SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
RJR Nabisco Holdings Corp.
(Name of Issuer)
Common Stock, par value $.01 per share
(Title of Class of Securities)
74960K 87 6
(CUSIP Number)
Richard J. Lampen, Esq.
Executive Vice President and General Counsel
New Valley Corporation, 100 S.E. Second Street,
32nd Floor, Miami, FL 33131 (305) 579-8000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copy to:
Lawrence Lederman, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005-1413
(212) 530-5732
February 28, 1996
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Check the following box if a fee is being paid with the statement |X|.
SCHEDULE 13D
CUSIP NO.: 74960K 87 6
(1) NAME OF REPORTING PERSON: Brooke Group Ltd.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
(3) SEC USE ONLY
(4) SOURCE OF FUNDS: WC
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) |_|
(6) CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
(7) SOLE VOTING POWER: 200
(8) SHARED VOTING POWER: -0-
(9) SOLE DISPOSITIVE POWER: 200
(10) SHARED DISPOSITIVE POWER: -0-
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON: 200
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES |X|
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): Less
than one-tenth of 1%
(14) TYPE OF REPORTING PERSON: HC; CO
SCHEDULE 13D
CUSIP NO.: 74960K 87 6
(1) NAME OF REPORTING PERSON: BGLS Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
(3) SEC USE ONLY
(4) SOURCE OF FUNDS: N/A
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) |_|
(6) CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
(7) SOLE VOTING POWER: -0-
(8) SHARED VOTING POWER: -0-
(9) SOLE DISPOSITIVE POWER: -0-
(10) SHARED DISPOSITIVE POWER: -0-
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON: -0-
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES |X|
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 0%
(14) TYPE OF REPORTING PERSON: HC; CO
SCHEDULE 13D
CUSIP NO.: 74960K 87 6
(1) NAME OF REPORTING PERSON: Liggett Group Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
(3) SEC USE ONLY
(4) SOURCE OF FUNDS: WC
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) |_|
(6) CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
(7) SOLE VOTING POWER: 200
(8) SHARED VOTING POWER: -0-
(9) SOLE DISPOSITIVE POWER: 200
(10) SHARED DISPOSITIVE POWER: -0-
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON: 200
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES |X|
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): Less
than one-tenth of 1%
(14) TYPE OF REPORTING PERSON: CO
SCHEDULE 13D
CUSIP NO.: 74960K 87 6
(1) NAME OF REPORTING PERSON: New Valley Corporation
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
(3) SEC USE ONLY
(4) SOURCE OF FUNDS: WC
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) |_|
(6) CITIZENSHIP OR PLACE OF ORGANIZATION: New York
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
(7) SOLE VOTING POWER: -0-
(8) SHARED VOTING POWER: 5,161,750
(9) SOLE DISPOSITIVE POWER: -0-
(10) SHARED DISPOSITIVE POWER: 5,161,750
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON: 5,161,750
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES |X|
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 1.9%
(14) TYPE OF REPORTING PERSON: HC; CO
SCHEDULE 13D
CUSIP NO.: 74960K 87 6
(1) NAME OF REPORTING PERSON: ALKI Corp.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
(3) SEC USE ONLY
(4) SOURCE OF FUNDS: WC, OO
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) |_|
(6) CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
(7) SOLE VOTING POWER: -0-
(8) SHARED VOTING POWER: 5,161,750
(9) SOLE DISPOSITIVE POWER: -0-
(10) SHARED DISPOSITIVE POWER: 5,161,750
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON: 5,161,750
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES |X|
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 1.9%
(14) TYPE OF REPORTING PERSON: CO
SCHEDULE 13D
CUSIP NO.: 74960K 87 6
(1) NAME OF REPORTING PERSON: Bennett S. LeBow
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |_|
(b) |X|
(3) SEC USE ONLY
(4) SOURCE OF FUNDS: N/A
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) |_|
(6) CITIZENSHIP OR PLACE OF ORGANIZATION: United States of
America
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
(7) SOLE VOTING POWER: -0-
(8) SHARED VOTING POWER: -0-
(9) SOLE DISPOSITIVE POWER: -0-
(10) SHARED DISPOSITIVE POWER: -0-
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON: -0-
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES |X|
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 0%
(14) TYPE OF REPORTING PERSON: IN
1
ITEM 1. SECURITY AND ISSUER.
The class of equity securities to which this Schedule 13D relates is the
common stock, par value $.01 per share (the "Common Stock"), of RJR Nabisco
Holdings Corp., a Delaware corporation (the "Company" or "RJR Nabisco"), with
its principal executive offices located at 1301 Avenue of the Americas, New
York, New York 10019.
ITEM 2. IDENTITY AND BACKGROUND.
(a) This Schedule 13D is being filed by Brooke Group Ltd., a Delaware
corporation ("Brooke"); BGLS Inc., a Delaware corporation and wholly-owned
subsidiary of Brooke ("BGLS"); Liggett Group Inc., a Delaware corporation and
wholly-owned subsidiary of BGLS ("Liggett"); New Valley Corporation, a New York
corporation ("New Valley"); ALKI Corp., a Delaware corporation and wholly-owned
subsidiary of New Valley ("ALKI"); and Bennett S. LeBow, the beneficial owner of
56.5% of the common stock of Brooke (individually, a "Reporting Person" and,
collectively, the "Reporting Persons") who, together with the Icahn Entities (as
defined in Item 5), collectively may be deemed a group beneficially owning more
than 5% of the outstanding shares of the Common Stock within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act").
The filing of this Schedule 13D shall not be construed as an admission that any
Reporting Person is, for purposes of Section 13(d) or 13(g) of the Act, the
beneficial owner of any securities covered by this Schedule 13D except for the
securities stated herein to be beneficially owned by such Reporting Person or
that Bennett S. LeBow is acting with the other Reporting Persons as a group
within the meaning of Section 13(d)(3) of the Act.
(b)(c) Brooke is a publicly held corporation with shares of its common
stock listed on the New York Stock Exchange under the symbol "BGL". Brooke is a
holding company for a number of businesses. Brooke is principally engaged,
through its indirect ownership of Liggett, in the manufacture and sale of
cigarettes and, through its investment in New Valley, in the investment banking
and brokerage business, ownership and management of commercial real estate and
the acquisition of operating companies. BGLS, a wholly-owned subsidiary of
Brooke, is a holding company for a number of businesses. BGLS is principally
engaged, through its ownership of Liggett, in the manufacture and sale of
cigarettes and, through its investment in New Valley, in the investment banking
and brokerage business, ownership and management of commercial real estate and
the acquisition of operating companies. Liggett is principally engaged in the
manufacture and sale of cigarettes. BGLS directly and indirectly owns 618,326
Class A Senior Preferred Shares (approximately 60% of such class), 250,885 Class
B Preferred Shares (approximately 9% of such class) and 79,794,229 Common Shares
(approximately 42% of such class) of New Valley. New
2
Valley is principally engaged in the investment banking and brokerage
business, ownership and management of commercial real estate and the acquisition
of operating companies. ALKI, a wholly owned subsidiary of New Valley, was
organized for the purpose of holding New Valley's investment in the Company. Mr.
LeBow is the Chairman of the Board, President and Chief Executive Officer of
Brooke, BGLS and ALKI, a member of the Board of Directors of Liggett and
Chairman of the Board and Chief Executive Officer of New Valley. Information
regarding the directors and executive officers of Brooke, BGLS, Liggett, New
Valley and ALKI is attached hereto as Annex 1, which annex is hereby
incorporated by reference. The principal business and principal office address
of Brooke, BGLS and New Valley and the business address of Mr. LeBow is 100 S.E.
Second Street, Miami, Florida 33131. The principal business and principal office
address of Liggett is 700 West Main Street, Durham, North Carolina 27701. The
principal business and principal office address of ALKI is 204 Plaza Centre,
3505 Silverside Road, Wilmington, Delaware 19810.
(d)(e) During the last five years, none of the Reporting Persons, and to
the best knowledge of each of the Reporting Persons, none of the persons listed
on Annex 1 attached hereto, (1) has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors), or (2) was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, Federal or State securities laws or finding any violation
with respect to such laws.
(f) Mr. LeBow is a citizen of the United States of America and, to the best
knowledge of each of the Reporting Persons, each of the persons listed on Annex
1 attached hereto is a citizen of the United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The shares of Common Stock owned by the Reporting Persons were acquired at
an aggregate cost (including commissions) of $158,236,850.50.
The 200 shares of Common Stock beneficially owned by Brooke were purchased
with general working capital of Brooke on November 15, 1995, for an aggregate
purchase price of $6,000 (including commissions). The 200 shares of Common Stock
beneficially owned by Liggett were purchased with general working capital of
Liggett on March 1, 1995, for an aggregate purchase price of $5,677.50
(including commissions and fees).
3
The 5,161,750 shares of Common Stock beneficially owned by ALKI were
purchased for an aggregate purchase price of $158,225,173 (including
commissions) between March 6, 1995 and February 26, 1996. Of such 5,161,750
shares, 300,000 shares were initially purchased by New Valley, ALKI's parent
corporation, for an aggregate purchase price of $8,387,005 (including
commissions), between March 6, 1995 and July 28, 1995. The 300,000 shares
initially purchased by New Valley were purchased with the general working
capital of New Valley. On or about September 22, 1995, such 300,000 shares of
Common Stock were transferred from an account of New Valley to an account of
ALKI. The remaining 4,861,750 shares of Common Stock were purchased with ALKI's
working capital and the funds that ALKI borrowed pursuant to a margin account in
the regular course of business of Bear Stearns & Co. A copy of the form of
margin agreement with Bear Stearns & Co. is attached hereto as Exhibit 2 and
incorporated herein by reference. As of the date hereof, approximately
$83,143,846 is outstanding pursuant to such margin account.
None of the persons listed in Annex 1 attached hereto has contributed any
funds or other consideration towards the acquisition of the Common Stock by any
of the Reporting Persons.
ITEM 4. PURPOSE OF TRANSACTION.
One purpose of the Reporting Persons' acquisition of the Common Stock is to
increase their ownership interest in the Company in order to benefit from an
increase in value of the Common Stock that the Reporting Persons believe will
result from an immediate spinoff of Nabisco Holdings Corp. ("Nabisco") to the
stockholders of the Company. An additional purpose of the Reporting Persons'
acquisition of the Common Stock was to accumulate a significant position in the
shares of Common Stock in order to support Brooke's consent solicitation and
Brooke's proxy solicitation.
On December 29, 1995, Brooke commenced a consent solicitation with respect
to the following proposals:
(1) Adopt the following advisory resolution (the "Spinoff
Resolution"):
"RESOLVED, that the stockholders of RJR Nabisco, believing that the
full business potential and value of RJR Nabisco can best be realized and
reflected in the market for the benefit of stockholders by the separation
of the tobacco and food businesses, hereby request and recommend that the
RJR Nabisco Board of Directors immediately spin off the remaining 80.5% of
Nabisco Holdings Corp. held by RJR Nabisco to stockholders."
4
(2) Amend the By-Laws of RJR Nabisco (the "Bylaws") to (i) reinstate
the provision providing that special meetings of the stockholders shall be
called by the Chairman or Secretary of RJR Nabisco if requested in writing
by holders of not less than 25% of the Common Stock and (ii) delete the
provision establishing procedures governing action by written consent of
stockholders without a meeting (collectively, the "Bylaw Amendment").
For additional information with respect to the consent solicitation, see
Brooke's consent statement filed with the Securities and Exchange Commission
("SEC") on December 29, 1995 (the "Consent Statement"), attached hereto as
Exhibit 3 and incorporated herein by reference. Based on a preliminary count,
both of the above proposals were adopted. Final results have not yet been
determined and may vary from any preliminary results.
Brooke has been engaged in discussions with various individuals and groups
with a view to (a) providing additional support to Brooke's position that the
spinoff of Nabisco is appropriate and prudent at the present time and (b)
countering the Company's contention that under the current circumstances,
including but not limited to the Company's expectation that such a spinoff will
foster additional litigation, the spinoff of Nabisco should be delayed into the
indefinite future.
Brooke is currently engaged in a proxy solicitation for the election of its
ten nominees (the "Brooke Group Nominees") at the Company's 1996 annual meeting
of stockholders to be held on April 17, 1996. If elected, the Brooke Group
Nominees would constitute the Company's entire board of directors. For
additional information with respect to the proxy solicitation, see Brooke's
proxy statement filed with the SEC on March 4, 1996 (the "Proxy Statement"),
attached hereto as Exhibit 4 and incorporated herein by reference.
The Proxy Statement provides that the Brooke Group Nominees currently
intend to appoint Ronald Fulford, formerly executive chairman of Hanson PLC's
Imperial Tobacco, as the President and Chief Executive Officer of the Company
upon their election and assumption of office. See the Proxy Statement for
additional information with respect to the appointment of Ronald Fulford.
The Proxy Statement provides that the Brooke Group Nominees will take steps
necessary to effectuate an immediate spinoff of the remaining 80.5% of Nabisco
held by RJR Nabisco to its stockholders immediately upon their election and
assumption of office. See the Consent Statement and the Proxy Statement for
additional information with respect to an immediate spinoff of Nabisco.
The Proxy Statement provides that the Brooke Group Nominees intend to adopt
a new dividend policy for the post-
5
spinoff tobacco company (the "Tobacco Company") as an additional means to
enhance value of the stockholders' shares of Common Stock. The Brooke Group
Nominees anticipate a dividend policy providing that at least 60% of the Tobacco
Company's net cash flow will be declared as cash dividends out of funds legally
available therefor. Net cash flow means the Tobacco Company's after-tax net
income plus amortization on an after-tax basis plus depreciation less capital
expenditures. The Brooke Group Nominees expect to increase the Tobacco Company's
1996 annual dividend to approximately $2.00 per share of Common Stock. See the
Proxy Statement for additional information with respect to the dividend
increase.
The Reporting Persons and the Icahn Entities consult with each other from
time to time concerning the Company, their shares of Common Stock and purchases
of additional Common Stock and consider, among other things, actions that may
enhance the likelihood that the Company may spin off Nabisco. Except as set
forth herein and in the High River Agreement and the New Valley Agreement (each
as defined in Item 6), the Reporting Persons and the Icahn Entities have no
obligations to, or agreements or understanding with, each other concerning the
Company or its securities.
Subject to applicable legal requirements and the factors referred to below,
the Reporting Persons may, from time to time, purchase additional shares of
Common Stock in open market or privately negotiated transactions. In determining
whether to purchase additional shares, the Reporting Persons intend to consider
and review various factors on a continuous basis, including the Company's
financial condition, business and prospects, other developments concerning the
Company, the reaction of the Company and of stockholders to the Reporting
Persons' and/or the Icahn Entities' ownership of Common Stock, the adoption of
the Spinoff Resolution and the Bylaw Amendment and Brooke's current proxy
solicitation, the price and availability of shares of Common Stock, other
investment and business opportunities available to the Reporting Persons,
developments with respect to the Reporting Persons' business, and general
economic, money and stock market conditions. In addition, depending upon, among
other things, the matters referred to above, the Reporting Persons may determine
at any time to dispose of all or a portion of their shares of Common Stock.
Except as described in Item 6, each of the Reporting Persons reserves the right
to change its plans and intentions at any time, as it deems appropriate, and, to
the knowledge of each of the Reporting Persons, each of the persons listed on
Annex 1 attached hereto may make the same evaluation and may have the same
reservation.
Except as set forth in this Item 4, in the Consent Statement or in the
Proxy Statement, none of the Reporting Persons or, to the knowledge of each of
the Reporting Persons, any of the persons listed on Annex 1 hereto has any
present plans
6
or intentions which would result in or relate to any of the transactions
described in subparagraphs (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) The Reporting Persons, in the aggregate, beneficially own 5,162,150
shares of Common Stock, or approximately 1.9% shares of the Common Stock
outstanding. All percentages of shares of Common Stock beneficially owned by
Brooke, Liggett and ALKI are based on the 272,982,782 shares of Common Stock
outstanding as of February 29, 1996, as disclosed in the Company's proxy
statement dated March 6, 1996.
Brooke beneficially owns, directly, 200 shares of Common Stock, or less
than one-tenth of 1% of the outstanding Common Stock. Brooke beneficially owns
100% of the outstanding capital stock of BGLS, which beneficially owns 100% of
the outstanding capital stock of Liggett. Liggett beneficially owns, directly,
200 shares of Common Stock, or less than one-tenth of 1% of the outstanding
Common Stock, and beneficially owns, directly, 1,000 shares of Class A Common
Stock, par value $.01 per share, of Nabisco. In addition, BGLS directly and
indirectly owns 618,326 Class A Senior Preferred Shares (approximately 60% of
such class), 250,885 Class B Preferred Shares (approximately 9% of such class)
and 79,794,229 Common Shares (approximately 42% of such class), of New Valley,
which beneficially owns all of the outstanding capital stock of ALKI, which
beneficially owns, directly, 5,161,750 shares of Common Stock, or approximately
1.9% of the outstanding Common Stock. Bennett S. LeBow, who is the Chairman of
the Board, President and Chief Executive Officer of Brooke and of BGLS, may be
deemed to be the beneficial owner of 10,451,208 shares of common stock of
Brooke, or approximately 56.5% of Brooke's outstanding common stock, and thus
may be deemed to control Brooke. The disclosure of this information shall not be
construed as an admission that Mr. LeBow is the beneficial owner of any of the
Common Stock owned by Brooke, ALKI and/or Liggett either for purposes of Section
13(d) of the Act or for any other purpose, and such beneficial ownership is
expressly disclaimed.
