Regarding Liggett and the Cigarette Industry" constituting an additional 2.5% of
the outstanding shares and 4.8% of the float. The issuance of these shares will
cause dilution which may adversely affect the market price of the Company's
Common Stock. In addition, availability for sale of significant quantities of
the Company's Common Stock could adversely affect the prevailing market price of
the Company's Common Stock.
THE COMPANY
The Company, founded in 1980, is a holding company for a number of
businesses. The Company is principally engaged, through its subsidiary Liggett,
in the manufacture and sale of cigarettes in the United States; through its
subsidiary BOL, in the manufacture and sale of cigarettes in Russia; and through
its investment in New Valley, in the investment banking and brokerage business,
in real estate development in Russia and the Ukraine, in the ownership and
management of commercial real estate in the United States and in the acquisition
of
-9-
<PAGE> 13
operating companies. The Company holds such businesses through its wholly-owned
subsidiary, BGLS.
The Company is controlled by Bennett S. LeBow, the Chairman and Chief
Executive Officer of the Company, BGLS and New Valley, who beneficially owns
approximately 47.4% of the Company's Common Stock. The principal executive
offices of the Company and BGLS are located at 100 S.E. Second Street, Miami,
Florida 33131 and the telephone number is (305) 579-8000.
USE OF PROCEEDS
The net proceeds from the sale of the Shares will be received by the
Selling Stockholders. None of the proceeds from any sales by the Selling
Stockholders will be received by the Company.
SELLING STOCK HOLDERS
The following table sets forth, as of February 11, 1998, certain
information with respect to the ownership of Company's Common Stock by certain
Selling Stockholders. The Selling Stockholders may offer all or part of the
Company Common Stock which they hold pursuant to the offering contemplated by
this Prospectus.
<TABLE>
<CAPTION>
NO. OF SHARES
SHARES OF COMMON SHARES OF OF COMMON
STOCK OWNED PRIOR COMMON STOCK STOCK OWNED
SELLING STOCKHOLDER TO OFFERING BEING OFFERED AFTER OFFERING(1)
------------------- ----------------- ------------- -----------------
<S> <C> <C> <C>
Bank of New York 29,167 29,167 0
Bear Stearns Securities Corp. 145,531 145,531 0
Ben D'Angelo Trust. 667 667 0
C.P. Sanders 33 33 0
Donaldson Lufkin/Pershing 23,357 23,357 0
First Options of Chicago, Inc. 1,000 1,000 0
JW Charles Clearing Corp. 1,920 1,920 0
Lehman Brothers Inc. 1,667 1,667 0
Marvin Harold Bock, Trustee 33 33 0
Milton S. Liber Trust 66 66 0
Morgan Stanley & Co. Inc. 2,507 2,507 0
PNC Bank, N.A. 7,463 7,463 0
Republic National Bank of NY 33,616 33,616 0
Security Thrift and Acceptance Corp. 333 333 0
Smith Barney Inc. 39,383 39,383 0
Southwest Securities Inc. 16,716 16,716 0
State Street Bank & Trust (Fiduciary) 12,800 12,800 0
</TABLE>
- -----------------------
(1) The calculation of the number of shares of Common Stock owned after
the offering assumes the sale of all shares offered hereby.
-10-
<PAGE> 14
On January 30, 1998, Liggett solicited consents from the requisite
majority of holders of Liggett Notes to an amendment to the Liggett indenture
referred to under "Certain Risks Regarding Liggett and the Cigarette Industry."
As consideration for such consents, the Company agreed to issue 482,970 shares
of Company Common Stock to the consenting and non-consenting holders of Liggett
Notes.
