<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. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 NOVEMBER 9, 1999
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 Tuesday, November 9, 1999 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 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 October 6, 1999 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 29, 1999 to November 9, 1999, 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, 1998 are
enclosed herewith.
By Order of the Board of Directors,
/s/ Bennett S. LeBow
Bennett S. LeBow
Chairman of the Board of Directors
Miami, Florida
October 8, 1999
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 Tuesday, November 9, 1999, 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 October 6, 1999 (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 21,990,916 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, 1998 (the "Annual
Report") are first being mailed to stockholders is on or about October 13, 1999.
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. The nominees receiving a plurality of the votes cast will be
elected as directors. 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)(6)(7)................................ 10,008,703 44.2%
AIF II, L.P. and Lion Advisors, L.P.(2).................. 4,357,500 16.5%
Two Manhattanville Road
Purchase, NY 10577
Richard S. Ressler(3).................................... 1,916,248 8.7%
Orchard Capital Corporation
10960 Wilshire Boulevard
Los Angeles, CA 90024
High River Limited Partnership(4)........................ 1,652,805 7.5%
Riverdale LLC
Carl C. Icahn
100 South Bedford Road
Mt. Kisco, NY 10549
Kasowitz, Benson, Torres & Friedman LLP(5)............... 1,312,500 5.6%
1301 Avenue of the Americas
New York, NY 10019
Robert J. Eide(6)........................................ 21,000 (*)
Aegis Capital Corp.
70 East Sunrise Highway
Valley Stream, NY 11581
Jeffrey S. Podell (6).................................... 21,000 (*)
182 Gannet Court
Manhasset, NY 11030
Jean E. Sharpe (6)....................................... 10,500 (*)
462 Haines Road
Mt. Kisco, NY 10549
Richard J. Lampen (7).................................... 45,534(8) (*)
Marc N. Bell (7)......................................... 17,495(8) (*)
Joselynn D. Van Siclen (7)............................... 5,250(8) (*)
Ronald S. Fulford(9)..................................... -- --
Liggett Group Inc.
700 West Main Street
Durham, NC 27702
All directors and executive officers as a group (8
persons)............................................... 10,129,482 44.6%
</TABLE>
- ---------------
(*) The percentage of shares beneficially owned does not exceed 1% of the Common
Stock.
(1) Includes 1,226,408 shares of the Company's common stock held by LeBow
Limited Partnership, a Delaware limited partnership ("LLP"), 7,560,000
shares held by LeBow Gamma Limited Partnership, a Nevada limited partnership
("LGLP"), 566,045 shares held by The Bennett and Geraldine LeBow
2
<PAGE> 5
Foundation, Inc. , a Florida not-for-profit corporation (the "Foundation"),
and 656,250 shares acquirable by Mr. LeBow upon exercise of currently
exercisable options to purchase Common Stock. Mr. LeBow indirectly exercises
sole voting power and sole dispositive power over the shares of common stock
held by LLP and LGLP. Of the shares held by LLP, 873,390 shares are pledged
to US Clearing Corp. to secure a margin loan to Mr. LeBow. LeBow Holdings,
Inc., a Nevada corporation ("LHI"), is the general partner of LLP and is the
sole stockholder of LeBow Gamma Inc. ("LGI"), a Nevada corporation, which is
the general partner of LGLP. Mr. LeBow is a director, officer and sole
shareholder of LHI and a director and officer of LGI. 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. 1 to Schedule 13D dated September 30, 1999, filed
by the named entities. These shares are issuable upon exercise of warrants
to purchase Common Stock expiring March 3, 2003 which are currently
exercisable or exercisable within 60 days of the Record Date.
(3) Based upon Amendment No. 6 to Schedule 13D dated April 15, 1998, filed by
the named individual.
(4) Based upon Amendment No. 1 to Schedule 13D dated October 7, 1998, filed by
the named entities. Riverdale LLC is the general partner of High River
Limited Partnership and is wholly owned by Mr. Icahn.
(5) Based upon Schedule 13D dated December 8, 1998, filed by the named entity.
These shares are issuable upon exercise of currently exercisable options to
purchase Common Stock expiring March 31, 2003.
(6) The named individual is a director of the Company.
(7) The named individual is an executive officer of the Company.
(8) Represents shares issuable upon exercise of currently exercisable options to
purchase Common Stock.
(9) 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"), Liggett and New Valley Corporation
("New Valley"). 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 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.
3
<PAGE> 6
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.
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>
Chairman of the Board, President and
Bennett S. LeBow....................... 61 Chief Executive Officer
Brooke Group Ltd.