Likewise, Brooke beneficially owns 200 shares of Common Stock directly, and
may be deemed to beneficially own, indirectly, the 5,161,750 shares of Common
Stock owned by ALKI and the 200 shares of Common Stock owned by Liggett. The
disclosure of this information shall not be construed as an admission that
Brooke is the beneficial owner of any of the Common Stock owned by ALKI and/or
Liggett, either for purposes of Section 13(d) of the Act or for any other
purpose, and such beneficial ownership is expressly disclaimed.
For the same reasons, BGLS may be deemed to beneficially own, indirectly,
the 5,161,750 shares of Common
7
Stock owned by ALKI and the 200 shares of Common Stock owned by Liggett. The
disclosure of this information shall not be construed as an admission that BGLS
is the beneficial owner of any of the Common Stock owned by ALKI and/or Liggett,
either for purposes of Section 13(d) of the Act or for any other purpose, and
such beneficial ownership is expressly disclaimed.
To the best knowledge of the Reporting Persons, the other persons who,
together with the Reporting Persons, may be deemed to comprise a group within
the meaning of Section 13(d)(3) of the Act are Carl C. Icahn, High River Limited
Partnership, an entity owned by Mr. Icahn ("High River"), Riverdale Investors
Corp., Inc., the general partner of High River and wholly-owned by Mr. Icahn,
and Barberry Corp., a corporation wholly-owned by Mr. Icahn (collectively, the
"Icahn Entities"). As of the close of business on March 11, 1996, the Icahn
Entities have informed the Reporting Persons that they beneficially owned in the
aggregate 10,765,800 shares of Common Stock, which constitute in the aggregate
approximately 3.9% of the Common Stock outstanding. The Icahn Entities have
filed a Schedule 13D in respect of the Common Stock of the Company, which is
referred to in this Schedule 13D for its content (but not incorporated herein).
Richard J. Lampen, a person named in Annex 1 attached hereto, beneficially
owns directly 2,000 shares of Common Stock, or less than one-tenth of 1% of the
outstanding Common Stock. Douglas A. Cummins, a person named in Annex 1 attached
hereto, beneficially owns directly 400 shares of Common Stock, or less than
one-tenth of 1% of the outstanding Common Stock. David P. Sheets, a person named
in Annex 1 attached hereto, beneficially owns 22,945 shares of Common Stock or
less than one-tenth of 1% shares of the outstanding Common Stock. Of the 22,945
shares of Common Stock beneficially owned by Mr. Sheets: (i) Mr. Sheets has the
right to acquire within sixty days, through exercise of options, beneficial
ownership of 19,385 shares of Common Stock; (ii) Mr. Sheets has the power to
direct the disposition of approximately 1,653.2 shares of Common Stock held for
his benefit by the trustee of the Company's defined contribution plan and (iii)
Mr. Sheets has the power to direct the vote of approximately 884.9 shares of
Common Stock that are currently issuable on conversion of the Company's ESOP
Convertible Preferred Stock, par value $.01 per share and stated value $16 per
share ("ESOP Preferred Stock"), held by the trustee and allocated to Mr. Sheets
under the Company's defined contribution plan.
Except as described in this subparagraph (a), neither any of the Reporting
Persons nor, to the best knowledge of the Reporting Persons, any of the persons
referred to in Annex 1 attached hereto, beneficially owns any shares of Common
Stock.
8
(b) Brooke has sole power to vote or to direct the voting and to dispose or
direct the disposition of the 200 shares of Common Stock which it owns. Liggett
has sole power to vote or to direct the voting and to dispose or to direct the
disposition of the 200 shares of Common Stock which it owns. New Valley has
shared power to vote or direct the voting and to dispose or direct the
disposition of the 5,161,750 shares of Common Stock, which are owned by ALKI.
ALKI has shared power to vote or direct the voting and to dispose or direct the
disposition of the 5,161,750 shares of Common Stock which it owns.
Richard J. Lampen, a person named in Annex 1 attached hereto, has sole
power to vote or direct the voting and dispose or direct the disposition of the
2,000 shares of Common Stock beneficially owned by him. Douglas A. Cummins, a
person named in Annex 1 attached hereto, has sole power to vote or direct the
voting and dispose or direct the disposition of the 400 shares of Common Stock
beneficially owned by him. David P. Sheets, a person named in Annex 1 attached
hereto, (i) has sole power to vote or direct the voting and to dispose or to
direct the disposition of the 1,022 shares of Common Stock that he owns
directly, (ii) has the sole power to direct the disposition of, but no power to
vote or direct the voting of, approximately 1,653.2 shares of Common Stock that
are held for his benefit by the trustee of the Company's defined contribution
plan and (iii) has the sole power to vote or direct the voting of, but no power
to dispose or direct the disposition of, the approximately 884.9 shares of
Common Stock issuable on conversion of the Company's ESOP Preferred Stock that
he beneficially owns.
(c) Transactions in the Common Stock by any of the Reporting Persons, and
to the best knowledge of the Reporting Persons, any of the persons referred to
in Annex 1 attached hereto, effected during the past 60 days are described in
Annex 2 hereto and are incorporated herein by reference. All such transactions
were effected in the open market on the New York Stock Exchange. Except as
described in this paragraph (c), neither the Reporting Persons nor, to the best
knowledge of the Reporting Persons, any of the persons referred to in Annex 1
attached hereto, has effected any transactions in the Common Stock during the
past 60 days.
(d) Each of the Reporting Persons has the sole right to receive or the
power to direct the receipt of dividends from, or the proceeds from the sale of,
the Common Stock owned by each of them.
(e) Not applicable.
9
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.
On October 17, 1995, Brooke and BGLS entered into an agreement, as amended
("the High River Agreement") with High River. High River agreed in the High
River Agreement to grant a written consent to the Spinoff Resolution and Bylaw
Amendment with respect to all shares of Common Stock held by it, and to grant a
proxy with respect to all such shares in the event that Brooke or BGLS seeks to
replace the incumbent Board of Directors of RJR Nabisco at the 1996 annual
meeting of stockholders with a slate of directors committed to effect the
spinoff. Brooke and BGLS agreed in the High River Agreement to include, in any
solicitation statement relating to any solicitation of (i) stockholder demands
to call a special meeting, (ii) written consents or (iii) proxies, in respect of
a proposal to elect an opposing slate of directors, a pledge to the effect that
Brooke, BGLS and their affiliates (the "Brooke Group") (A) will not engage in
certain mergers, material sales of stock or assets or other transactions
(including a sale of Liggett or shares of Common Stock to RJR Nabisco) providing
a material benefit to the Brooke Group not available to other stockholders of
RJR Nabisco (each, a "Business Combination"), other than a Business Combination
consummated simultaneously with or subsequent to a spinoff of RJR Nabisco's
remaining equity interest in Nabisco or another transaction providing
substantially equivalent value to stockholders ("Permitted Business
Combination") (I) prior to the 1996 annual meeting of RJR Nabisco stockholders,
or earlier if the Brooke Group is unsuccessful in (a) a solicitation of
stockholder demands to call a special meeting, (b) a solicitation of consents or
proxies to approve certain proposals or (c) having its nominees elected to
constitute a majority of RJR Nabisco's directors, or (II) during such time as
nominees of the Brooke Group constitute a majority of the directors of RJR
Nabisco; (B) prior to the consummation of a spinoff of Nabisco, will not
exercise management control over Nabisco or Nabisco, Inc. or become involved in
the ordinary course of its business and will use its best efforts to ensure that
a majority of the present directors of Nabisco and Nabisco, Inc. remain as
directors; and (C) will halt any solicitation of stockholders demands, consents
or proxies if the RJR Nabisco Board effects a spinoff of Nabisco or a
substantially equivalent transaction. Similarly, High River agreed not to engage
in or propose any Business Combination prior to the earliest of (x) the later of
the 1997 annual meeting of stockholders of RJR Nabisco and the first anniversary
of the termination of the High River Agreement (the "Reference Date"), (y) any
termination of the High River Agreement that occurs at or after certain
termination events relating to failures or an inability to effect the
transactions contemplated by the High River Agreement ("Termination Events") and
(z) any termination of the High River Agreement by Brooke or BGLS, or the New
Valley Agreement (as defined below) by New Valley or ALKI, at a time when High
River is not in material breach of its obligations.
10
The High River Agreement will automatically terminate on October 17, 1996
or upon the earlier termination of the New Valley Agreement (as defined below)
by High River. In addition, any party to the High River Agreement may terminate
it at any time, although the terminating party will be required to pay a fee of
$50 million to the nonterminating party if no Termination Event has occurred and
the nonterminating party is not in material breach of its obligations. The High
River Agreement also provides that any party may terminate the High River
Agreement and be entitled to receive a fee of $50 million from the
nonterminating party if the nonterminating party is in material breach of its
obligations and no Termination Event has occurred. The High River Agreement
further provides that BGLS will be required to pay a $50 million fee to High
River upon the consummation of a Business Combination (including a Permitted
Business Combination) between the Brooke Group and RJR Nabisco if (x) such
Business Combination is consummated prior to the Reference Date, (y) a legally
binding agreement to enter into a Business Combination is entered into prior to
the Reference Date and such Business Combination is consummated prior to the
second anniversary of the date of such agreement or (z) nominees of Brooke are
elected to constitute a majority of the directors of RJR Nabisco prior to the
Reference Date and a Business Combination is consummated prior to the fifth
anniversary of the date of such election. Finally, the High River Agreement
provides that High River will be entitled to a payment equal to 20% of the net
profit with respect to Common Stock held or sold by New Valley, ALKI or the
Brooke Group, after deduction of certain expenses, including the costs of this
solicitation and certain proxy solicitations by the Brooke Group and the costs
of acquiring the shares of the Common Stock (all of which expenses will be borne
by New Valley, ALKI or the Brooke Group). Notwithstanding any such termination,
the obligations of the Brooke Group and of High River not to engage in a
Business Combination with RJR Nabisco or the other activities described above
will continue for the periods described above.
The foregoing summary of the High River Agreement is qualified in its
entirety by reference to the text of such agreement, which is attached hereto as
Exhibit 5 and is incorporated herein by reference.
Also on October 17, 1995, New Valley and ALKI, a subsidiary of New Valley,
entered into a separate agreement with High River, as amended (the "New Valley
Agreement"). Pursuant to the New Valley Agreement, New Valley sold 1,611,550
shares of Common Stock to High River for an aggregate purchase price of
$51,000,755, thereby approximately equalizing the number of shares of Common
Stock and total investment therein by the parties. In addition, the parties
agreed that each of New Valley and ALKI, on the one hand, and High River and its
affiliates, on the other hand, would invest up to approximately $150 million in
shares of Common Stock, and may invest up to approximately $250
11
million in shares of Common Stock in order to maximize profits. The obligations
of the parties to make any investments is subject to their ability to obtain and
maintain margin loans (using the shares of Common Stock purchased by them as
collateral) to fund the purchases, and to certain provisions of the New Valley
Agreement which do not require any party to purchase shares of Common Stock to
the extent the purchase price would exceed certain hurdles ($35.50 per share in
respect of the first $150 million in investments by each party, and $31.00 per
share in respect of the next $100 million in investments). New Valley and ALKI
also agreed in the New Valley Agreement to grant a stockholder demand, written
consent or proxy with respect to all shares of Common Stock held by them in the
event that Brooke or BGLS seeks to call a special meeting of stockholders,
obtain the approval of any of the Proposals or replace the incumbent Board of
Directors of RJR Nabisco at the 1996 annual meeting of stockholders. The New
Valley Agreement automatically terminates at the same time, and is subject to
earlier termination by the parties under the same circumstances as the High
River Agreement. The parties to the New Valley Agreement are required to pay
fees in the same amounts and generally under the same circumstances as described
above under the High River Agreement, although the fees payable to a party under
the High River Agreement generally will be offset by fees paid to such party
under the New Valley Agreement, and fees payable to a party under the New Valley
Agreement generally will be offset by fees paid to such party under the High
River Agreement.
The foregoing summary of the New Valley Agreement is qualified in its
entirety by reference to the text of such agreement, which is attached hereto as
Exhibit 6 and is incorporated herein by reference.
New Valley, Brooke and Liggett have engaged Jefferies & Company, Inc.
("Jefferies") to act as financial advisor in connection with New Valley's
investment in the Company and the consent solicitation and proxy solicitation by
Brooke (as amended, the "Jefferies Agreement"). In connection with this
engagement, New Valley (i) paid to Jefferies an initial fee of $1,500,000 and
(ii) has agreed to pay Jefferies during the period commencing January 1, 1996
and ending April 30, 1996 a monthly fee of $250,000, which monthly fee increased
to $500,000 on February 20, 1996 and, in addition, during each of the four
months ending April 30, 1996, an additional monthly fee of $100,000. These
companies also have agreed to pay Jefferies 10% of the net profit (up to a
maximum of $15,000,000) with respect to Common Stock (including any
distributions made by the Company) held or sold by these companies and their
affiliates after deduction of certain expenses, including the costs of the
consent solicitation and certain proxy solicitations by the Brooke Group and the
costs of acquiring the shares of Common Stock (all of which expenses will be
borne by New Valley, ALKI or the Brooke Group). These companies also agreed that
upon (i) the
12
appointment during the term of the Jefferies Agreement as Chairman, President or
Chief Executive Officer of RJR Nabisco of either Mr. LeBow or any other designee
or representative of Brooke Group, Liggett, New Valley or any of their
respective affiliates, or (ii) the election or appointment during the term of
the Jefferies Agreement of representatives or designees of Brooke Group,
Liggett, New Valley or any of their respective affiliates to represent 50% or
more of the membership of RJR Nabisco's Board of Directors then in office, they
will pay or cause to be paid to Jefferies a non-refundable cash fee of
$7,500,000 payable only if and at the time the Company either reimburses the
companies for or pays directly this fee, unless prohibited by applicable law. In
addition, New Valley agreed to reimburse Jefferies for all reasonable
out-of-pocket expenses, including the fees and expenses of its counsel, incurred
by Jefferies in connection with its engagement and New Valley and Brooke agreed
to indemnify Jefferies and certain related persons against certain liabilities
and expenses.
The foregoing summary of the Jefferies Agreement is qualified in its
entirety by reference to the text of such agreement, which is attached hereto as
Exhibit 7, and is incorporated herein by reference.
New Valley has entered into an agreement ("New Valley/Brooke Agreement")
with Brooke pursuant to which it has agreed to pay directly or reimburse Brooke
and its subsidiaries for reasonable out-of-pocket expenses incurred in
connection with the consent solicitation and the proxy solicitation. New Valley
has also agreed to pay to BGLS a fee of 20% of the net profit received by New
Valley or its subsidiaries from the sale of shares of Common Stock after
achieving a rate of return of 20% and after deduction of certain expenses,
including the costs of the consent solicitation and the proxy solicitation, and
of acquiring the shares of Common Stock. New Valley has also agreed to indemnify
Brooke against certain liabilities arising out of the solicitations.
The foregoing summary of the New Valley/Brooke Agreement is qualified in
its entirety by reference to the text of such agreement, which is attached
hereto as Exhibit 8 and is incorporated herein by reference.
Brooke has entered into a services agreement (the "Hanson Agreement") with
Dale M. Hanson. Pursuant to the Hanson Agreement, Mr. Hanson agreed (a) to be a
Brooke Group Nominee, and (b) to advise and consult with Brooke and its
affiliates on various matters, including but not limited to (i) matters
generally relating to issues of corporate governance and shareholder democracy
in publicly traded corporations, (ii) matters relating to or arising out of the
solicitation by Brooke of consents from the stockholders of RJR Nabisco for the
Spinoff Resolution, (iii) matters relating to or arising out of
13
Brooke's proxy solicitation, and (iv) such other matters as Brooke and Mr.
Hanson shall agree on from time to time. Brooke, in turn, agreed to pay Mr.
Hanson a one time fee of $150,000. Brooke also granted to Mr. Hanson a stock
appreciation right (the "SAR") with respect to 50,000 shares ("SAR Shares") of
Common Stock, exercisable in whole or in part at any time and from time to time
from and after June 30, 1996. The SAR expires at the close of business on the
tenth business day after the end of the term of the agreement. The Hanson
Agreement will terminate on May 31, 1997 unless earlier terminated by the
parties. Upon exercise, Brooke shall pay to Mr. Hanson an amount, if any, equal
to the excess of the fair market value of a share of Common Stock on the date of
exercise over $31.50 per share, multiplied by the number of shares of Common
Stock with respect to which the SAR shall have been exercised. For purposes of
the Hanson Agreement, "fair market value", as of any date, shall mean the
average of the daily closing prices of the Common Stock for the ten consecutive
trading days on or prior to such date, as reported on the consolidated
transaction reporting system for the New York Stock Exchange for such dates. In
the event of any change in capitalization affecting the Common Stock, including,
without limitation, a stock dividend or other distribution, split, reverse
certificate split, recapitalization, merger, consolidation, subdivision,
split-up, spin-off, combination or exchange of Common Stock or other form of
reorganization, or any other change affecting the Common Stock, Brooke will
automatically make such mathematically proportionate adjustments in the number
of SAR Shares covered by the SAR and the exercise price in respect thereof, as
are reasonably appropriate under the circumstances. Brooke also agreed to
reimburse Mr. Hanson for all ordinary, necessary and reasonable business
expenses incurred in connection with the services under the Hanson Agreement.