The Company agreed in a registration rights agreement (the
"Registration Rights Agreement"), which has been incorporated by reference into
the Registration Statement of which this Prospectus is a part, to register the
Shares. Pursuant to the Registration Rights Agreement, the Company agreed to pay
the Selling Stockholders liquidated damages in the event that (a) the Company
fails to file the Registration Statement on or prior to February 12, 1998 or,
(b) the Registration Statement has not been declared effective on or prior to
May 31, 1998. The Company agreed that such Liquidated Damages would accrue at a
rate of $.0499476 per day per share until the Registration Statement is
declared effective, but that in any event, the number of days on which
Liquidated Damages will accrue would not exceed 300 days in the aggregate.
The Company will from time to time supplement or amend this Prospectus,
as required, to include additional Selling Stockholders or provide other
information with respect to Selling Stockholders.
PLAN OF DISTRIBUTION
Any distribution of the Shares by the Selling Stockholders, or by
pledgees, donees, transferees or other successors in interest, may be effected
from time to time in one or more of the following transactions: (a) to
underwriters who will acquire the Shares for their own account and resell them
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale (any
public offering price and any discount or concessions allowed or reallowed or
paid to dealers may be changed from time to time); (b) through brokers, acting
as principal or agent, in transactions (which may involve block transactions) on
The New York Stock Exchange, in special offerings, exchange distributions
pursuant to the rules of the applicable exchanges or in the over-the-counter
market, or otherwise, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at negotiated prices or at fixed
prices; or (c) directly or through brokers or agents in private sales at
negotiated prices, or by any other legally available means. Unless otherwise set
forth in any prospectus supplement, (i) the obligations of any underwriter to
purchase any of the Shares will be subject to certain conditions precedent and
the underwriters will be obligated to purchase all of such Shares, if any are
purchased and (ii) any such agent will be acting on a best efforts basis for the
period of its appointment.
The Selling Stockholders and such underwriters, brokers, dealers or
agents, upon effecting the sale of the Shares, may be considered "underwriters"
as that term is defined by the Securities Act.
Underwriters participating in any offering made pursuant to this
Prospectus (as amended or supplemented from time to time) may receive
underwriting discounts and commissions, and discounts or concessions may be
allowed or reallowed or paid to dealers, and brokers or agents participating in
such transactions may receive brokerage or agent's commissions or fees.
-11-
<PAGE> 15
At the time a particular offering of Shares is made, to the extent
required, a Prospectus Supplement will be distributed which will set forth the
amount of Shares being offered and the terms of the offering, including the
purchase price or public offering price, the name or names of any underwriters,
dealers or agents, the purchase price paid by any underwriter for Shares
purchased from the Selling Stockholders, any discounts, commissions and other
items constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is
available and complied with.
All costs, expenses and fees in connection with the registration of the
Shares will be borne by the Company. Commissions and discounts, if any,
attributable to the sale of the Shares will be borne by the Selling
Stockholders. The Selling Stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the Shares
against certain liabilities, including liabilities arising under the Securities
Act. The Company and the Selling Stockholders have agreed to indemnify each
other and certain other persons against certain liabilities in connection with
the offering of the Shares, including liabilities arising under the Securities
Act.
EXPERTS
The consolidated balance sheets of Brooke Group Ltd. and Subsidiaries
as of December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1996 appearing in the Company's Annual
Report on Form 10-K/A No. 2 for the fiscal year ended December 31, 1996 and
incorporated by reference in this prospectus, have been incorporated herein in
reliance on the report, which includes an emphasis of a matter paragraph
relating to a standstill and consent agreement with the principal holders of the
BGLS Notes, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing. The consolidated
balance sheets of New Valley Corporation and Subsidiaries as of December 31,
1996 and 1995 and the related consolidated statements of operations, changes in
shareholders' equity (deficit), and cash flows for the years then ended
appearing in the Company's Annual Report on Form 10-K/A No. 2 for the fiscal
year ended December 31, 1996 and incorporated by reference in this Prospectus,
have been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing. The consolidated statements of operations, changes
in shareholders' equity (deficit) and cash flows of New Valley Corporation and
Subsidiaries for the year ended December 31, 1994 appearing in the Company's
Annual Report on Form 10-K/A No. 2 for fiscal year ended December 31, 1996 and
incorporated by reference in this Prospectus, have been incorporated herein in
reliance on the report of Price Waterhouse L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
-12-
<PAGE> 16
VALIDITY OF SHARES
The validity of the Shares offered hereby is being passed upon for the
Company by Marc N. Bell, Esq., Vice President and General Counsel of the
Company. Mr. Bell has an outstanding option to purchase 100,000 shares (33,000
of which are vested) of Common Stock of the Company at an exercise price of
$5.00 per share.