100 S.E. Second Street
Miami, FL 33131
Robert J. Eide......................... 46 Chairman and Treasurer, Aegis
Aegis Capital Corp. Capital Corp.
70 E. Sunrise Highway
Valley Stream, NY 11581
Jeffrey S. Podell...................... 58 Chairman of the Board and
182 Gannet Court President, Newsote, Inc.
Manhasset, NY 11030
Jean E. Sharpe......................... 53 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 subsidiary of the
Company which holds the Company's equity interests in its various businesses.
Mr. LeBow has been a director of Liggett, a subsidiary of the Company engaged in
the manufacture and sale of cigarettes in the United States, since June 1990.
Mr. LeBow has been Chairman of the Board of New Valley, a majority-owned
subsidiary of the Company principally engaged in the investment banking and
brokerage business in the United States, real estate operations in Russia and
investments in Internet-related businesses since January 1988, and Chief
Executive Officer since November 1994.
ROBERT J. EIDE has been a director of the Company and BGLS since November
1993. Mr. Eide has been the Chairman 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.
4
<PAGE> 7
JEFFREY S. PODELL has been a director of the Company and BGLS since
November 1993. Mr. Podell has been 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 1998, the Board held 10 meetings. During 1998, the Executive
Committee (currently composed of Messrs. Eide and LeBow) did not meet, while the
Compensation Committee (currently composed of Messrs. Eide and Podell) met three
times and the Audit Committee (currently composed of Messrs. Eide and Podell and
Ms. Sharpe) met twice. Each director attended at least 75% of the aggregate
number of meetings of the Board and of each committee of which he or she 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 to these matters.
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, 1998, the Company's Chief Executive Officer and the other three
executive officers of the Company and an executive officer of a subsidiary of
the Company whose cash compensation exceeded $100,000 annually (collectively,
the "named executive officers"):
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION($)
ANNUAL COMPENSATION ---------------
--------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
------------------ ---- --------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bennett S. LeBow................ 1998 3,391,601(2) 834,960(3) -- 2,625,000(5) 25,192(6)
Chairman of the Board, 1997 3,113,281(2) 667,969(3) -- --
President and Chief 1996 3,484,375(2) 890,626(3) -- --
Executive Officer
Richard J. Lampen(4)............ 1998 750,000 750,000 -- --
Executive Vice President 1997 650,000 -- -- 273,000(5)
1996 600,000 100,000 -- --
Marc N. Bell(7)................. 1998 300,000 300,000 -- --
Vice President, General
Counsel and Secretary
Joselynn D. Van Siclen.......... 1998 155,000 155,000 31,500(5)
Vice President, Chief 1997 140,000 -- -- --
Financial Officer and 1996 131,667 10,000 -- --
Treasurer
Ronald S. Fulford(8)............ 1998 425,000 425,000 83,112(9) --
Chairman of the Board, 1997 425,000 -- 247,961(9)(10) --
President and Chief 1996 157,530 -- 552,832(10) --
Executive Officer of Liggett
</TABLE>
- ---------------
(1) Unless otherwise stated, the aggregate value of perquisites and other
personal benefits received by the named executive officers are not
reflected because the amounts were below the reporting requirements
established by the rules of the SEC.
(2) Includes salary paid by New Valley of $2,000,000 per year.
(3) Includes payments equal to 10% of Mr. LeBow's base salary from the Company
($139,160 in 1998, $111,328 in 1997 and $148,438 in 1996) in lieu of
certain other executive benefits.
(4) The table reflects 100% of Mr. Lampen's salary and bonus, all of which are
paid by New Valley, and includes his salary and bonus from New Valley and a
bonus of $500,000 awarded by the Company for 1998. Of Mr. Lampen's salary
and bonus from New Valley, 25% (or $250,000 in 1998, $162,500 in 1997 and
$175,000 in 1996), and all of the 1998 bonus from the Company, have been
reimbursed to New Valley by the Company.
(5) Represents options to purchase the Company's Common Stock.
(6) Represents premiums paid for 1998 by the Company under collateral
assignment split-dollar insurance agreements covering the life of Mr. LeBow
entered into by the Company commencing in December 1998. For a period of
ten years, the Company will advance the amount of the annual premiums on
the policies, less the maximum permitted borrowings under the policies.
Upon surrender of the policies or payment of the death benefits, the
Company is entitled to repayment of all premiums paid by it.