The foregoing summary of the Hanson Agreement is qualified in its entirety
by reference to the text of such agreement, which is attached hereto as Exhibit
9 and is incorporated herein by reference.
On February 29, 1996, New Valley entered into a total return equity swap
transaction (the "Equity Swap Agreement") with Internationale Nederlanden (U.S.)
Capital Markets, Inc. (the "Counterparty") relating to 1,000,000 shares of
Common Stock. The transaction is for a period of up to six months, subject to
earlier termination at the election of New Valley, and provides for New Valley
to make a payment to the Counterparty of approximately $1.52 million upon
commencement of the swap. At the termination of the transaction, if the price of
the Common Stock during a specified period prior to such date (the "Final
Price") exceeds the price of the Common Stock during a specified period
following the commencement of the swap (the "Initial Price"), the Counterparty
will pay New Valley an amount in cash equal to the amount of such appreciation
with respect to 1,000,000 shares of Common Stock plus the value of any dividends
14
with a record date occurring during the swap period. If the Final Price is less
than the Initial Price, then New Valley will pay the Counterparty at the
termination of the transaction an amount in cash equal to the amount of such
decline with respect to 1,000,000 shares of Common Stock, offset by the value of
any dividends, provided that, with respect to approximately 400,000 shares of
Common Stock, New Valley will not be required to pay any amount in excess of an
approximate 25% decline in the value of the shares. If the Initial Price differs
from $34.25 per share, New Valley or the Counterparty, as the case may be, will
make an adjustment payment to the other on March 14, 1996 in respect of that
difference. The potential obligations of the Counterparty under the swap are
being guaranteed by ING Bank N.V., and New Valley has pledged certain collateral
in respect of its potential obligations under the swap and has agreed to pledge
additional collateral under certain conditions.
The foregoing summary of the Equity Swap Agreement is qualified in its
entirety by reference to the text of such agreement, which is attached hereto as
Exhibit 10 and is incorporated herein by reference.
Pursuant to a Non-Qualified Stock Option Agreement between Mr. Sheets and
the Company, Mr. Sheets has an immediately exercisable stock option, expiring
May 1, 1999, to purchase 12,000 shares of Common Stock at an exercise price of
$25.00 per share. Pursuant to a 1990 Long Term Incentive Plan Stock Option
Agreement (Grant 1991) between Mr. Sheets and the Company, Mr. Sheets has an
immediately exercisable stock option, expiring April 15, 2006, to purchase 1,980
shares of Common Stock at an exercise price of $37.50 per share. Pursuant to a
1990 Long Term Incentive Plan Stock Option Agreement (Grant 1992) between Mr.
Sheets and the Company, Mr. Sheets has an immediately exercisable stock option,
expiring January 1, 2007, to purchase 1,110 shares of Common Stock at an
exercise price of $50.00 per share. Pursuant to a Performance Share Agreement
(Grant 1993) between Mr. Sheets and the Company, Mr. Sheets has an immediately
exercisable stock option, expiring July 1, 2008, to purchase 4,295 shares of
Common Stock at an exercise price of $27.85 per share.
The forms of the foregoing agreements between Mr. Sheets and the Company
are attached hereto as Exhibits 11(a), (b), (c) and (d), and are incorporated
herein by reference.
Except as described herein, neither any of the Reporting Persons nor any
other person referred to in Annex 1 attached hereto, has any contracts,
arrangements, understandings or relationships (legal or otherwise) with any
person with respect to any securities of the Company, including but not limited
to transfer or voting of any of the securities, finder's fees, joint ventures,
loan or option arrangements, puts or calls, guarantees or profits, division of
profits or loss, or the giving or withholding of proxies.
15
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Joint Filing Agreement.
2. Form of Margin Agreement between ALKI Corp. and Bear Stearns & Co.
3. Brooke Group Ltd.'s Consent Statement, filed December 29, 1995 with the
Securities and Exchange Commission.
4. Brooke Group Ltd.'s Proxy Statement, filed March 4, 1996 with the
Securities and Exchange Commission.
5. Agreement, dated October 17, 1995, between Brooke Group Ltd., BGLS Inc.
and High River Limited Partnership, as amended by the letter agreement dated
November 5, 1995.
6. Agreement, dated October 17, 1995, between New Valley Corporation, ALKI
Corp. and High River Limited Partnership, as amended by the letter agreement
dated October 17, 1995 and as amended by the letter agreement dated November 5,
1995.
7. Agreement, dated December 28, 1995, between Jefferies & Company, Inc.,
Brooke Group Ltd., New Valley Corporation and Liggett Group Inc, as amended by
the letter agreement dated February 28, 1996.
8. Agreement, dated December 27, 1995, between Brooke Group Ltd. and New
Valley Corporation.
9. Agreement, dated February 20, 1996, between Brooke Group Ltd. and Dale
Hanson.
10. International Swap Dealers Association Master Agreement (and the
schedules and annexes thereto) and Confirmation, dated February 28, 1996,
between New Valley Corporation and Internationale Nederlanden (U.S.) Capital
Markets, Inc.
11(a). Form of Non-Qualified Stock Option Agreement between RJR Nabisco
Holdings Corp. and the optionee named therein (incorporated by reference to
Exhibit B to Post-Effective Amendment No. 2 to the Company's Form S-1,
Registration No. 33-29401).
11(b). Form of Non-Qualified Stock Option Agreement between RJR Nabisco
Holdings Corp. and the executive or management optionee named therein (1991
Grant) (incorporated by reference to Exhibit 4.4(b) to the Company's Form S-8,
Registration No. 33-39791).
16
11(c). Form of Non-Qualified Stock Option Agreement between RJR Nabisco
Holdings Corp. and the executive or management optionee named therein (1992
Grant) (incorporated by reference to Exhibit 10.37 of the Company's 1991 Form
10-K).
11(d) Form of Performance Share Agreement between RJR Nabisco Holdings
Corp. and the grantee named therein (1993 Grant) (incorporated by reference to
Exhibit 10.41 of the Company's 1992 Form 10-K).
17
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 11, 1996
BROOKE GROUP LTD.
By:/s/ Bennett S. LeBow
---------------------------------
Bennett S. LeBow
Chairman of the Board, President
and Chief Executive Officer
18
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 11, 1996
BGLS INC.
By:/s/ Bennett S. LeBow
---------------------------------
Bennett S. LeBow
Chairman of the Board, President
and Chief Executive Officer
19
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 11, 1996
LIGGETT GROUP INC.
By:/s/ David P. Sheets
---------------------------------
David P. Sheets
Executive Vice President
and Chief Financial Officer
20
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 11, 1996
NEW VALLEY CORPORATION
By:/s/ Richard J. Lampen
------------------------
Richard J. Lampen
Executive Vice President
21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 11, 1996
ALKI CORP.
By:/s/ Bennett S. LeBow
--------------------------------
Bennett S. LeBow
Chairman of the Board, President
and Chief Executive Officer
22
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 11, 1996
By: /s/ BENNETT S. LEBOW
------------------------
23
ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS OF THE REPORTING PERSONS
The names, present principal occupations and business addresses of the
directors and executive officers of each of the Reporting Persons are set forth
below. If no address is given, the director's or executive officer's business
address is that of the Reporting Person. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to the Reporting
Person. Each of the named individuals is a citizen of the United States of
America.
BROOKE GROUP LTD.
Name: Position:
- ----- ---------
Bennett S. LeBow Chairman of the Board, President
and Chief Executive Officer
Gerald E. Sauter Vice President, Chief Financial
Officer and Treasurer
Robert J. Eide Director
Treasurer and Secretary
Aegis Capital Corp.
70 E. Sunrise Hwy
Valley Stream, NY 11581
Jeffrey S. Podell Director
Chairman of the Board
and President
Newsote, Inc.
26 Jefferson St.
Passaic, NJ 07055
BGLS INC.
Name: Position:
- ----- ---------
Bennett S. LeBow Chairman of the Board, President
and Chief Executive Officer
Gerald E. Sauter Vice President, Chief Financial
Officer and Treasurer
Robert J. Eide Director
Treasurer and Secretary
Aegis Capital Corp.
70 E. Sunrise Hwy
Valley Stream, NY 11581
24
Jeffrey S. Podell Director
Chairman of the Board
and President
Newsote, Inc.
26 Jefferson St.
Passaic, NJ 07055
LIGGETT GROUP INC.
Name and Business Address: Position:
- -------------------------- ---------
Bennett S. LeBow Director
Brooke Group Ltd.
100 S.E. Second Street
32nd Floor
Miami, FL 33131
Douglas A. Cummins President, Chief Executive Officer
and Director
Rouben V. Chakalian Chairman of the Board of Directors
and Director
David P. Sheets Executive Vice President and Chief
Financial Officer
Josiah S. Murray, III Senior Vice President and General
Counsel
NEW VALLEY CORPORATION
Name and Business Address: Position:
- -------------------------- ---------
Bennett S. LeBow Chairman of the Board and Chief
Executive Officer
Henry C. Beinstein Director
Managing Director
Milbank, Tweed, Hadley
& McCloy
1 Chase Manhattan Plaza
New York, NY 10005-1413
Arnold I. Burns Director
Attorney
Proskauer Rose Goetz
& Mendelsohn
1585 Broadway - 23rd Fl.
New York, NY 10036
Ronald J. Kramer Director
Chairman and CEO
Ladenburg, Thalmann
Group, Inc.
540 Madison Avenue
New York, NY 10022
25
Richard J. Lampen Executive Vice President and
General Counsel
Howard M. Lorber President, Chief Operating Officer
and Director
Paul McDermott Director
Managing Director
Nomura Securities
International, Inc.
2 World Financial Center
Building B
New York, NY 10281-1198
Richard Ressler Director
President
Orchard Capital
11100 Santa Monica Blvd.
Suite 3050E
Los Angeles, CA 90025
Barry W. Ridings Director
Managing Director
Alex. Brown & Sons
1290 Avenue of the Americas
10th Floor
New York, NY 10104
Gerald E. Sauter Treasurer, Vice President, Chief
Financial Officer and Director
26
ALKI CORP.
Name and Business Address: Position:
- -------------------------- ---------
Bennett S. LeBow Director; Chairman of the Board,
Brooke Group Ltd. President and Chief Executive
100 S.E. Second Street Officer
32nd Floor
Miami, FL 33131
Howard M. Lorber Director
New Valley Corporation
100 S.E. Second Street
32nd Floor
Miami, FL 33131
Gerald E. Sauter Director; Vice President, Chief
Brooke Group Ltd. Financial Officer and Treasurer
100 S.E. Second Street
32nd Street
Miami, FL 33131
27
ANNEX 2
Schedule of Transactions in the Shares
No. of Shares No. of Shares Price Per
Name Date Purchased Sold Share(1)
- ---- ---- ------------- ------------- ---------
New Valley 2/22/96 101,700 34.250
Corporation 15,000 34.125
2/23/96 100,000 34.125
2/26/96 10,000 34.250
12,500 34.375
30,000 34.125
David P. Sheets 3/05/96 1,000 35.000
- --------
(1) Excludes brokerage commissions.
EXHIBIT INDEX
Exhibit No. Title:
- ----------- ------
1. Joint Filing Agreement.
2. Form of Margin Agreement between ALKI Corp. and Bear Stearns & Co.
3. Brooke Group Ltd.'s Consent Statement, filed December 29, 1995 with the
Securities and Exchange Commission.
4. Brooke Group Ltd.'s Proxy Statement, filed March 4, 1996 with the
Securities and Exchange Commission.
5. Agreement, dated October 17, 1995, between Brooke Group Ltd., BGLS Inc.
and High River Limited Partnership, as amended by the letter agreement
dated November 5, 1995.
6. Agreement, dated October 17, 1995, between New Valley Corporation, ALKI
Corp. and High River Limited Partnership, as amended by the letter
agreement dated October 17, 1995 and as amended by the letter agreement
dated November 5, 1995.
7. Agreement, dated December 28, 1995, between Jefferies & Company,
Inc., Brooke Group Ltd., New Valley Corporation and Liggett Group Inc, as
amended by the letter agreement dated February 28, 1996.
8. Agreement, dated December 27, 1995, between Brooke Group Ltd. and New
Valley Corporation.
9. Agreement, dated February 20, 1996, between Brooke Group Ltd. and Dale
Hanson.
10. International Swap Dealers Association Master Agreement (and the
schedules and annexes thereto) and Confirmation, dated February 28, 1996,
between New Valley Corporation and Internationale Nederlanden (U.S.)
Capital Markets, Inc.
11(a). Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings
Corp. and the optionee named therein (incorporated by reference to
Exhibit B to Post-Effective Amendment No. 2 to the Company's Form S-1,
Registration No. 33-29401).
11(b). Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings
Corp. and the executive or management optionee named therein (1991 Grant)
(incorporated by reference to Exhibit 4.4(b) to the Company's Form S-8,
Registration No. 33-39791).
11(c). Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings
Corp. and the executive or management optionee named therein (1992 Grant)
(incorporated by reference to Exhibit 10.37 of the Company's 1991 Form
10-K).
11(d). Form of Performance Share Agreement between RJR Nabisco Holdings Corp.
and the grantee named therein (1993 Grant) (incorporated by reference to
Exhibit 10.41 of the Company's 1992 Form 10-K).
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) promulgated under the Securities Exchange
Act of 1934, the undersigned agree to the joint filing of a Statement on
Schedule 13D (including any and all amendments thereto) with respect to the
shares of common stock, par value $.01 per share, of RJR Nabisco Holdings Corp.,
and further agree that this Joint Filing Agreement be included as an Exhibit
thereto. In addition, each party to this Agreement expressly authorizes each
other party to this Agreement to file on its behalf any and all amendments to
such statement.
Date: March 11, 1996
Brooke Group Ltd.
By:/s/ BENNETT S. LEBOW
---------------------------------
Bennett S. LeBow
Chairman of the Board, President
and Chief Executive Officer
BGLS Inc.
By:/s/ BENNETT S. LEBOW
---------------------------------
Bennett S. LeBow
Chairman of the Board, President
and Chief Executive Officer
Liggett Group Inc.
By:/s/ DAVID P. SHEETS
---------------------------------
David P. Sheets
Chief Financial Officer
New Valley Corporation
By:/s/ RICHARD J. LAMPEN
---------------------------------
Richard J. Lampen
Executive Vice President
ALKI Corp.
By:/s/ BENNETT S. LEBOW
---------------------------------
Bennett S. LeBow
Chairman of the Board, President
and Chief Executive Officer
/s/ BENNETT S. LEBOW
---------------------------------
Bennett S. LeBow
BEAR STEARNS BEAR, STEARNS SECURITIES CORP.
ONE METROTECH CENTER NORTH
BROOKLYN, NY 11201-3859
(212) 272-1000
CUSTOMER AGREEMENT
PLEASE READ CAREFULLY, SIGN AND RETURN
This agreement ("Agreement") sets forth terms and conditions under which
Bear, Stearns Securities Corp., Bear, Stearns & Co. Inc. and their successors
and assigns (collectively "Bear Stearns") will transact business with you
including but not limited to the maintenance of your account(s). If these
accounts are cash accounts and you have fully paid for all securities therein,
the provisions of paragraph 16 and 17 shall not bind you unless you enter into a
margin transaction.
1. APPLICABLE LAW AND REGULATIONS. All transactions shall be subject to all
applicable law and the rules and regulations of all federal state and
self-regulatory agencies, including, but not limited to, the Board of Governors
of the Federal Reserve System and the constitution, rules and customs of the
exchange or market (and clearing house) where executed.
2. SECURITY INTEREST AND LIEN. As security for the payment of all of your
obligations and liabilities to Bear Stearns, Bear Stearns shall have a
continuing security interest in all property in which you have an interest held
by or through Bear Stearns or its affiliates, including, but not limited to,
securities, commodity futures contracts, commercial paper, monies and any
after-acquired property. In addition, in order to satisfy any such outstanding
liabilities or obligations, Bear Stearns may, at any time and without prior
notice to you, use, apply or transfer any such securities or property
interchangeably. In the event of a breach or default under this Agreement, Bear
Stearns shall have all rights and remedies available to a secured creditor under
any applicable law in addition to the rights and remedies provided herein.
3. DEPOSITS ON TRANSACTIONS. Whenever Bear Stearns, in its sole discretion,
considers it necessary for its protection, it may require you to deposit cash or
collateral immediately in your account(s) prior to any applicable settlement
date in order to assure due performance of your open contractual commitments.
4. BREACH, BANKRUPTCY OR DEFAULT. Any breach of this Agreement or the
filing of a petition or other proceeding in
1
bankruptcy, insolvency, or for the appointment of a receiver by or against
you, the levy of an attachment against your account(s) with Bear Stearns, or
your death, mental incompetence or dissolution, or any other grounds for
insecurity, as determined by Bear Stearns in its sole discretion, shall
constitute, at Bear Stearns' election, a default by you under all agreements
Bear Stearns may then have with you, whether heretofore or hereafter entered
into. In the event of default, Bear Stearns reserves the right to sell, without
prior notice to you, any and all property in which you have an interest, held by
or through Bear Stearns or any of its affiliates, to buy any or all property
which may have been sold short, to cancel any or all outstanding transactions
and/or to purchase or sell any other securities or property to offset market
risk, and to offset any indebtedness you may have (either individually or
jointly with others), after which you shall be liable to Bear Stearns for any
remaining deficiency, loss, costs or expenses sustained by Bear Stearns in
connection therewith. Such purchases and/or sales may be effected publicly or
privately without notice or advertisement in such manner as Bear Stearns may in
its sole discretion determine. At any such sale or purchase, Bear Stearns may
purchase or sell the property free of any right of redemption. In addition, Bear
Stearns shall have the right to set off and apply any amount owing from Bear
Stearns or any of its affiliates to you against any indebtedness in your
accounts, whether matured or unmatured.