-13-
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses, payable by the Company
on behalf of the Selling Stockholders in connection with the offering. Other
than the SEC registration fee, the amounts set forth below are estimates:
SEC registration fee............................................... $ 1,412
Legal fees and expenses............................................ $ 5,000
Accounting fees and expenses....................................... $ 8,000
Miscellaneous...................................................... $ 3,588
-------
Total.............................................................. $18,000
=======
ITEM 15. - INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law and Article VI of
the Company's Amended and Restated By-Laws provide for indemnification of the
Company's directors and officers in a variety of circumstances, which may
include liabilities under the Securities Act of 1933.
Section 102 of the Delaware General Corporation Law allows a
corporation to eliminate the personal liability of a director of a corporation
to the corporation or to any of its stockholders for monetary damage for a
breach of his fiduciary duty as a director, except in the case where the
director (i) breaches his duty of loyalty, (ii) fails to act in good faith,
engages in intentional misconduct or knowingly violates a law, (iii) authorized
the payment of a dividend or approves a stock repurchase in violation of the
Delaware General Corporation Law or (iv) obtains an improper personal benefit.
Article Ninth of the Company's Restated Certificate of Incorporation includes a
provision which eliminates directors' personal liability to the full extent
permitted under the Delaware General Corporation Law, as the same exists or may
hereafter be amended.
-14-
<PAGE> 18
ITEM 16. - EXHIBITS.
The following documents are filed as a part of this Registration
Statement or incorporated by reference herein:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
4.1 The Registration Rights Agreement dated January 30, 1998, by and
among the Company and the Selling Stockholders incorporated by
reference to Exhibit 99.5 to the Company's Current Report on
Form 8-K, dated February 2, 1998.
5.1 Opinion of Marc N. Bell, Esq.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Marc N. Bell, Esq. (included in Exhibit 5.1).
24.1 Power of Attorney (included in the signature page hereof).
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective
-15-
<PAGE> 19
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the SEC by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
-16-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, and State of Florida, on the 11 day of
February, 1998.
BROOKE GROUP LTD.
By: /s/ Bennett S. LeBow
-----------------------
Bennett S. LeBow
Chairman of the Board of
Directors, President and
Chief Executive Officer
The registrant and each person whose signature appears below hereby
authorizes Richard J. Lampen, Joselynn D. Van Siclen and Marc N. Bell (the
"Agents"), with full power of substitution and resubstitution, to file one or
more amendments (including post-effective amendments) to the Registration
Statement which amendments may make such changes in the Registration Statement
as such Agent deems appropriate, and the registrant and each such person hereby
appoints each such Agent as attorney-in-fact to execute in the name and on
behalf of the registrant and each such person, individually and in each capacity
stated below, any such amendments to the Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on February 11, 1998.
/s/ Bennett S. LeBow Chairman of the Board of
- -------------------------- Directors, President and
Bennett S. LeBow Chief Executive Officer
(Principal Executive Officer)
/s/ Joselynn D. Van Siclen Vice President, Chief Financial
- -------------------------- Officer and Treasurer (Principal
Joselynn D. Van Siclen Financial Officer and Principal
Accounting Officer)
-17-
<PAGE> 21
/s/ Robert J. Eide
- -------------------------- Director
Robert J. Eide
Director
/s/ Jeffrey S. Podell
- --------------------------
Jeffrey S. Podell
-18-
<PAGE> 1
EXHIBIT 5.1
February 11, 1998
Brooke Group Ltd.