(7) Effective January 10, 1998, Mr. Bell was appointed a Vice President of the
Company. The table reflects 100% of Mr. Bell's salary and bonus, all of
which are paid by the Company. Of Mr. Bell's salary and bonus from the
Company, $200,000 has been reimbursed to the Company by New Valley.
(8) Effective September 5, 1996, Mr. Fulford was appointed Chairman of the
Board, President and Chief Executive Officer of Liggett.
(9) Represents an automobile allowance, living allowance and group term life
insurance provided to Mr. Fulford.
6
<PAGE> 9
(10) Includes payments ($163,155 in 1997 and $552,832 in 1996) made pursuant to
a consulting agreement between Mr. Fulford and the Company, which payments
were reimbursed to the Company by New Valley.
The following table sets forth all grants of stock options to the executive
officers during 1998.
STOCK OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE MARKET PRICE ON GRANT
OPTIONS TO EMPLOYEES IN PRICE DATE OF GRANT EXPIRATION DATE PRESENT
NAME GRANTED(#) 1998 ($/SHARE) ($/SHARE) DATE VALUE($)(2)
---- --------------- ---------------- --------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bennett S. LeBow............. 2,625,000(1) 98.3% $9.29 $9.29 7/20/08 $20,525,000
Joselynn D. Van Siclen....... 31,500(1) 1.2% $4.76 $8.21 12/31/06 $ 227,400
</TABLE>
- ---------------
(1) Represents options to purchase shares of the Company's Common Stock granted
on July 20, 1998 to Mr. LeBow and on January 9, 1998 to Ms. Van Siclen.
Subject to earlier vesting upon a change of control, Mr. LeBow's options
vest and become exercisable in four equal installments commencing on the
first anniversary of the date of grant and Ms. Van Siclen's options vest and
become exercisable in six equal annual installments commencing on the date
of the grant.
(2) The estimated present value at the respective grant dates of options granted
during 1998 has been calculated using the Black-Scholes option pricing
model, based upon the following assumptions: volatility of 79.14% for Mr.
LeBow and 76.56% for Ms. Van Siclen, a risk-free rate of 5.54% for Mr. LeBow
and 5.74% for Ms. Van Siclen, 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 option
exercises during 1998 by the executive officers and the status of their options
at December 31, 1998.
AGGREGATED OPTION EXERCISES DURING
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NUMBER OF SHARES DECEMBER 31, 1998 DECEMBER 31, 1998
ACQUIRED ON VALUE REALIZED --------------------------- ---------------------------
NAME EXERCISE UPON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bennett S. LeBow............. -- -- -0- 2,625,000 -- $36,562,500
Richard J. Lampen............ 45,465 $437,788 33 227,500 $639 $ 4,197,923
Marc N. Bell................. 34,998 $359,682 -0- 70,001 -- $ 1,291,693
Joselynn D. Van Siclen....... 5,250 $ 43,499 -0- 26,250 -- $ 484,375
</TABLE>
- ---------------
* Calculated using the closing price for the Company's Common Stock of $23.21
per share on December 31, 1998 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 10,500 shares of Common Stock for services as a director.
Subject to earlier vesting upon a change of control (as defined),
7
<PAGE> 10
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
Bennett S. LeBow is a party to an employment agreement with the Company
dated February 21, 1992, as amended July 20, 1998. The agreement has a one-year
term with 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, 1999, Mr. LeBow's annual base salary from the Company was
$1,739,501. He is also entitled to an annual bonus for 1999 of $869,750 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, 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
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.
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 had an
initial term of three years effective as of January 18, 1995, 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, 1999, Mr. LeBow's annual base salary from New
Valley was $2,000,000. Following termination of his employment without cause, 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, he is entitled to receive a lump sum payment equal to 2.99 times his
then current base salary.
Richard J. Lampen is a party to an employment agreement with New Valley
dated September 22, 1995. The agreement had 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,
1999, his annual base salary was $750,000. In addition, the New Valley Board of
Directors may award an annual bonus to Mr. Lampen at its sole discretion. The
New Valley Board awarded Mr. Lampen a bonus of $250,000 for 1998, and the
Company's Board awarded him a bonus of $500,000 for 1998. The New Valley Board
may increase (but not decrease) Mr. Lampen's base salary from time to time, in
its sole discretion. Following termination of his employment without cause, Mr.
Lampen will 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.