5. FEES AND CHARGES. You understand that Bear Stearns may charge
commissions and other fees for execution, custody or any other service furnished
to you, and you agree to pay such commissions and fees at Bear Stearns' then
prevailing rates. You understand further that such commissions and fees may be
changed from time to time, upon thirty days' prior written notice to you, and
you agree to be bound thereby.
6. TRANSACTION REPORTS AND ACCOUNT STATEMENTS. Reports of the execution of
orders and statements of your account(s) shall be conclusive if not objected to
in writing within five days in the case of reports of execution, and ten days in
the case of account statements, after such documents have been transmitted to
you by mail or otherwise.
7. DEBIT BALANCES/TRUTH-IN-LENDING. You hereby acknowledge receipt of Bear
Stearns' Truth-in-Lending disclosure statement. You understand that interest
will be charged on any debit balances in your account(s), in accordance with the
methods described in such statement or in any amendment or revision thereto
which may be provided to you. Any debit balance which is
2
not paid at the close of an interest period will be added to the opening balance
for the next interest period.
8. CLEARANCE ACCOUNTS. Bear, Stearns Securities Corp. carries your
account(s) as clearing agent for your broker. Unless Bear, Stearns Securities
Corp. receives from you prior written notice to the contrary, Bear, Stearns
Securities Corp. may accept from such other broker, without any inquiry or
investigation: (a) orders for the purchase or sale of securities and other
property in you account(s) on margin or otherwise and (b) any other instructions
concerning your account(s) or the property therein. You understand and agree
that Bear Stearns shall have no responsibility or liability to you for any acts
or omissions of such broker, its officers, employees or agents. You agree that
your broker and its employees are third-party beneficiaries of this Agreement,
and that the terms and conditions hereof, including the arbitration provision,
shall be applicable to all matters between or among any of you, your broker and
its employees, and Bear Stearns and its employees.
9. COSTS OF COLLECTION. You hereby authorize Bear Stearns to charge you for
any reasonable direct or indirect costs of collection, including, but not
limited to, attorneys' fees, court costs and other expenses.
10. IMPARTIAL LOTTERY ALLOCATION. You agree that, in the event Bear Stearns
holds on your behalf bonds or preferred stocks in street name or bearer form
which are callable in part, you will participate in the impartial lottery
allocation system of the called securities in accordance with the rules of the
New York Stock Exchange, Inc. or any other appropriate self-regulatory
organization. When any such call is favorable, no allocation will be made to any
account(s) in which Bear Stearns has actual knowledge that its officers,
directors or employees have any financial interest until all other customers are
satisfied on an impartial lottery basis.
11. WAIVER, ASSIGNMENT AND NOTICES. Neither Bear Stearns' failure to insist
at any time upon strict compliance with this Agreement or with any of the terms
hereof nor any continued course of such conduct on its part shall constitute or
be considered a waiver by Bear Stearns of any of its rights or privileges
hereunder. Any assignment of your rights and obligations hereunder or interest
in any property held by or through Bear Stearns without obtaining the prior
written consent of an authorized representative of Bear Stearns shall be null
and
3
void. Notices or other communications, including margin calls, delivered or
mailed to the address provided by you, shall, until Bear Stearns has received
notice in writing of a different address, be deemed to have been personally
delivered to you.
12. FREE CREDIT BALANCES. You hereby direct Bear Stearns to use any free
credit balance awaiting investment or reinvestment in your account(s) in
accordance with all applicable rules and regulations and to pay interest thereon
at such rate or rates and under such conditions as are established from time to
time by Bear Stearns for such account(s) and for the amounts of cash so used.
13. RESTRICTIONS ON ACCOUNT. You understand that Bear Stearns, in its sole
discretion, may restrict or prohibit trading of securities or other property in
your account(s).
14. CREDIT INFORMATION AND INVESTIGATION. You authorize Bear Stearns and
your broker, in their discretion, to make and obtain reports concerning your
credit standing and business conduct. You may make a written request within a
reasonable period of time for a description of the nature and scope of the
reports made or obtained by Bear Stearns.
15. SHORT AND LONG SALES. In placing any sell order for a short account,
you will designate the order as such and hereby authorize Bear Stearns to mark
the order as being "short." In placing any sell order for a long account, you
will designate the order as such and hereby authorize Bear Stearns to mark the
order as being "long." The designation of a sell order as being for a long
account shall constitute a representation that you own the security with respect
to which the order has been placed, that such security may be sold without
restriction in the open market and that, if Bear Stearns does not have the
security in its possession at the time you place the order, you shall deliver
the security by settlement date in good deliverable form or pay to Bear Stearns
any losses or expenses incurred as a result of your failure to make delivery.
16. MARGIN ACCOUNTS. You hereby agree to deposit and maintain such margin
in your margin account(s) as Bear Stearns may in its sole discretion require,
and you agree to pay forthwith on demand any debit balance owing with respect to
any of your margin account(s). Upon your failure to pay, or at any time Bear
Stearns, in its discretion, deems necessary for its
4
protection, whether with or without prior demand, call or notice, Bear
Stearns shall be entitled to exercise all rights and remedies provided in
paragraphs 2 and 4 above. No demands, calls, tenders or notices that Bear
Stearns may have made or given in the past in any one or more instances shall
invalidate your waiver of the requirement to make or give the same in the
future. Unless you advise Bear Stearns to the contrary, you represent that you
are not an affiliate (as defined in Rule 144(a)(1) under the Securities Act of
1933) of the issuer of any security held in your account(s).
17. CONSENT TO LOAN OR PLEDGE OF SECURITIES. Within the limits of
applicable law and regulations, you hereby authorize Bear Stearns to lend either
to itself or to others any securities held by Bear Stearns in your account(s),
together with all attendant rights of ownership, and to use all such property as
collateral for its general loans. Any such property, together with all attendant
rights of ownership, may be pledged, repledged, hypothecated or rehypothecated
either separately or in common with other such property for any amounts due to
Bear Stearns thereon or for a greater sum, and Bear Stearns shall have no
obligation to retain a like amount of similar property in its possession and
control.
18. LEGALLY BINDING. You hereby agree that this Agreement and all the terms
hereof shall be binding upon you and your estate, heirs, executors,
administrators, personal representatives, successors and assigns. You agree that
all purchases and sales shall be for your account(s) in accordance with your
oral or written instructions. You hereby waive any and all defenses that any
such instruction was not in writing as may be required by the Statute of Frauds
or any other similar law, rule or regulation.
19. AMENDMENT: ENTIRE AGREEMENT. You agree that Bear Stearns may modify the
terms of this Agreement at any time upon prior written notice. By continuing to
accept services from Bear Stearns, you will have indicated your acceptance of
any such modifications. If you do not accept such modifications, you must notify
Bear Stearns in writing; your account may then be terminated by Bear Stearns,
after which you will remain liable to Bear Stearns for all remaining liabilities
or obligations. Otherwise, this Agreement may not be waived or modified absent a
written instrument signed by an authorized representative of Bear Stearns.
Except as set forth above, this Agreement represents the entire agreement and
understanding between you and Bear Stearns concerning the subject matter hereof.
5
20. NEW YORK LAW TO GOVERN. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF NEW YORK AND SHALL BE CONSTRUED, AND THE RIGHTS AND
LIABILITIES OF THE PARTIES DETERMINED, IN ACCORDANCE WITH THE LAW OF THE STATE
OF NEW YORK.
21. ARBITRATION.
o ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
o THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING
THE RIGHT TO JURY TRIAL.
o PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT
FROM COURT PROCEEDINGS.
o THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF
RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
o THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS
WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
o NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO
ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST
ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION OR WHO IS A MEMBER
OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY
CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL:
(i) THE CLASS CERTIFICATION IS DENIED;
(ii) THE CLASS IS DECERTIFIED; OR
(iii) THE CUSTOMER IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO
ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY
RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
YOU AGREE, AND BY MAINTAINING AN ACCOUNT FOR YOU BEAR STEARNS AGREES, THAT
CONTROVERSIES ARISING BETWEEN YOU AND BEAR STEARNS, ITS CONTROL PERSONS,
PREDECESSORS, SUBSIDIARIES AND AFFILIATES AND ALL RESPECTIVE SUCCESSORS, ASSIGNS
AND EMPLOYEES, WHETHER ARISING PRIOR TO, ON OR SUBSEQUENT TO THE DATE HEREOF,
SHALL BE DETERMINED BY ARBITRATION, ANY ARBITRATION UNDER THIS AGREEMENT SHALL
BE HELD AT THE FACILITIES AND BEFORE AN ARBITRATION PANEL APPOINTED BY THE NEW
YORK STOCK EXCHANGE, INC., THE AMERICAN STOCK EXCHANGE, INC., OR THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. (AND ONLY BEFORE SUCH EXCHANGES OR
6
ASSOCIATION). YOU MAY ELECT ONE OF THE FOREGOING FORUMS FOR ARBITRATION,
BUT IF YOU FAIL TO MAKE SUCH ELECTION BY REGISTERED MAIL OR TELEGRAM ADDRESSED
TO BEAR, STEARNS SECURITIES CORP. 245 PARK AVENUE, NEW YORK, NEW YORK 10167,
ATTENTION: CHIEF LEGAL OFFICER (OR ANY OTHER ADDRESS OF WHICH YOU ARE ADVISED IN
WRITING), BEFORE THE EXPIRATION OF TEN DAYS AFTER RECEIPT OF A WRITTEN REQUIRED
FROM BEAR STEARNS TO MAKE SUCH ELECTION, THEN BEAR STEARNS MAY MAKE SUCH
ELECTION. FOR ANY ARBITRATION SOLELY BETWEEN YOU AND A BROKER FOR WHICH BEAR
STEARNS ACTS AS CLEARING AGENT, SUCH ELECTION SHALL BE MADE BY REGISTERED MAIL
TO SUCH BROKER AT ITS PRINCIPAL PLACE OF BUSINESS. THE AWARD OF THE ARBITRATORS,
OR OF THE MAJORITY OF THEM, SHALL BE FINAL, AND JUDGMENT UPON THE AWARD RENDERED
MAY BE ENTERED IN ANY COURT, STATE OR FEDERAL, HAVING JURISDICTION.
22. SEVERABILITY. If any provision herein is or should become inconsistent
with any present or future law, rule or regulation of any sovereign government
or regulatory body having jurisdiction over the subject matter of this
Agreement, such provision shall be deemed to be rescinded or modified in
accordance with any such law, rule or regulation. In all other respects, this
Agreement shall continue to remain in full force and effect.
23. CAPACITY TO CONTRACT; CUSTOMER AFFILIATION. You represent that you are
of legal age and that, unless you have notified Bear Stearns to the contrary,
neither you nor any member of your immediate family is an employee of any
exchange or member thereof, the National Association of Securities Dealers, Inc.
or a member thereof, or of any corporation, firm or individual engaged in the
business of dealing, as broker or principal, in securities, options or future,
or of any bank, trust company or insurance company.
24. EXTRAORDINARY EVENTS. Bear Stearns shall not be liable for losses
caused directly or indirectly by government restrictions, exchange or market
rulings, suspension of trading, war, strikes or other conditions beyond its
control.
25. HEADINGS. The headings of the provisions hereof are for descriptive
purposes only and shall not modify or qualify any of the rights or obligations
set forth in such provisions.
26. TELEPHONE CONVERSATIONS. For the protection of both you and Bear
Stearns, and as a tool to correct
7
misunderstandings, you hereby authorize Bear Stearns at Bear Stearns'
discretion and without prior notice to you, to monitor and/or record any or all
telephone conversations between you, Bear Stearns and any of Bear Stearns'
employees or agents.
If this is a Joint Account, both parties must sign. Persons signing on
behalf of others should indicate the titles or capacities in which they are
signing.
BY SIGNING THIS AGREEMENT YOU ACKNOWLEDGE THAT:
1. THE SECURITIES IN YOUR MARGIN ACCOUNT(S) AND ANY SECURITIES FOR WHICH
YOU HAVE NOT FULLY PAID, TOGETHER WITH ALL ATTENDANT OWNERSHIP RIGHTS, MAY BE
LOANED TO BEAR STEARNS OR LOANED OUT TO OTHERS; AND
2. YOU HAVE RECEIVED A COPY OF THIS AGREEMENT.
THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE AT PARAGRAPH 21.
THIS AGREEMENT DATED AS OF ________________________, 19__.
Robert Lundgren, Controller
- -------------------------------------------- -------------------------------
(Typed or Printed Name)
X /s/ Robert Lundgren, Controller 204 Plaza Centre, 3505
- -------------------------------------------- Silverside Road, Wimington, DE
(Signature) 19810
(Mailing Address)
- -------------------------------------------- Account:979-01688-2-8
(Typed or Printed Name) -----------------------
X___________________________________________ Date:9/12/95
(Signature) --------------------------
Accepted By:________________________________ Date:__________________________
(Bear, Stearns
Securities Corp.)
8
SOLICITATION OF WRITTEN CONSENTS
BY BROOKE GROUP LTD.
To Our Fellow RJR Nabisco Shareholders:
This solicitation statement and the accompanying form of written consent
are first being furnished by Brooke Group Ltd., a Delaware corporation ("Brooke
Group"), on or about December 29, 1995, in connection with the solicitation by
Brooke Group from the holders of shares of common stock, par value $.01 per
share (the "Common Stock"), Series C Conversion Preferred Stock, par value $.01
per share ("PERCS"), and ESOP Convertible Preferred Stock, par value $.01 per
share and stated value $16 per share ("ESOP Preferred Stock" and, together with
the Common Stock and the PERCS, the "RJR Nabisco Voting Securities"), of RJR
Nabisco Holdings Corp., a Delaware corporation ("RJR Nabisco"), of written
consents to take the following actions without a stockholders' meeting, as
permitted by Delaware law:
(1) Adopt the following advisory resolution (the "Spinoff
Resolution"):
"RESOLVED, that the stockholders of RJR Nabisco, believing that the
full business potential and value of RJR Nabisco can best be realized and
reflected in the market for the benefit of stockholders by the separation
of the tobacco and food businesses, hereby request and recommend that the
RJR Nabisco Board of Directors immediately spin off the remaining 80.5% of
Nabisco Holdings Corp. held by RJR Nabisco to stockholders."
(2) Amend the By-Laws of RJR Nabisco (the "Bylaws") to (i) reinstate
the provision providing that special meetings of the stockholders shall be
called by the Chairman or Secretary of RJR Nabisco if requested in writing
by holders of not less than 25% of the Common Stock and (ii) delete the
provision establishing procedures governing action by written consent of
stockholders without a meeting (collectively, the "Bylaw Amendment").
Stockholders of RJR Nabisco are being asked to express their consent to the
Spinoff Resolution and the Bylaw Amendment (together, the "Proposals") on the
enclosed BLUE consent card.
BROOKE GROUP RECOMMENDS THAT YOU CONSENT
TO EACH OF THE PROPOSALS.
On December 29, 1995, pursuant to Article I, Section 9 of the Bylaws,
Brooke Group submitted a notice to the Secretary of RJR Nabisco requesting the
Board of Directors of RJR Nabisco (the "Board") to fix January 12, 1996 as the
record date for the solicitation (the "Record Date"). The Board may choose to
ignore our requested Record Date but must act by January 8, 1996 to fix a Record
Date which, pursuant to the Bylaws, can be no earlier than December 29, 1995 and
no later than January 18, 1996. Brooke Group will provide further information to
you once the Board has fixed the Record Date. To be effective, a written consent
with respect to the Proposals must be delivered to RJR Nabisco within 60 days of
the earliest dated written consent from a holder on the Record Date.
SUMMARY
The information in this summary is qualified in its entirety by reference
to the more detailed information appearing elsewhere in this Solicitation
Statement.
Reasons for the Solicitation
Brooke Group believes an immediate spinoff of RJR Nabisco's remaining
equity interest in Nabisco Holdings Corp. ("Nabisco") to RJR Nabisco's
stockholders is the single most important action that the Board can take to
improve the performance of both the tobacco and food businesses of RJR Nabisco
and thereby to increase the value of stockholders' investment in RJR Nabisco
today. According to published research reports by respected stock market
analysts, spinning off Nabisco could increase the value of stockholders'
investment in RJR Nabisco by as much as 50% or more over the prices that
prevailed prior to the announcement of Brooke Group's involvement in RJR
Nabisco.* Although admitting that a majority of stockholders favor a spinoff of
Nabisco, the incumbent Board persists in adhering to a policy of delaying and
obstructing a spinoff. Brooke Group believes the justifications offered by the
Board for its policy of delaying a spinoff make no sense, and that the Board
should and will abandon this policy if informed by a majority of stockholders
that they do not support it and want an immediate spinoff of Nabisco.