100 S.E. Second Street
Miami, Florida 33131
Ladies and Gentlemen:
I am Vice President and General Counsel of Brooke Group Ltd. (the
"Company") and have acted for the Company in connection with the preparation of
the Registration Statement on Form S-3 (the "Registration Statement") in respect
of 482,970 shares of the common stock of the Company, par value $.10 per share
(the "Common Stock"), to be sold from time to time by the Selling Stockholders
pursuant to such Registration Statement. In connection therewith, I have
reviewed (i) the Certificate of Incorporation and By-Laws of the Company as
currently in effect; (ii) the Registration Statement; (iii) certain resolutions
adopted by the Board of Directors of the Company; and (iv) such other documents,
records and papers as I have deemed necessary or appropriate in order to give
the opinion set forth herein. I am familiar with the proceedings heretofore
taken by the Company in connection with the authorization, issuance and sale of
the Common Stock. As to various questions of fact material to such opinion, I
have, when relevant facts were not independently established, relied upon
certifications or representations by officers of the Company and other documents
that I have deemed appropriate.
Based on such examination and review, I am of the opinion that the
Common Stock has been legally issued and is fully paid and nonassessable.
I consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to me under the caption "VALIDITY OF SHARES" in
the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Marc N. Bell
-------------------------
Marc N. Bell
Vice President and General
Counsel
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report, which includes an emphasis of matter paragraph relating
to a standstill and consent agreement with the principal holders of BGLS 15.75%
Senior Secured Notes, dated March 27, 1997, except for Note 20, as to which the
date is January 30, 1998, on our audits of the consolidated financial
statements and financial statement schedule of Brooke Group Ltd. and
Subsidiaries as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996 which report appears in the Annual Report
on Form 10-K/A No. 2 of Brooke Group Ltd. for the fiscal year ended December 31,
1996, as filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934. We also consent to the incorporation by
reference in this registration statement on Form S-3 of our report, dated March
21, 997 on our audits of the consolidated financial statements and financial
statement schedules of New Valley Corporation and Subsidiaries as of December
31, 1996 and 1995, and for the years then ended, which report appears in the
Annual Report on Form 10-K/A No. 2 of Brooke Group Ltd. and Subsidiaries for
the fiscal year ended December 31, 1996, as filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934. We also
consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Miami, Florida
February 10, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated March 24, 1995, appearing on page F-52 on Brooke Group Ltd's. Annual
Report, as amended on January 30, 1998, on Form 10-K/A No. 2, relating to the
consolidated financial statements of New Valley Corporation and its
subsidiaries, which is incorporated by reference in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Morristown, NJ
February 10, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Brooke Group Ltd.
We consent to the incorporation by reference of our report dated March 9, 1995
in the registration statement on Form S-3 of Brooke Group Ltd., relating to the
consolidated statements of operations, stockholders' deficiency and cash flows
of MAI Systems Corporation for the year ended December 31, 1994 and related
schedule, which report appears in the December 31, 1996 annual report on Form
10-K, as amended by Form 10-K/A dated April 11, 1997 and 10-K/A no. 2 dated
January 30, 1998 of Brooke Group Ltd.
/s/ KPMG Peat Marwick LLP
Orange County, California
February 10, 1998
<PAGE> 1
ARTHUR ANDERSEN LLP
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Brooke Group Ltd.
We consent to the incorporation by reference of our report dated February 11,
1997 in the registration statement on Form S-3 of Brooke Group Ltd., relating
to the consolidated balance sheets of Thinking Machines Corporation and
subsidiaries as of December 31, 1996, and the related consolidated statement of
operations, stockholders' equity (deficit) and cash flows for the period
February 8, 1996 (inception) to December 31, 1996, which report appears in the
December 31, 1996 annual report on Form 10-K of New Valley Corporation.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 1998