Marc N. Bell is a party to an employment agreement with the Company dated
April 15, 1994. The agreement has an initial term of two years from April 15,
1994 with automatic renewals after the initial term for additional one-year
terms unless notice of non-renewal is given by either party within the sixty-day
period prior to the termination date. As of January 1, 1999, his annual base
salary was $300,000. In addition, the Board of Directors may award an annual
bonus to Mr. Bell at its sole discretion. The Board awarded Mr. Bell a bonus of
$300,000 for 1998. The Board may review Mr. Bell's base salary and increase (but
not decrease) it from time to time, in its sole discretion. Following
termination of his employment without cause, Mr. Bell will 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.
Joselynn D. Van Siclen is a party to an employment agreement with the
Company dated August 1, 1999. The agreement has an initial term of one year from
August 1, 1999 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. In addition, the Board of
Directors may award an annual bonus to Ms. Van Siclen at its sole discretion.
The Board may increase (but not decrease) Ms. Van Siclen's base salary from time
to time, in its sole discretion. Following termination of her employment without
cause, Ms. Van Siclen will receive severance pay in a lump sum equal to the
amount of her base salary she would have received if she was employed for one
year after termination of her employment term.
8
<PAGE> 11
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, 1999, Mr. Fulford's annual salary was
$650,000. Bonus payments are at the sole discretion of the Board of Liggett.
Liggett awarded Mr. Fulford a bonus of $425,000 for 1998. Effective as of March
1, 1996, the Company entered into an agreement with Mr. Fulford who agreed to
provide various services in connection with the Company's investment in RJR
Nabisco Holdings Corp. (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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Messrs. Eide, LeBow (until April 30, 1998) and Podell were
members of the Company's compensation committee. Messrs. Eide and Podell serve
as directors of BGLS. Mr. Eide is a stockholder, and serves as the Chairman and
Treasurer of Aegis Capital Corp. ("Aegis"), a registered broker-dealer, that has
performed services for the Company and/or its affiliates since before January 1,
1998. Aegis received commissions and other income in the aggregate amount of
approximately $128,000 in 1998 and $26,000 for the six months ended June 30,
1999 from New Valley. Aegis, in the ordinary course of its business in 1998,
engaged in brokerage activities with Ladenburg Thalmann & Co. Inc.
("Ladenburg"), a subsidiary of New Valley, on customary terms.
Mr. LeBow is a director of Liggett. He is Chairman of the Board and Chief
Executive Officer of New Valley and BGLS. 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, 1998, none of the named executive officers was eligible
to receive any benefits under the Retirement Plan.
9
<PAGE> 12
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.
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 cash compensation package of Mr. LeBow was originally 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 Indenture. See "Employment
Agreements", above. In 1998, Mr. LeBow was granted non-qualified stock options
under the Brooke Group Ltd. 1998 Long-Term Incentive Plan (the "Plan"). See
"Stock Option Grants in 1998," above. The grant was conditioned upon the
approval of the Plan by the Company's stockholders which occurred in October
1998.
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 other
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. The Company believes that the
limitation on deductibility does not apply to the stock options granted to Mr.
LeBow under the Plan. This limitation is applicable to the cash compensation
paid by the Company to Mr. LeBow in 1998. 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
10
<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, 1998. The graph assumes that $100
was invested on December 31, 1993 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 the value of the February 13, 1995 distribution to the
Company's stockholders of MAI Systems Corp. common stock, assuming such stock
was held until December 31, 1998.
<TABLE>
<CAPTION>
BROOKE GROUP LTD. S&P 500 S&P MIDCAP S&P TOBACCO
----------------- ------- ---------- -----------
<S> <C> <C> <C> <C>
'12/93' $ 100 $100 $100 $100
'12/94' 158 101 96 109
'12/95' 459 139 126 170
'12/96' 288 170 150 215
'12/97' 448 226 198 265
'12/98' 1,265 291 236 320
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1998, the Company granted Howard M. Lorber, a consultant to the
Company and Liggett, who also serves as a director and President of New Valley,
non-qualified stock options under the Plan to purchase 525,000 shares of the
Company's Common Stock at an exercise price of $9.29 per share. These options,
which have a ten-year term, vest and become exercisable in six equal annual
installments beginning on July 20, 1999. Since January 1, 1998, Mr. Lorber has
received consulting fees of $40,000 per month from the Company and Liggett. In
April 1999, Mr. Lorber received a consulting bonus of $500,000. In January 1998,
Mr. Lorber 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 525,000 restricted shares of the Company's
Common Stock and 1995 and 1996 awards of a total of 1,575,000 non-qualified
stock options to purchase shares of the Company's Common Stock. Mr. Lorber
received an additional consulting payment of $425,000 in January 1998, which he
and the Company have agreed will constitute full satisfaction of the Company's
obligations under the amendment for 1997. During 1998, Mr. Lorber exercised
262,500 of the options to purchase the Company's Common Stock at $1.90 per share
granted to him as part of the 1995 award. Under the terms of the 1995 and 1996
option awards, Common Stock dividend equivalents are paid on each vested and
unexercised option.