Recently, the Board secretly took away stockholders' right to call a
special meeting and imposed burdensome new conditions on stockholders' right to
act by written consent without a meeting. These Bylaw amendments adopted in
secret by the Board impair stockholders' ability to hold a referendum on a
spinoff and to take other actions to increase the responsiveness of management
to stockholders and enhance the value of stockholders' investment. Brooke Group
believes these Bylaw amendments should be rescinded, so that stockholders will
have restored to them the rights they have enjoyed since the public offering of
RJR Nabisco stock in 1991.
The Proposals
Brooke Group is asking your consent to the Spinoff Resolution, which is an
advisory resolution telling the RJR Nabisco Board that it should work for
stockholders by completing the spinoff of Nabisco now, rather than advocating
further delay and standing in the way. While the adoption of the Spinoff
Resolution will have no binding legal effect, we believe that the Board should
act responsively if the stockholders approve the Spinoff Resolution and,
considering the Board's concerted opposition to this solicitation, would be hard
pressed to disregard stockholders' views. Brooke Group believes that, as the
true owners of RJR Nabisco, you and the other stockholders of RJR Nabisco should
take this opportunity to let the incumbent Board know that you think an
immediate spinoff of Nabisco is in your best interests. At the same time, Brooke
Group is asking you to consent to the Bylaw Amendment, which will restore the
stockholders' right to call a special meeting and remove the burdensome new
written consent procedure.
- ----------
* For information with respect to these analyses by stock market
professionals of the value of a spinoff to RJR Nabisco's stockholders, see
"Reasons for the Solicitation -- The Spinoff Resolution." Of course,
estimates of this kind are, by their nature, highly subjective and are
influenced heavily by the assumptions used. These estimates are not a
forecast by Brooke Group of the future trading value of any securities, and
no assurance can be given that the values actually achieved in a spinoff
would be the same as these estimates. No permission has been sought or
received to quote from, or refer to, published materials cited in this
Solicitation Statement.
ii
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS. YOUR
CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED BLUE CONSENT CARD
AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY. FAILURE TO RETURN
YOUR CONSENT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE PROPOSALS.
Certain Information about Brooke Group
Brooke Group is principally engaged, through its subsidiaries and
affiliates, in the manufacture and sale of cigarettes and in the acquisition of
operating companies. Brooke Group also has investments in a number of additional
companies engaged in a diverse group of businesses. Brooke Group is a
stockholder of RJR Nabisco. Brooke Group and its affiliates beneficially own
4,892,950 shares of Common Stock, or approximately 1.8% of the outstanding
shares of Common Stock. In addition, Brooke Group and its wholly-owned
subsidiary BGLS Inc. ("BGLS") have entered into an agreement, as amended (the
"High River Agreement"), with High River Limited Partnership ("High River"), an
entity owned by Carl C. Icahn, which beneficially owns 8,013,000 shares of
Common Stock (or approximately 2.9% of the outstanding shares of Common Stock),
pursuant to which High River has agreed, among other things, to consent to the
Proposals with respect to all of its shares of Common Stock. See "Certain
Information Concerning Brooke Group."
Brooke Group has no economic interest in the Proposals other than through
its ownership of RJR Nabisco Voting Securities. Brooke Group is hereby pledging
to the stockholders of RJR Nabisco that it will not accept any form of greenmail
from RJR Nabisco during its solicitation of consents with respect to the
Proposals, and that, absent RJR Nabisco irrevocably committing to an immediate
spinoff, Brooke Group will continue this solicitation until either the Proposals
are adopted or the time in which to solicit has expired. Brooke Group will
terminate the solicitation of consents if RJR Nabisco irrevocably commits to an
immediate spinoff of its remaining equity interest in Nabisco. High River has
agreed in the High River Agreement that it will not accept any form of greenmail
from RJR Nabisco during the solicitation.
Consent Procedure
The Proposals will become effective when properly completed, unrevoked
consents are signed by the holders of record as of the Record Date of a majority
of the voting power of the then outstanding RJR Nabisco Voting Securities and
are delivered to RJR Nabisco and, pursuant to RJR Nabisco's recent bylaw
amendment, an independent inspector certifies to RJR Nabisco that the consents
delivered in accordance with Section 9(a) of the Bylaws represent at least the
minimum number of votes that would be necessary to take the corporate action,
provided that the requisite consents are so delivered within 60 days of the date
of the earliest dated consent delivered to RJR Nabisco.
Brooke Group has retained Georgeson & Company Inc. ("Georgeson") to assist
in the solicitation. If your shares are held in your own name, please sign, date
and mail the enclosed BLUE consent card to Georgeson in the postage-paid
envelope provided. If your shares are held in the name of a brokerage firm, bank
nominee or other institution, only it can execute a BLUE consent card with
respect to your shares and only upon receipt of specific instructions from you.
Accordingly, you should contact the person responsible for your account and give
instructions for
iii
the BLUE consent card to be signed representing your shares. Brooke Group urges
you to confirm in writing your instructions to the person responsible for your
account and to provide a copy of those instructions to Brooke Group in care of
Georgeson at the address set forth below so that Brooke Group will be aware of
all instructions given and can attempt to ensure that such instructions are
followed.
If you have any questions about executing your consent or require
assistance, please contact:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Toll Free: (800) 223-2064
Banks and Brokerage Firms, please call collect:
(212) 440-9800
INTERNET INFORMATION
To access more information about our solicitation on the World Wide Web,
use the following address:
http://www.georgeson.com
iv
TABLE OF CONTENTS
PROPOSALS................................................................ 1
REASONS FOR THE SOLICITATION............................................. 2
The Spinoff Resolution............................................. 2
The Bylaw Amendment................................................ 14
SOLICITATION OF CONSENTS................................................. 15
CONSENT PROCEDURE........................................................ 16
Effectiveness and Revocation of Consents........................... 17
Consents Required.................................................. 18
Special Instructions............................................... 18
BACKGROUND............................................................... 19
CERTAIN LITIGATION ...................................................... 26
CERTAIN INFORMATION CONCERNING BROOKE GROUP.............................. 27
ANNEX A -- BYLAW PROVISION GOVERNING WRITTEN CONSENT PROCEDURE
ANNEX B -- INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF BROOKE GROUP AND ADDITIONAL INFORMATION
ANNEX C -- PRINCIPAL STOCKHOLDERS AND STOCK HOLDINGS OF RJR
NABISCO'S MANAGEMENT
v
PROPOSALS
This solicitation statement and the accompanying form of written consent
are first being furnished by Brooke Group on or about December 29, 1995, in
connection with the solicitation by Brooke Group from the holders of shares of
Common Stock, PERCS and ESOP Preferred Stock of written consents to take the
following actions without a stockholders' meeting, as permitted by Delaware law:
(1) Adopt the Spinoff Resolution, which is an advisory resolution to the
Board:
"RESOLVED, that the stockholders of RJR Nabisco, believing that the
full business potential and value of RJR Nabisco can best be realized and
reflected in the market for the benefit of stockholders by the separation
of the tobacco and food businesses, hereby request and recommend that the
RJR Nabisco Board of Directors immediately spin off the remaining 80.5% of
Nabisco Holdings Corp. held by RJR Nabisco to stockholders."
(2) Adopt the Bylaw Amendment, which would amend the Bylaws to (i)
reinstate the provision of Article I, Section 2 providing that special meetings
of the stockholders shall be called by the Chairman or Secretary of RJR Nabisco
if requested in writing by holders of not less than 25% of the Common Stock and
(ii) delete the provision setting forth procedures governing action by written
consent of stockholders without a meeting:
"RESOLVED, that Article I, Section 2 of the By-Laws of RJR Nabisco be
amended to read in its entirety as follows:
`Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of
Directors and to transact such other business as may properly come before
the meeting. Special meetings of stockholders may be called by the Chairman
for any purpose and shall be called by the Chairman or the Secretary if
directed by the Board of Directors or requested in writing by the holders
of not less than 25% of the common stock of the Corporation. Each such
stockholder request shall state the purpose of the proposed meeting.' and
that Article I, Section 9 of the By-Laws be repealed in its entirety."
Annex A sets forth the Bylaw provision recently adopted by RJR Nabisco
relating to procedures governing stockholders' action by written consent. Brooke
Group is proposing to delete this provision in its entirety.
Stockholders of RJR Nabisco are being asked to express their consent to the
Proposals on the enclosed BLUE consent card.
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS.
On December 29, 1995, pursuant to Article I, Section 9 of the Bylaws,
Brooke Group submitted a notice to the Secretary of RJR Nabisco requesting the
Board to fix January 12, 1996 as the Record Date for the solicitation. The Board
may choose to ignore our requested Record Date but must act by January 8, 1996
to fix a Record Date which, pursuant to the Bylaws, can be no earlier than
December 29, 1995 and no later than January 18, 1996. Brooke Group will provide
further information to you once the Board has fixed the Record Date. To be
effective, a written consent with respect to the Proposals must be delivered to
RJR Nabisco within 60 days of the earliest dated written consent from a holder
on the Record Date.
REASONS FOR THE SOLICITATION
Recent research reports published by respected stock market analysts have
estimated that spinning off Nabisco to RJR Nabisco's stockholders could increase
the value of stockholders' investment in RJR Nabisco by as much as 50% or more
over the prices that prevailed prior to the announcement of Brooke Group's
involvement in RJR Nabisco.(1) The incumbent Board, however, has unilaterally
adopted a policy of advocating delay and obstructing a spinoff of Nabisco, and
recently decided secretly to take away stockholders' right to call a special
meeting where stockholders could hold a referendum on a spinoff and take other
actions to increase the responsiveness of management to stockholders and enhance
the value of stockholders' investment.
Until Brooke Group announced its intention to proceed with this
solicitation, the RJR Nabisco Board had maintained that there was no discernible
stockholder interest in a spinoff of Nabisco. RJR Nabisco Chairman Charles M.
Harper now concedes that there is overwhelming interest, and that a majority of
the stockholders want a Nabisco spinoff. But, labelling Brooke Group's present
initiative "irresponsible," Mr. Harper, and now Mr. Goldstone, the new Chief
Executive Officer, say that only the RJR Nabisco Board can determine when the
time is right to do the spinoff, and that now is not that time.
Brooke Group believes that attacks upon Brooke Group and the effort by the
Board to squelch discussion and consideration of the spinoff are the truly
irresponsible acts. We are asking your consent to an advisory resolution telling
the RJR Nabisco Board that it should work for stockholders by completing the
spinoff of Nabisco now, rather than advocating further delay and standing in the
way. We believe that if the Board hears, not only that stockholders want a
spinoff, but that they want it now, the Board would be remiss if it did not
adjust its policy to reflect stockholders' consensus.
Brooke Group believes that, as the true owners of RJR Nabisco, you and the
other stockholders of RJR Nabisco should take this opportunity to let the
incumbent Board know that you think an immediate spinoff is in your best
interests. At the same time, Brooke Group is asking you to help restore
stockholders' rights at RJR Nabisco by voting to reinstate your right as a
stockholder to call a special meeting and to remove the burdensome new written
consent procedure.
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS. YOUR
CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED BLUE CONSENT CARD
AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY. FAILURE TO RETURN
YOUR CONSENT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE PROPOSALS.
The Spinoff Resolution
Brooke Group believes that an immediate spinoff of RJR Nabisco's remaining
equity interest in Nabisco is the single most important action that the Board
could take to enhance the value of your investment today. The Board, as your
fiduciary, is supposed to act in the best interests of stockholders.
Nevertheless, the Board has repeatedly rejected the alternative of spinning off
Nabisco.
- ----------
(1) For information with respect to these analyses by stock market
professionals of the value of a spinoff to RJR Nabisco's stockholders, see
"-- The Spinoff Resolution." Of course, estimates of this kind are, by
their nature, highly subjective and are influenced heavily by the
assumptions used. These estimates are not a forecast by Brooke Group of the
future trading value of any securities, and no assurance can be given that
the values actually achieved in a spinoff would be the same as these
estimates. No permission has been sought or received to quote from, or to
refer to, published materials cited in this Solicitation Statement.
2
The Board's Failed Efforts to Improve Performance and Stockholder Value
Last year, when the Board sold a minority stake in Nabisco and used the
sale proceeds to prepay debt to banks and bondholders, it claimed that this sale
would be a better course of action for stockholders than a spinoff. The Board
stated that the stock market would recognize the value of Nabisco and reward RJR
Nabisco stockholders with a higher stock price. This year, when the Board
opposed a stockholder resolution recommending a spinoff, the Board reiterated
this assertion, claiming that the stock price would also be boosted by a
then-pending exchange of debt securities issued by Nabisco, Inc., a wholly owned
subsidiary of Nabisco ("Nabisco, Inc."), for outstanding debt securities of RJR
Nabisco, Inc., a wholly owned subsidiary of RJR Nabisco ("RJRN"), by a
then-proposed "reverse split" which would reduce the number of shares of Common
Stock outstanding and result in securities priced at a level which would be more
attractive to institutional investors and foster broker/dealer recommendations,
and by a new policy of paying quarterly dividends of 37-1/2 cents per share of
Common Stock. All of these transactions, the Board said, would provide tangible
benefits to stockholders.
But the last year has proven the incumbent Board wrong. The Board's
financial tinkering has done nothing to improve the market price of your stock.
Instead of encouraging financial markets to recognize the value of Nabisco, the
Board's actions have only highlighted the extent to which the value of your
investment in Nabisco is being dragged down by concerns about the tobacco
business and by the overall lackluster performance of the combined company. You
can see the results of the Board's strategy on the following chart, which
compares the rate of return to stockholders of RJR Nabisco during the year
ending on August 28, 1995, the day on which news of our involvement in RJR
Nabisco first became public, with the returns enjoyed by stockholders of the
four other major U.S. cigarette companies during such period, exclusive of
Brooke Group. All of the companies have other businesses and are diversified;
however, the principal source of income of each of the companies is derived from
their respective cigarette operations.
3
---GRAPHICAL REPRESENTATION OF ONE YEAR RATE OF RETURN TABLE
FOR THE PERIOD AUGUST 26, 1994 TO AUGUST 28, 1995---
(New Valley's Hart-Scott-Rodino Filing was announced on August 29, 1995)
Loews .......... 44.2%
Philip Morris .. 32.8%
BAT ............ 26.2%
American ....... 23.5%
RJR ............ -12.0%
S&P Tobacco .... 28.6%
S&P 500 ........ 20.9%
DJIA ........... 21.2%
Return = Stock price appreciation + dividends + interest earned on dividends
(calculated using the 91-day T-Bill rate)
The one year rate of return for stockholders of Brooke Group during this period
was 190.8%, of which 83% is attributable to returns on MAI Systems Corporation
stock distributed to Brooke Group stockholders during 1995. This information has
been omitted from the above chart as the purpose of this Solicitation Statement
is not to compare Brooke Group or its management with RJR Nabisco.
As you can see, RJR Nabisco's stock was the worst-performing of any of the
cigarette company stocks over this period. It was the only cigarette company
stock to have a negative return, underperforming the S&P tobacco index by more
than 40 percentage points, and significantly underperforming broader stock
market indices as well.
4
The poor performance of RJR Nabisco's stock is nothing new. Since the
initial public offering of Common Stock on February 1, 1991, through August 28,
1995, RJR Nabisco has been the worst-performing cigarette company stock. You can
see the facts for yourself:
COMPOUNDED ANNUAL RATES OF RETURN
(FEBRUARY 1, 1991 -- AUGUST 28, 1995)
(Period from RJR's IPO to Announcement
of New Valley's Hart-Scott-Rodino Filing)
BAT ............ 11.9%
Philip Morris .. 9.8%
Loews .......... 5.9%
American ....... 5.6%
RJR ............ -0.5%
S&P Tobacco .... 9.8%
S&P 500 ........ 14.0%
DJIA ........... 14.7%
Return = Stock price appreciation + dividends + interest earned on dividends
(calculated using the 91-day T-Bill rate)
The compounded annual rate of return for stockholders of Brooke Group during
this period was 29.3%, including returns on MAI Systems Corporation stock, as
well as on SkyBox International Inc. stock, distributed to Brooke Group
stockholders during 1995 and 1993, respectively. A $100 investment in Brooke
Group Ltd. on February 1, 1991 would have resulted in a total return of $324 to
shareholders. The $324 consists of the following amounts: Brooke Group Ltd. $61;
SkyBox International Inc. $217; MAI Systems Inc. $24; and Cash Dividends and
Interest $22. The total return has been computed assuming cash dividends have
been reinvested at the 91-Day T-Bill rate and stock distributions have been held
until the later of (i) August 28, 1995 or (ii) a tender offer for the stock.
This information has been omitted from the above chart as the purpose of this
Solicitation Statement is not to compare Brooke Group or its management with RJR
Nabisco.
While the value of the stockholders' investment has languished,
notwithstanding the various actions implemented by the Board, Brooke Group
believes that the real beneficiaries of these actions have been RJR Nabisco's
banks and bondholders. In order to maintain debt ratings at the time of the sale
to the public of the minority interest in Nabisco, the incumbent directors
adopted an anti-spinoff policy, declaring that they would not allow a spinoff of
Nabisco until 1997 at the earliest, and that even then a spinoff of Nabisco
would not be permitted before 1999 if RJR Nabisco's debt rating would fall below
investment grade. The Board then reaffirmed its anti-spinoff policy -- in
circumstances where it no longer made sense to do so (see discussion below) --
when proposing and implementing the debt exchange offer. In connection with this
partial sale and the subsequent debt exchange offer, the Board also adopted
policies restricting the amount of cash dividends that can be paid on your stock
and pledging to use the proceeds of any issuance and sale
5
of equity of RJR Nabisco, any sale of tobacco assets outside the ordinary course
of business and any sale by RJR Nabisco of its Nabisco stock to prepay debt or
to purchase new properties, assets or businesses. We believe that all of these
policies benefit banks and bondholders, but demonstrably have not benefitted the
stockholders.
A Spinoff Now Presents the Strongest Prospect for Improved Performance and
Increased Stockholder Value
The reasons for an immediate spinoff of Nabisco are clear. RJR Nabisco
currently consists of two completely unrelated businesses -- the R.J. Reynolds
tobacco business and the Nabisco food business. The tobacco and food businesses
have distinct financial, investment and operating characteristics. Brooke Group
believes that there is no good reason to conduct these unrelated businesses
through a single corporate entity, and believes, as described below, that each
business would operate more efficiently and more profitably if separated from
the other.
In addition, the stock market's negative view of the tobacco business, due
to declining sales of tobacco in the United States, increased regulatory
attention and the potential liability from tobacco-related litigation, is
preventing you from enjoying the full value of your investment in RJR Nabisco.
Food companies like Nabisco typically trade at much higher multiples of earnings
and book value than do tobacco companies. The S&P index of food companies trades
at a multiple of 18.23 times the last twelve-months earnings per share, while
the S&P index of tobacco companies trades at a multiple of 13.77 times the last
twelve-months earnings per share.
Brooke Group believes that the potential benefits to both businesses
flowing from a separation are numerous. In the competitive and rapidly changing
food business, a sharply focused management team at an independent Nabisco
should be able to respond to future changes and challenges with greater
flexibility and speed, without being distracted by the problems of the tobacco
business. The recent decision of the Board to additionally charge John
Greeniaus, the President and Chief Executive Officer of Nabisco, with
responsibility for the tobacco business was a noteworthy example of the dilution
of Nabisco management's attention and impact that has resulted from trying to
combine unrelated businesses, rather than separating them. While the Board
subsequently announced that Mr. Greeniaus would give up his positions at the
tobacco company and return to Nabisco, we believe that this decision was made in
response to our criticism and that nothing prevents Mr. Greeniaus, or other
Nabisco managers, from taking on additional responsibilities at the tobacco
company now or in the future. Indeed, the shifting and reshifting of personnel
(as further evidenced by the recent election of Steven F. Goldstone as Chief
Executive Officer of RJR Nabisco) is indicative, in our view, of fundamental
problems, not curable without a definitive separation of the companies. Further,
we believe that the decision to make Nabisco an independent company should
assist Nabisco in recruiting new management and other personnel who might
otherwise feel reservations about joining Nabisco in view of the controversies
currently surrounding the tobacco industry. By creating a stand-alone company
separate from the tobacco business, Nabisco should be able to improve its
consumer image and shed the negative impact that the tobacco operations have on
the sale of its food products, as evidenced by consumer boycotts. Indeed, Ben &
Jerry's Homemade Inc.'s decision, as early as 1990, to stop using Nabisco's OREO
cookies in its ice cream products because of Nabisco's affiliation with tobacco
is one example of the negative impact that tobacco is having on the food
operations. Finally, by eliminating the need for RJR Nabisco to retain 80%
control of Nabisco for tax and financial reporting purposes, a Nabisco spinoff
would free Nabisco to use its common stock for acquisitions, incentive
compensation to help retain and hire qualified managers and for raising
6
capital, which Brooke Group believes would enhance Nabisco's competitive
position. For example, Nabisco would be able to raise capital to finance recent
large marketing expenditures for product introductions.
A spinoff of Nabisco would similarly afford R.J. Reynolds the opportunity
to operate under the direction of focused managers. Mr. Harper, until recently
the top executive at RJR Nabisco, is a life-long food company manager,
inexperienced in the tobacco business. Similarly, Mr. Goldstone, the recently
elected Chief Executive Officer, had, until February of 1995, spent his entire
career as an attorney in private practice. The absence of strategic direction
from the top, in Brooke Group's view, is one of the major factors contributing
to the prolonged slide in R.J. Reynold's market share. According to data
obtained from The Maxwell Consumer Report, RJR Nabisco's share of the total U.S.
Cigarette market declined from 31.6% in 1985 to 25.8% in the nine months ended
September 30, 1995. Furthermore, RJR Nabisco began to experience significant
decline in the more profitable full-priced segment in 1985. Its share of this
segment declined from 32.8% in 1985 to 23.1% in 1995. This slide in market share
consisted primarily of the Winston and Salem brands, which declined from 13.0%
and 8.8%, respectively, to 8.3% and 5.3%, respectively. As a separate company,
R.J. Reynolds would be better able to attract and retain top management with a
deep knowledge of the challenges and opportunities in the tobacco business.
Independence would also give R.J. Reynolds greater flexibility in structuring
additional equity and debt financings and in pursuing other business
opportunities, and in developing stock-based management incentives tied solely
to results of tobacco operations. Separation of the food business would also
allow R.J. Reynolds to address more aggressively the spectrum of legal and
political issues which confront the tobacco industry.
In our view, all of this means that there is a tremendous opportunity to
unlock value for stockholders by separating RJR Nabisco into two independent,
publicly-held companies -- R.J. Reynolds and Nabisco. Brooke Group believes
that this could be accomplished by the Board acting now to spin off all of RJR
Nabisco's remaining interest in Nabisco to you and the other RJR Nabisco
stockholders. The stock market would then be free to evaluate the two businesses
separately, recognizing the inherent value of each business, and the businesses
themselves would be able to run more rationally and efficiently.
Scientific studies have confirmed the benefits of spinoffs to stockholders.
A study published in the Journal of Financial Economics in 1993, analyzing the
results of 146 spinoffs occurring during the 1965-1988 period, demonstrated that
return on shares of spun-off companies was an average of 52% in the two years
following the spinoff, and an average of 76% in the three years following the
spinoff, significantly exceeding the return on shares of 25% and 34%,
respectively, of comparable firms matched on the basis of market value and
industry classification during that period. The study also showed that the
return on shares of parents of the spun-off companies significantly outperformed
comparable firms over the two and three years following the spinoff, with the
return on shares of the parent averaging 54% and 67%, respectively, and the
return on shares of comparable firms averaging 27% and 18%, respectively.(2) The
benefits of spinoffs
- ----------
(2) Patrick J. Cusatis, James A. Miles and J. Randall Woolridge, "Restructuring
through spinoffs: The stock market evidence," Journal of Financial
Economics 33 (1993) 293-311. Mr. Cusatis currently is a Vice President at
Lehman Brothers. Messrs. Miles and Woolridge, currently are professors of
finance at Smeal College of Business Administration, Pennsylvania State
University. The authors analyzed only those spinoffs occurring during the
1965-1988 period that were a tax-free, pro-rata distribution of shares of a
wholly owned subsidiary to shareholders and for which stock prices were
available. Return (price appreciation and dividends) was computed using a
buy-and-hold investment strategy. The study did not analyze periods beyond
three years from the spinoff. Brooke Group has not made any additional
inquiry into whether the trend has continued beyond the indicated time
periods.
7
demonstrated by this study have been confirmed by other empirical analyses by a
major Wall Street investment bank.
The managements of many public companies have used spinoffs to enhance
stockholder value. The number of spinoffs has been increasing dramatically, and
the companies announcing spinoffs recently have included giants like AT&T, ITT,
Sears, General Motors, W.R. Grace and The Limited. The following chart shows the
volume of completed U.S. spinoffs since 1991, as well as the volume of spinoffs
announced in 1995.
GRAPHICAL REPRESENTATION OF
VOLUME OF U.S. SPINOFFS
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(U.S. Dollars in Billions)
Completed (through
10/15/95) ......... 4.6 5.7 14.2 23.4 25.6
Pending ............. -- -- -- -- 39.0*
- ----------
Source: Barron's and Securities Data Company
* Pending spinoffs exclude the pending AT&T spinoff, as well as the spinoff
announced November 1, 1995 by Premark International of its Tupperware
business.
The experience of AT&T -- where the stock price increased by 10% on a
single day upon announcement of a spinoff plan and has risen since the beginning
of the year, through December 27, 1995, by a total of 29.1% to date -- is only
the most recent example of the way that spinoffs can enhance stockholder value.
RJR Nabisco Chairman Harper, however, is a non-believer. On November 2,
1995, citing unidentified investment bankers retained by RJR Nabisco, Mr. Harper
told Bloomberg Business News ("BBN") that a spinoff of Nabisco would provide
only a 5% to 10% increase in stock value, and that "if we could get two bucks
added (to the current price), we would do that tomorrow -- but we will not take
unreasonable risks." Mr. Goldstone, the new Chief Executive Officer, is also a
non-believer.
8
Many respected stock market analysts disagree with current management and
believe that RJR Nabisco's stockholders could achieve far better results from a
spinoff of Nabisco -- gaining as much as 50% or more in the value of their
Common Stock, based on the $26.75 closing price per share of Common Stock on the
New York Stock Exchange on August 28, 1995, the day before the first public
announcement of our involvement in RJR Nabisco. Although some analysts hold
different opinions, Brooke Group believes that you should consider the views of
the following investment professionals who support our position that
stockholders would benefit from a spinoff:
o In a December 6, 1995 research report, Gary Black of Sanford C. Bernstein
& Co., Inc., who was selected by this year's Institutional Investor
magazine poll as the first team All-American tobacco industry analyst,
computed a value of $41 per share of Common Stock -- a 53% gain -- if
Nabisco is spun off and RJR Nabisco's dividend is increased from the
current level of $1.50 per share to $1.65 per share.(3)
o On September 26, 1995, Diana Temple, a tobacco industry analyst at the
well-known investment bank, Salomon Brothers Inc, and an Institutional
Investor runner-up, calculated a potential value of $40.40 per share of
Common Stock -- a 51% gain -- for a spinoff of Nabisco, even without an
increase in RJR Nabisco's dividend.(4)
o Ronald B. Morrow of Rodman & Renshaw, Inc., a respected investment
research company, was even more optimistic in his September 26, 1995
report to investors, estimating a value of $60.50 per share for the Common
Stock -- a 126% gain -- in a break-up scenario.(5)
Our own actions have demonstrated the strength of our conviction that a
spinoff will enhance stockholder value at RJR Nabisco. Brooke Group and its
affiliates have invested nearly $150 million in RJR Nabisco Voting Securities,
and have no economic interest in the Proposals other than through their
ownership of RJR Nabisco Voting Securities. Brooke Group is hereby pledging to
the stockholders of RJR Nabisco that it will not accept any form of greenmail
from RJR Nabisco during its solicitation of consents with respect to the
Proposals, and that, absent RJR Nabisco irrevocably committing to an immediate
spinoff, Brooke Group will continue this solicitation until either the Proposals
are adopted or the time in which to solicit has expired. Brooke Group will
terminate the solicitation of consents if RJR Nabisco irrevocably commits to
immediately spin off its remaining equity interest in Nabisco.
The Board's Opposition to a Spinoff Now
The Board has raised three basic arguments for refusing to commit to an
immediate spinoff: (1) preservation of financial integrity and binding
commitments, (2) potential litigation and (3)
- ----------
(3) The report assumes that a post spinoff Nabisco would be worth $18 per
share, based upon the distribution of the then market value of the shares
of Nabisco owned by RJR Nabisco to its stockholders. The report further
assumes that the price per share of post spinoff RJR Nabisco would be $23
per share based upon a 7% yield of the $1.65 dividend and a Cash P/E Ratio
of 8.3.
(4) Ms. Temple is currently a Director of research at Salomon Brothers Inc. The
$40.40 per share value is based on a $20.40 per share value for the post
spinoff Nabisco (based upon an earnings multiple of 20 times 1996 estimated
earnings per share of $1.02) and a $20 per share value for post spinoff RJR
Nabisco (based upon a 7.5% yield on a $1.50 pure tobacco dividend).
(5) Mr. Morrow is the senior director in the consumer non-durable sector at
Rodman & Renshaw, Inc. The $60.50 per share value is based on a $19.22 per
share value of a stand-alone Nabisco (based upon the aggregate market value
at July 22, 1995 of Nabisco stock held by RJR Nabisco, distributed pro rata
to RJR Nabisco stockholders) and a $41.27 per share value of the
stand-alone RJR Nabisco tobacco company. The $41.27 value was based upon a
total capitalization-to-cash flow multiple (based upon 1995 estimated
tobacco cash flow of $2.4 billion and estimated tobacco free cash flow of
$1.1 billion) equal to a 30% premium over the American Tobacco Company's
cash flow multiple of about 6.7x at its sale in December 1994 (as computed
by Mr. Morrow), because of strong global brands.
9
tax-free treatment of the spinoff. Brooke Group believes that each of these
arguments is without merit and can be easily refuted.
The "Financial Integrity and Binding Commitments" Argument
The Board has stated that a spinoff "must preserve the financial integrity
of both the food and tobacco businesses." Although the Board does not state that
a spinoff would imperil the financial integrity of either the food or tobacco
businesses, the implication of the Board's recent remarks is that a spinoff
might have such an effect.
Brooke Group believes that Nabisco is well positioned to be spun off and
move forward successfully as an independent company, as evidenced by recent
analysts' reports. A November 1, 1995 research report by Bear, Stearns & Co.
Inc. gives Nabisco an "Attractive" rating and states that the "quality of the
company's earnings is high."(6) On November 3, 1995, Fitch Investors Service
("Fitch") noted that, following a spinoff, "Nabisco's `BBB/F-2' ratings could,
over the long term, be strengthened," and in fact "could improve markedly but
will be influenced by subsequent developments."(7)
Nor do the circumstances suggest that the tobacco business's financial
integrity will be compromised by a spinoff. The Board has asserted that the
Nabisco spinoff is impracticable because of the "binding financial commitments"
that RJR Nabisco has made in the past. The Board has raised the spectre of
possible litigation by bondholders to enjoin a spinoff. But the only "binding
commitments" which RJR Nabisco has disclosed are certain covenants in RJRN's
bank credit agreement, which supports $286 million of commercial paper
outstanding as of September 30, 1995. Brooke Group believes that this relatively
small indebtedness could be readily refinanced to eliminate any impediment to a
spinoff of Nabisco.
As the Board well knows, the policies voluntarily adopted by the Board to
delay a spinoff, to restrict the payment of dividends and to restrict the use of
proceeds of stock and asset sales are entirely non-binding. They are not the
equivalent of a bond indenture or other legally binding agreement, and the Board
can rescind them at any time. In its Form 10-K for 1994, filed with the
Securities and Exchange Commission (the "SEC") on March 1, 1995, and in the Form
S-4 Registration Statement filed with the SEC in connection with the debt
exchange offer, Nabisco describes the RJR Nabisco Board's spinoff-delay policy,
but notes that RJR Nabisco does not have an agreement with Nabisco not to sell
or distribute the Nabisco stock its holds, and that "there can be no assurance
concerning the period of time during which [RJR Nabisco] will maintain its
beneficial ownership" of Nabisco stock. Indeed, in discussions with Brooke Group
representatives earlier this year (see "Background"), representatives of RJR
Nabisco -- including its recently appointed Chief Executive Officer, Mr.
Goldstone -- confirmed the non-binding nature of these policies and stated that
the Board could and would change the policies in response to changed business
circumstances.
- ----------
(6) The Bear Stearns report was written by two of its analysts, Laurie Feldman
and Brian Sedrish. The authors' "Attractive" rating is based on the belief
that "volume reacceleration and earnings recovery could begin late in the
fourth quarter and could gain momentum in the first half of 1996,
especially in the face of very easy comparisons, benefits from recent
acquisitions, better volume growth due to further market penetration of new
products, and lower marketing expenditures." Additionally, the authors base
their opinion on the quality of the earnings on the fact that it has been
derived from positive fundamentals and not from corporate financial
maneuverings that bring onetime benefits.
(7) In stating the potential for improvement in Nabisco's rating, the Fitch
report also stated that RJR Nabisco's "BBB-/F-3 ratings would be negatively
impacted." The Fitch report, by way of example of "subsequent
developments," stated that if potential fraudulent conveyance claims are
successful (an assertion which Brooke Group strongly disputes) and the
Nabisco shares are sold to a financial buyer, a reevaluation of Nabisco's
credit quality would be appropriate.
10
Brooke Group believes that these anti-spinoff policies have outlived their
usefulness. In large measure, the original reason for the anti-spinoff policy
was to assure cash flow from Nabisco to RJRN -- because essentially all of RJR
Nabisco's consolidated debt was lodged there. This RJRN debt was reduced,
however, by more than $4 billion through the debt exchange offer and related
refinancings, which made Nabisco, Inc. the obligor on this debt. The debt
service coverage of RJRN's debt was enhanced at the time of the debt exchange
and Nabisco can well service the $4 billion of debt incurred. As a consequence,
there was no need for the Board to reiterate its anti-spinoff policy. Indeed, as
more fully discussed below, RJRN's debtholders are better off, as far as we can
see, based on coverage, and the Nabisco debtholders benefit from the quality of
Nabisco's cash flow. Based on RJR Nabisco's actual results as disclosed in its
financial statements and the following tables, if R.J. Reynolds and Nabisco were
separated, R.J. Reynold's EBITDA/Interest Expense Coverage Ratio would have
increased from 4.81 to 5.38. Further, R.J. Reynold's current Net
Debt/Stockholders' Equity ratio would have decreased from 0.91 to 0.73.