11
<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
$502,000 in 1998 and $265,000 in the first six months of 1999 under this
agreement.
In September 1998, New Valley made a one-year $950,000 loan to BGLS bearing
interest at 14% per annum which has been repaid in full.
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 16.5% of the Company's Common Stock. Until February
1999, the Apollo Holders held $97.2 million principal amount of BGLS' senior
secured notes. On March 2, 1998, the Company entered into an agreement with the
Apollo Holders in which the Apollo Holders (and their transferees) 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 2,100,000 shares of
the Company's Common Stock at a price of $4.76 per share. The Apollo Holders
were also issued a second warrant expiring October 31, 2004 to purchase an
additional 2,257,500 shares of the Company's Common Stock at a price of $0.095
per share. The second warrant will become exercisable on October 31, 1999.
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. New Valley agreed, among other things, to contribute to Western Realty
the real estate assets of BML, and Apollo agreed to contribute $65 million.
Western Realty has made a $30 million participating loan to Western Tobacco
Investments LLC, which holds Brooke (Overseas) Ltd.'s interest in Liggett-Ducat
Ltd. The loan is payable out of a 30% profits interest in the entity. For
additional information concerning Western Realty, see "Item 1. Business -- New
Valley Corporation -- Western Realty Ducat", as well as Note 3 to the Company's
Consolidated Financial Statements, in the Annual Report enclosed herewith.
As of the Record Date, High River Limited Partnership ("High River") was
the beneficial owner of 7.5% of the Company's Common Stock. Until May 1999, an
affiliate of High River, Tortoise Corp., held $97.6 million principal amount of
the BGLS notes. On May 25, 1999, BGLS repurchased the notes for 99% of the
principal amount plus accrued interest. On January 16, 1998, the Company entered
into a Stock Purchase Agreement under which High River purchased 1,575,000
shares of the Company's Common Stock at $5.71 per share for an aggregate
purchase price of $9 million.
As of the Record Date, the law firm of Kasowitz, Benson, Torres & Friedman
LLP ("KBTF") was the beneficial owner of 5.6% of Brooke's Common Stock. On March
12, 1998, Brooke entered into a stock option agreement with KBTF under which
KBTF was granted an option to purchase 1,312,500 shares of Common Stock at
$16.67 per share. The option was exercisable for 262,500 shares commencing May
1, 1998 and for 1,050,000 shares commencing April 1, 1999, and expires on March
31, 2003. On October 12, 1998, the Company entered into an amended stock option
agreement with the KBTF. Under the terms of the amended agreement, the exercise
price of the option was reduced from $16.67 per share to $5.71 per share and the
initial exercise date on all 1,312,500 shares was extended to April 1, 2000. The
amended option was subject to earlier exercise on a change of control (as
defined) of the Company or on the average closing price for a share of Common
Stock equaling $16.67 or more for a 10-trading day period. Based on the closing
prices for the 10 trading days ended December 8, 1998, the option became
exercisable in full on that date. KBTF, which represents the Company and various
of its subsidiaries, including Liggett and New Valley, received legal fees of
$4.5 million during 1998 and $2 million during the first six months of 1999.
See also "Compensation Committee Interlocks and Insider Participation."
12
<PAGE> 15
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 1999 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
1998 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 ended December 31, 1998,
all Reporting Persons have timely complied with all filing requirements
applicable to them.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2000 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 June 15, 2000 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
29, 2000.
OTHER MATTERS
All information in this Proxy Statement concerning the Common Stock has
been adjusted to give effect to the 5% stock dividend paid to the stockholders
of the Company on September 30, 1999.
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,
/s/ Bennett S. LeBow
Bennett S. LeBow
Chairman of the Board of Directors
Dated: October 8, 1999
13
<PAGE> 16
Appendix A
BROOKE GROUP LTD.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE 1999 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 1999 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 Tuesday, November 9, 1999 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)
[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.)
- --------------------------------------------------------------------------------
If not otherwise directed, this proxy will be voted FOR the election of
the nominees in Item 1.
The Board of Directors recommends a vote FOR all nominees in Item 1.
PLEASE DATE, SIGN AND MAIL AT ONCE IN THE ENCLOSED POSTPAID ENVELOPE.
Signature _____________________ Date _____________
Signature _____________________ Date _____________
IF HELD JOINTLY
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.