The following tables(8) demonstrate our view of the spinoff on the
EBITDA/Interest Expense Coverage Ratio and Debt/Equity Ratio of the separated
companies:
RJR Nabisco
Analysis of Coverage Ratios
(Dollars in Millions)
Combined RJR
RJR Nabisco Tobacco Nabisco
------------ -------- -------
EBIT For the Year Ended December 31, 1994.......................... $2,440 $1,573 $ 867
------ ------ ------
EBITDA For the Year Ended December 31, 1994........................ $3,592 $2,282 $1,310
------ ------ ------
Interest Expense................................................... $ 747 $ 424 $ 323
------ ------ ------
EBIT/Interest Expense.............................................. 3.27 3.71 2.68
------ ------ ------
EBITDA/Interest Expense............................................ 4.81 5.38 4.06
====== ====== ======
- ----------
EBIT = Earnings Before Interest and Taxes
EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization
Interest Expenses is based on debt and respective interest rates at 9/30/95
(based upon public financial statements). Interest Expense does not include
Interest on Trust Oriented Preferred Securities ($95) and dividends on Series B
Preferred Stock ($28). If such Fixed Charges were included, Holdings', RJR's and
Nabisco's respective EBIT Coverage ratios would be 2.80, 2.87 and 2.68 and
EBITDA Coverage ratios would be 4.13, 4.17 and 4.06, respectively.
- ----------
(8) The tables are based on information obtained from RJR Nabisco's and
Nabisco's respective Form 10-Ks (December 31, 1994) and Form 10-Qs
(September 30, 1995) filed with the SEC and Brooke Group has assumed that
the spinoff would be effected on a basis consistent with information
contained in these documents. Brooke Group can offer no assurance that the
spinoff would be accomplished on such a basis presented above. Furthermore,
changes in the assumptions, which include, but are not limited to,
allocation of debt owed by RJR Nabisco and Nabisco and headquarters'
expenses, could result in changes in the respective Net Debt/Stockholders'
Equity and Coverage Ratios. Expenses associated with a proposed spinoff
have not been included. Based upon a review of currently available
information, Brooke Group does not believe that a spinoff would require the
consent of public debtholders, other than with respect to the RJRN bank
credit agreement which supports $286 million of commercial paper
outstanding as of September 30, 1995.
11
RJR Nabisco
Analysis of Debt by Company
(Dollars in Millions)
As of September 30, 1996
Combined RJR
RJR Nabisco Tobacco Nabisco
------------ -------- -------
Public Debt....................................................... $ 7,213 $4,267 $2,946
Commercial Paper ................................................. 1,634 286 1,348
Other Indebtedness................................................ 980 801 179
------- ------ ------
Total Debt(a)..................................................... 9,827 5,354 4,473
Less: Cash on Hand ............................................... (354) (221) (133)
------- ------ ------
Net Debt.......................................................... $ 9,473 $5,133 $4,340
======= ====== ======
Stockholders' Equity(b)........................................... $10,423 $7,079 $4,180
======= ====== ======
Net Debt/Stockholders' Equity Ratio .............................. 0.91 0.73 1.04
======= ====== ======
- ----------
(a) Total Debt is composed of both Long-Term Debt and Notes Payable. Consistent
with RJR Nabisco's Financial Statements at September 30, 1995, RJR
Nabisco's Trust Oriented Preferred Securities ("Preferred Securities") of
$954 have not been classified as indebtedness. If the Preferred Securities
were included as debt, the respective Net Debt/Stockholders' Equity Ratios
would be 1.00, 0.86 and 1.04, respectively.
(b) RJR Nabisco's Stockholders' Equity is adjusted for minority Interest of
$836 in Nabisco's Stockholders' Equity.
Brooke Group recognizes, of course, that rating agencies such as Standard &
Poor's, Moody's and Fitch are naturally conservative and at times reluctant
immediately to embrace change. The Fitch report which noted the potential for
improvement in Nabisco's ratings, opined that the post-spinoff tobacco
business's ratings would likely be downgraded unless the company "demonstrate[s]
that it has adequate cash and other resources to satisfy its obligations to its
bondholders in the unlikely event of a significant tobacco judgment." While we
do not expect the rating agencies to applaud the spinoff of Nabisco, we do
expect that, particularly with the passage of time following a spinoff, the
agencies will give a fair rating to the debt of the separated food and tobacco
companies.
Based upon the publications described below, Brooke Group believes that a
spinoff of Nabisco would not harm, and might improve, the position of
bondholders and other creditors of RJR Nabisco. As Michael Dahood, a tobacco
industry credit analyst for Rodman & Renshaw, Inc., stated in an October 24,
1995 research report: "An eventual spin-off or other separation of [Nabisco]
would have some benefits for RJR Nabisco creditors, including lowering absolute
debt levels and related interest expense and capital spending requirements."
According to Mr. Dahood, a spinoff would reduce the absolute level of RJR
Nabisco's consolidated debt by about $4 billion, or more than 40% (based upon
Net Debt at 9/30/95 of $9.5 billion as detailed above). Based on this analysis
and as discussed above, RJR Nabisco's consolidated debt-to-equity ratio would,
thus, be reduced as well. Mr. Dahood further reports that Nabisco represented
only about one-third of RJR Nabisco's total EBITDA in 1994, but now holds
approximately 40% of RJR Nabisco's consolidated debt, and therefore we believe
that consolidated cash flow coverage ratios for RJR Nabisco would also improve
as a result of the spinoff. Indeed, in an article published in the December 4,
1995 Forbes Magazine, Frederick Taylor, a bond analyst at Salomon Brothers Inc,
recommends RJR Nabisco's $250 million of 8.75% bonds, due 2007, as the "cheapest
investment-grade paper out there" and Mr. Ronald Speaker, manager of the $588
million Janus Flexible Income Fund and an RJR Nabisco bondholder, indicates that
with a spinoff, Nabisco would take a substantial percentage of RJR Nabisco's
debt with it "-- leaving the balance with solid cover-
12
age." More to the point, as described above, the spinoff can be expected to
result in improved operating performance by both the tobacco and food businesses
in future years, benefitting creditors as well as stockholders.
There is, thus, a strong case to be made that investment grade ratings
would be retained by both the food and tobacco companies following a spinoff of
Nabisco. In the final analysis, however, Brooke Group does not believe that
investment grade ratings are necessary to either Nabisco or, particularly, the
tobacco company.
The "Potential Litigation" Argument
The Board has also asserted that the Nabisco spinoff is not appropriate at
this time because of the "current litigative situation," and has specifically
expressed concern that implementation of the spinoff might be delayed, to the
financial detriment of RJR Nabisco stockholders, by litigation. We understand
the Board's remarks as reflecting a fear that plaintiffs in pending tobacco
product liability cases might seek to enjoin the spinoff by alleging that it
constitutes a fraudulent conveyance. The effect of the Board's position, in
refusing to act because of the fear that an injunction may be sought, is the
same as if the injunction had been obtained. Brooke Group finds the Board's view
to be singularly misguided, because neither Brooke Group -- nor, based on its
public disclosure, RJR Nabisco -- believes that an injunction barring the
spinoff is likely to be issued.
The key element of any potential lawsuit to enjoin the spinoff would be the
allegation that RJR Nabisco either (i) is insolvent prior to attempting to
effectuate the spinoff or (ii) would be rendered insolvent by the spinoff. A
plaintiff seeking an injunction would have to show a high probability of
establishing one or the other of the foregoing propositions at trial. Law
professors at Harvard Law School and Columbia University were quoted in the New
York Times on November 4, 1995 as expressing their doubt that such a showing
could be made, or that an injunction against the spinoff would be issued. RJR
Nabisco's 1994 annual report contains an unqualified report from RJR Nabisco's
auditors and includes a statement that management believes that the outcome of
all pending litigation will not have a material adverse effect on RJR Nabisco's
financial position. This statement was recently reiterated in RJR Nabisco's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (the
"1995 Third Quarter 10-Q"), filed on October 31, 1995. These disclosures are
based upon more than 40 years of favorable litigation experience in the defense
of tobacco product liability claims.
We agree with this conclusion. RJR Nabisco Chairman Harper, however, seemed
to deviate from this conclusion when he told BBN on November 2, 1995 that
tobacco product liability plaintiffs had "decent odds" of getting an injunction
enjoining a spinoff of Nabisco. Mr. Harper's remarks are, in our view, an
irresponsible scare tactic intended to frighten stockholders into withholding
support for Brooke Group's solicitation and supporting, instead, the do-nothing
posture of the Board.
We heartily disagree with the Board's timidity in the face of potential
litigation, which has produced a paralysis detrimental to stockholders'
interests. Brooke Group believes that the full potential of the food and tobacco
businesses, and the full value of stockholders' investment, are being held
hostage by the Board because of a remote litigation contingency. Brooke Group
believes there are valid and compelling business reasons to do the spinoff now.
We believe that delay by the Board will cause further erosion in the performance
and competitive positions of both the food and tobacco companies. Throughout the
course of public debate since we wrote to
13
the Board on October 30, 1995, representatives of RJR Nabisco have made vague
promises of improvements in the "litigative situation" at some future date. The
only "explanation" offered for how this might occur, however, has been Mr.
Goldstone's recent statements that the tobacco litigation tends to be "cycled"
and may be moving into an unexplained "third phase" which may be better for the
tobacco defendants. Through our Liggett Group Inc. subsidiary, we are involved
in the tobacco business and the product liability and other tobacco litigation.
We have no idea what Mr. Goldstone and the other RJR Nabisco representatives are
referring to in these statements. We are unable to discern in the Board's
position any suggestion of when or how the "litigative situation" might become
one in which the Board would comfortably act to authorize a spinoff, especially
in light of the fact that the tobacco product liability plaintiffs' bar, as
recently reported in the New York Times, has threatened "to file tens of
thousands of individual lawsuits around the country" if their present class
action is not certified. The Board's position is, in our view, merely a recipe
for open-ended delay.
The "Tax-Free" Argument
RJR Nabisco has publicly disclosed that it has acted and has been acting to
assure a tax-free spinoff. For example, in this year's proxy statement, filed
with the SEC on March 20, 1995, RJR Nabisco's management stated that the partial
sale of Nabisco and the subsequent exchange offer for RJRN debt were "structured
in a manner that preserves the option of separating such businesses on a
tax-free basis." As recently as October 9, 1995, a tobacco industry analyst
employed by RJR Nabisco's investment banker stated in a published report that
RJR Nabisco's management had assured him that "all tax-related preconditions" to
a spinoff of Nabisco "had been addressed."
Recently, Mr. Harper cautioned that, "The more [Brooke Group's] actions
focus attention on the non-business-related aspects of such a [spinoff]
transaction . . . the greater the likelihood that a development will arise to
jeopardize . . . a spin-off." In effect, the Board is saying that a spinoff
would not be tax-free if its only purpose were to increase the price of the
stock. The Board's comments are irrelevant to the proposed spinoff, however. Any
enhancement of the stock price would follow from and reflect the enhanced
potential for improved business performance. Brooke Group believes that the
separation of RJR Nabisco's food business from tobacco would unlock the value in
RJR Nabisco's depressed stock price by creating two distinct, unaffiliated
companies, each better able to operate and achieve strong results in their
respective businesses, as discussed at length earlier. See "A Spinoff Now
Presents the Strongest Prospect for Improved Performance and Increased
Stockholder Value."
The Bylaw Amendment
What did the incumbent directors do when they heard calls for a spinoff?
Brooke Group believes the responsible reaction would have been for the Board to
meet with stockholders and to work with stockholders for the enhancement of
value through a spinoff.
Instead, the Board took the opposite approach. The Board moved to silence
stockholders by making it more difficult for you to vote on a spinoff. The Board
amended the Bylaws -- without a stockholder vote -- eliminating the
stockholders' right to call a special meeting and imposing burdensome new
requirements for stockholders who seek to act by written consent without a
meeting. Significantly, the Board left intact its right to call a special
meeting. In attempting to explain its amendments to the Bylaws, RJR Nabisco
stated that it was not appropriate for corporate action to be approved at a
special stockholders meeting by a mere affirmative vote of a majority of the
shares needed to establish a quorum (possibly 25% of the outstanding, plus one
share). In
14
order to correct this supposed "flaw," the Board eliminated the stockholders'
right to call a special meeting, but not its own. When and if the Board calls a
special meeting, any action the Board proposes can be passed by the same voting
percentage which the Board says is not appropriate for a stockholder proposed
matter. Additionally, we believe that the new written consent procedures permit
the Board to manipulate its corporate governance machinery by granting the Board
a 20-day period to set a record date. Since only the Board can know in advance
the exact record date, stockholders who wish to act by written consent are
placed at a distinct disadvantage. For more detailed information regarding the
procedural requirements the Board recently implemented with respect to the
exercises of written consent of stockholders, see "Consent Procedure."
This disturbing action was taken unilaterally and in secrecy, without
informing stockholders that their rights, which had existed since RJR Nabisco's
stock was first offered to the public in 1991, were being stripped away.
Fortunately, you have certain legal rights that the Board cannot take from you
without stockholders' permission. RJR Nabisco's stockholders still have the
power to act by written consent to restore their right to call a meeting. Brooke
Group urges you and the other stockholders to exercise this power by giving your
CONSENT to the Bylaw Amendment on the enclosed BLUE consent card.
The effectiveness of the Bylaw Amendment would occur when properly
completed, unrevoked consents are signed by the holders of record as of the
Record Date of a majority of the voting power of the then outstanding RJR
Nabisco Voting Securities and are delivered to RJR Nabisco and, in accordance
with the recent bylaw change by RJR Nabisco, an independent inspector certifies
to RJR Nabisco that the consents delivered in accordance with Section 9(a) of
the Bylaws represent at least the minimum number of votes necessary to adopt the
proposal (see "Effectiveness and Revocation of Consents" and "Consents
Required").
There are no provisions in the Bylaws or in RJR Nabisco's Amended and
Restated Certificate of Incorporation restricting the stockholders' ability to
amend or repeal provisions of the Bylaws without the consent of the Board.
Although, to Brooke Group's knowledge, there is no Delaware precedent precisely
on point, Brooke Group is confident this repeal is enforceable. If it were not,
Bylaws adopted by RJR Nabisco would not automatically be repealed, but would be
subject to challenge in court.
SOLICITATION OF CONSENTS
Solicitation of consents may be made by the directors, officers, investor
relations personnel and other employees of Brooke Group and certain of its
subsidiaries and affiliates, none of whom will receive additional compensation
for such solicitation. Consents may be solicited by mail, courier service,
advertisement, telephone or telecopier and in person.
In addition, Brooke Group has retained Georgeson to assist in the
solicitation, for which Georgeson is entitled, in the event the Proposals are
adopted, to receive a fee of $150,000, plus its reasonable out-of-pocket
expenses. Brooke Group has also agreed to indemnify Georgeson against certain
liabilities and expenses, including certain liabilities and expenses under the
Federal securities laws. It is anticipated that Georgeson will employ
approximately 30 persons to solicit stockholders.
New Valley, Brooke Group and Liggett (as defined in "Background") have
engaged Jefferies & Company, Inc. ("Jefferies") to act as financial advisor in
connection with New Valley's investment in RJR Nabisco and this solicitation by
Brooke Group. New Valley has
15
agreed to pay Jefferies (i) an initial fee of $1,500,000, and (ii) monthly fees
of $250,000 and, in addition, during the first five full months of the
engagement an additional monthly fee of $100,000. These companies also have
agreed to pay Jefferies 10% of the net profit (up to a maximum of $15,000,000)
with respect to Common Stock (including any distributions made by RJR Nabisco)
held or sold by these companies and their affiliates after deduction of certain
expenses, including the costs of this solicitation and certain proxy
solicitations by the BGL Group and the costs of acquiring the shares of Common
Stock (all of which expenses will be borne by New Valley, ALKI or the BGL
Group). In addition, New Valley agreed to reimburse Jefferies for all reasonable
out-of-pocket expenses, including the fees and expenses of its counsel, incurred
by Jefferies in connection with its engagement and New Valley and Brooke Group
agreed to indemnify Jefferies and certain related persons against certain
liabilities and expenses. Jefferies will assist in the solicitation of consents
in favor of the Proposals, which will be carried out by a team of individuals
consisting of officers, associates and analysts of Jefferies numbering
approximately 10 persons.
Banks, brokers, custodians, nominees and fiduciaries will be requested to
forward solicitation materials to the beneficial owners of RJR Nabisco Voting
Securities. Brooke Group and its affiliates will reimburse these record holders
for customary clerical and mailing expense incurred by them in forwarding these
materials to the beneficial owners.
The cost of the solicitation of consents to the Proposals will be borne by
New Valley (as defined in "Background"). New Valley has entered into an
agreement with Brooke Group pursuant to which it has agreed to pay directly or
reimburse Brooke Group and its subsidiaries for reasonable out-of-pocket
expenses incurred in connection with pursuing the Proposals. New Valley has also
agreed to pay to BGLS a fee of 20% of the net profit received by New Valley or
its subsidiaries from the sale of shares of Common Stock after achieving a rate
of return of 20% and after deduction of certain expenses, including the costs of
this solicitation and of acquiring the shares of Common Stock. New Valley has
also agreed to indemnify Brooke Group against certain liabilities arising out of
the solicitation. Brooke Group, or New Valley, as applicable, will seek
reimbursement for such expenses from RJR Nabisco. Costs incidental to the
solicitation of consents include expenditures for printing, postage, legal and
related expenses, and are expected to be approximately $5 million.
CONSENT PROCEDURE
Section 228 of the Delaware General Corporation Law (the "DGCL") states
that, unless otherwise provided in the certificate of incorporation, any action
required to be taken at any annual or special meeting of stockholders, or any
action that may be taken at any annual or special meeting of stockholders, may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted, and those
consents are delivered to the corporation by delivery to its registered office
in Delaware, its principal place of business or an officer or agent of the
corporation having custody of the books in which proceedings of meetings of
stockholders are recorded. RJR Nabisco's certificate of incorporation does not
prohibit stockholder action by written consent.
Section 213(b) of the DGCL provides that if no record date has been fixed
by the board of directors, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting, when no prior
action by the board of directors is required, shall be the
16
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business or an officer or
agent of the corporation having custody of the books in which proceedings of
meetings of the stockholders are recorded. Notwithstanding the foregoing, on
August 21, 1995, RJR Nabisco amended its Bylaws to add a new Section 9 to
Article I of the Bylaws which sets forth a lengthy process which stockholders
must follow in order to seek action by written consent without a meeting.
Pursuant to Section 9(a) thereof, a stockholder seeking to have the stockholders
of RJR Nabisco authorize or take corporate action by written consent is required
to request the RJR Nabisco Board to fix a record date. The RJR Nabisco Board is
required to promptly, but in all events within 10 days after the date on which
the request is received, adopt a resolution fixing the record date for the
solicitation (which may not be more than 10 days after the date of the
resolution). On December 29, 1995 pursuant to Article I, Section 9 of the
Bylaws, Brooke Group submitted a notice to the Secretary of RJR Nabisco
requesting the Board to fix January 12, 1996 as the Record Date for the
solicitation. The Board may choose to ignore our requested Record Date but must
act by January 8, 1996 to fix a Record Date which, pursuant to the Bylaws, can
be no earlier than December 29, 1995 and no later than January 18, 1996. Brooke
Group will provide further information to you once the Board has fixed the
Record Date.
Effectiveness and Revocation of Consents
The Proposals will become effective when properly completed, unrevoked
consents are signed by the holders of record as of the Record Date of a majority
of the voting power of the then outstanding RJR Nabisco Voting Securities and
are delivered to RJR Nabisco and, pursuant to RJR Nabisco's recent bylaw
amendment, nationally recognized independent inspectors of elections, hired by
RJR Nabisco for the purpose of performing a ministerial review of the validity
of the consents and revocations, certify to RJR Nabisco that the consents
delivered in accordance with Section 9(a) of the Bylaws represent at least the
minimum number of votes that would be necessary to take the corporate action,
provided that the requisite consents are so delivered within 60 days of the date
that the earliest dated consent was delivered to RJR Nabisco.
An executed consent card may be revoked at any time by marking, dating,
signing and delivering a written revocation before the time that the action
authorized by the executed consent becomes effective. A revocation may be in any
written form validly signed by the record holder as long as it clearly states
that the consent previously given is no longer effective. The delivery of a
subsequently dated consent card which is properly completed will constitute a
revocation of any earlier consent. The revocation may be delivered either to
Brooke Group, in care of Georgeson & Company Inc., Wall Street Plaza, New York,
New York 10005, or to RJR Nabisco at 1301 Avenue of the Americas, New York, New
York 10019 or any other address provided by RJR Nabisco. Although a revocation
is effective if delivered to RJR Nabisco, Brooke Group requests that either the
original or photostatic copies of all revocations of consents be mailed or
delivered to Brooke Group as set forth above, so that Brooke Group will be aware
of all revocations and can more accurately determine if and when the requisite
consents to the actions described herein have been received.
If the Proposals are adopted pursuant to the consent procedure, prompt
notice must be given by RJR Nabisco pursuant to Section 228(d) of the DGCL to
stockholders who have not executed consents. RJR Nabisco will promptly announce
when the action by written consent has been
17
taken, thus enabling stockholders desiring to withdraw their consents to learn
whether the action has become effective.
Consents Required
According to the 1995 Third Quarter 10-Q, there were 272,693,625 shares of
Common Stock, 26,675,000 shares of PERCS and 15,082,650 shares of ESOP Preferred
Stock outstanding at September 30, 1995. Each share of Common Stock entitles the
Record Date holder to one vote on the Proposals. Each share of PERCS and ESOP
Preferred Stock entitles the Record Date holder to one-fifth of a vote on the
Proposals, voting together as a single class with the holders of Common Stock.
Accordingly, based on the information in the 1995 Third Quarter 10-Q, written
consents by holders representing approximately 140,522,578 shares of Common
Stock, or shares of Common Stock and other RJR Nabisco Voting Securities
aggregating 140,522,578 votes (not including abstentions and broker non-votes),
will be required to adopt and approve each of the Proposals. Accordingly, each
abstention and broker non-vote with respect to the Bylaw Amendment and/or the
Spinoff Proposal will have the same effect as a vote against the adoption of
such proposal.
Special Instructions
If you were a record holder as of the close of business on the Record Date,
you may elect to consent to, withhold consent to or abstain with respect to each
Proposal by marking the "CONSENTS", "DOES NOT CONSENT" or "ABSTAINS" box, as
applicable, underneath each such Proposal on the accompanying BLUE consent card
and signing, dating and returning it promptly in the enclosed postage-paid
envelope.
IF THE STOCKHOLDER WHO HAS EXECUTED AND RETURNED THE CONSENT CARD HAS
FAILED TO CHECK A BOX MARKED "CONSENTS", "DOES NOT CONSENT" OR "ABSTAINS" FOR
EITHER OR BOTH OF THE PROPOSALS, SUCH STOCKHOLDER WILL BE DEEMED TO HAVE
CONSENTED TO SUCH PROPOSAL OR PROPOSALS.
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS. YOUR
CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED BLUE CONSENT CARD
AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY. FAILURE TO RETURN
YOUR CONSENT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE PROPOSALS.
If your shares are held in the name of a brokerage firm, bank nominee or
other institution, only it can execute a consent with respect to your shares and
only upon receipt of specific instructions from you. Accordingly, you should
contact the person responsible for your account and give instructions for the
BLUE consent card to be signed representing your shares. Brooke Group urges you
to confirm in writing your instructions to the person responsible for your
account and provide a copy of those instructions to Brooke Group in care of
Georgeson at the address set forth above so that Brooke Group will be aware of
all instructions given and can attempt to ensure that such instructions are
followed.
18
BACKGROUND
The purpose of this Section is to provide information relating to certain
events leading up to this solicitation, as of the most recent practicable date
prior to the mailing of this Consent Statement.
On October 31, 1994, RJR Nabisco announced that it would undertake an
initial public offering of approximately 19% of Nabisco and use the proceeds of
the offering to repay bank debt. RJR Nabisco's announcement also stated that RJR
Nabisco anticipated initiating a regular quarterly dividend of 37-1/2 cents per
share of Common Stock (adjusted for the 1-for-5 reverse stock split completed by
RJR Nabisco on April 12, 1995). RJR Nabisco also announced that, in connection
with these developments, the Board had set limits on the dividend payout for the
next four years and that an eventual spinoff of Nabisco to stockholders would
not be considered for at least two years. In subsequent filings, RJR Nabisco
disclosed that the Board had passed a resolution adopting a policy precluding a
spinoff of Nabisco until 1997 at the earliest, and stating that a spinoff of
Nabisco would not be permitted before 1999 if RJR Nabisco's debt ratings would
fall below investment grade. The partial sale of Nabisco was consummated on
January 26, 1995.
On March 11, 1995, it was announced that Nabisco, Inc. would exchange
approximately $1.9 billion aggregate principal amount of debt securities issued
by Nabisco, Inc. for approximately $1.9 billion aggregate principal amount of
notes and debentures of RJRN. According to documents filed by Nabisco, Inc. and
RJRN with the SEC with respect to the exchange offer, the purpose of these
transactions was to permit Nabisco and Nabisco, Inc. to establish long-term
borrowing capacity independent of RJRN and to reduce intercompany debt by
approximately $4.0 billion. The exchange offer documents reiterated the Board's
anti-spinoff policy. They also disclosed that the Board had adopted additional
policies providing that until December 31, 1998, RJR Nabisco will limit the
aggregate amount of cash dividends on its capital stock and will use the
proceeds of any issuance and sale of equity of RJR Nabisco, any sale of tobacco
assets outside the ordinary course of business and any sale by RJR Nabisco of
its Nabisco stock to prepay debt or to acquire new properties, assets or
businesses.
At the annual stockholders meeting on April 12, 1995, stockholders voted
down a stockholder proposal to separate the tobacco from the non-tobacco
businesses. In its arguments against the proposal, the Board stated in the proxy
statement that as part of its initiative to have the market recognize the value
of RJR Nabisco's stock, it had sold slightly less than 20% of Nabisco to the
public, declared a 37-1/2 cent quarterly dividend, and adopted certain
anti-dividend and anti-distribution policies.
On May 19, 1995, Bennett S. LeBow, the Chairman of the Board and Chief
Executive Officer of Brooke Group, met with Charles M. Harper, the Chairman of
the Board and then Chief Executive Officer of RJR Nabisco. In this meeting, Mr.
LeBow recommended to Mr. Harper that RJR Nabisco spin off its remaining 80.5%
equity interest in Nabisco. Mr. Harper informed Mr. LeBow that there were
several issues which made it difficult for RJR Nabisco to effect a spinoff. At
that time, Mr. LeBow proposed a business combination (described below) between
Brooke Group's domestic tobacco subsidiary, Liggett Group Inc. ("Liggett"), and
RJR Nabisco as a means of resolving Mr. Harper's issues. Mr. LeBow suggested
that Liggett was uniquely positioned to assist RJR Nabisco in effecting a
spinoff. Specifically, Mr. LeBow, addressing the RJR Nabisco Board's concern
over personal liability, informed Mr. Harper that Brooke Group's management had
confronted the issue of personal liability in connection with tobacco product
liability
19
claims and in connection with spinoffs within the prior two years of non-tobacco
operating subsidiaries, and had decided that the risk of such liability was
negligible; that Brooke Group's management had previously concluded, based on
its own experience at Liggett, that concurrent operation of a tobacco and a food
business does not present advantages; that Brooke Group therefore believed that
Liggett's record was such that a merger of Liggett and RJR Nabisco followed by a
spinoff of RJR Nabisco's non-tobacco operations, to wit: Nabisco, would be
consistent with Liggett's past actions and would not be for the purpose of
placing assets beyond the reach of creditors; and that Liggett, as the smallest
domestic cigarette manufacturer, would likely not cause major antitrust concerns
to be raised in the context of a merger with RJR Nabisco. Mr. Harper expressed
tentative interest in the spinoff concept, as so presented, and suggested that
representatives of Brooke Group and RJR Nabisco meet to explore the spinoff in
greater detail. Subsequently, on May 22, 1995 and May 24, 1995, representatives
of Brooke Group met with representatives of RJR Nabisco to review particular
aspects of the spinoff and the relationship between the spinoff and other
aspects of RJR Nabisco's business strategy. The RJR Nabisco representatives
indicated skepticism about whether the spinoff would increase stockholder value.
They also expressed concerns about the possibility that the spinoff would be
challenged as a fraudulent conveyance (although asserting that such a challenge
would be without merit), and would be contrary to the policy previously adopted
by the RJR Nabisco Board with respect to a spinoff (although acknowledging that
the subject policy could be changed by the Board in response to changed
circumstances, and could be changed by directors evaluating the policy for the
first time). At these meetings, Brooke Group's representatives set forth Brooke
Group's view that the risks, to the corporation and to the directors personally,
attending a spinoff of Nabisco were negligible.
Brooke Group's representatives also stated that, in the event the incumbent
directors of RJR Nabisco were unwilling to take action to spin off Nabisco as a
result of these concerns, Brooke Group would be willing to engage in a
transaction to effect the spinoff, pursuant to which (i) the tobacco interests
of Liggett would be combined with RJR Nabisco's tobacco business, (ii) the
incumbent RJR Nabisco directors would be replaced by nominees of Brooke Group
and (iii) the Brooke Group nominees would vote to spin off Nabisco. As
originally described by Mr. LeBow to Mr. Harper, this transaction would have
required a refinancing of $3 billion of existing RJR Nabisco bank debt, and Mr.
LeBow suggested that the Liggett interest should consist of 20% of the combined,
post-spinoff tobacco company. Mr. Harper commented that such percentage was too
large a participation, and was told by Mr. LeBow that this proposal was an
initial one, was not fixed and was entirely negotiable. No other material terms
were discussed at the meeting between Messrs. LeBow and Harper thereafter.
During the meeting on May 24, 1995, Brooke Group's representatives explained
that their plan would require RJR Nabisco to provide a stockholder list and
access to books and records, as required by Delaware Law, and would require a
special meeting of RJR Nabisco stockholders to approve the transactions.
RJR Nabisco's representatives responded that they perceived at least two
obstacles to Brooke Group's proposal. First, they suggested that, based upon the
small number of votes cast in favor of the stockholder proposal at the 1995
annual meeting, there was little stockholder interest in an immediate spinoff of
Nabisco; according to RJR Nabisco's representatives, this would inhibit their
discretion to invoke the corporate machinery or the provisions of Delaware Law
to allow Brooke Group's plan to advance. Second, they suggested that Brooke
Group, on its own, was not sufficiently credible as a merger partner. RJR
Nabisco's representatives stated that these
20
deficiencies would, in their view, cause the incumbent RJR Nabisco directors to
be named as defendants in a fraudulent conveyance action even if a slate of
directors proposed by Brooke Group actually authorized and implemented the
spinoff. RJR Nabisco's representatives did, however, indicate that they would be
interested to hear from Brooke Group how it might propose to address these
obstacles, and suggested that the parties might speak in several months, after
RJR Nabisco had completed its debt exchange offer.
On June 5, 1995 the debt exchange offer was consummated. In connection with
the exchange, Nabisco, Inc. and RJRN replaced their existing credit agreements
with new credit facilities, Nabisco, Inc. used the proceeds of borrowing under
its new credit facility to repay substantially all of its remaining intercompany
debt to RJRN, and RJRN used the cash proceeds received from Nabisco, Inc.,
together with additional borrowings under its new credit agreement, to repay all
outstanding borrowings under its old credit facilities.
Representatives of RJR Nabisco and Brooke Group next met on July 19, 1995.
At this meeting, Brooke Group's representatives reiterated their belief that an
immediate spinoff of Nabisco was in the best interests of RJR Nabisco's
stockholders and should be implemented by the RJR Nabisco Board. Brooke Group's
representatives also attempted to address the two concerns raised by RJR
Nabisco's representatives on May 24, 1995. At the conclusion of this meeting,
RJR Nabisco's representatives stated that they would continue to evaluate the
spinoff matter and asked for additional information from Brooke Group concerning
the economics of a possible merger with Liggett to implement the spinoff, which
was provided shortly thereafter.
On August 11, 1995, New Valley Corporation, an affiliate of Brooke Group
("New Valley"), filed a notification and report form under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR") with respect to the potential
acquisition of up to 15% of the outstanding voting securities of RJR Nabisco. On
the same date, as required by the HSR, New Valley notified RJR Nabisco of this
filing.
Thereafter, representatives of RJR Nabisco contacted representatives of
Brooke Group and requested another meeting for the purpose of reviewing in
greater detail information concerning the value of Liggett. This meeting took
place on August 22, 1995. At this meeting, which for the first time included
financial advisors to RJR Nabisco, Brooke Group's representatives responded to
questions raised by RJR Nabisco's representatives and expressed their view of
Liggett's value. Brooke Group's representatives underscored Brooke Group's
interest in effectuating a spinoff of Nabisco.
On August 21, 1995, without informing Brooke Group or the public, the Board
amended the Bylaws to eliminate the stockholders' right to call a special
meeting and to impose burdensome new requirements for stockholders who seek to
act by written consent without a meeting. The new procedure in the Bylaws for
stockholders to act by written consent requires any stockholder who seeks to act
by written consent to notify the Secretary of RJR Nabisco and to request the
Board to fix a record date. The Board then has 10 days to adopt a resolution
fixing a record date (which may be up to 10 days from the date of such
resolution). The new procedure also provides for the hiring of inspectors to
perform a "ministerial review" of written consents received by RJR Nabisco
before any action by written consent may become effective.
On August 29, 1995, the Federal Trade Commission notified Brooke Group and
RJR Nabisco that the waiting period under the HSR Act with respect to Brooke
Group's HSR notifica-
21
tion had been terminated. Later that day, RJR Nabisco issued a press release in
which RJR Nabisco stated, among other things, that it had determined that Brooke
Group's proposal was "neither viable nor in the best interests of RJR Nabisco's
shareholders."
On September 7, 1995, The Wall Street Journal reported that, in response to
inquiries regarding public speculation that Brooke Group might seek to call a
special meeting of stockholders, a spokeswoman for RJR Nabisco had asserted that
only the Chairman or the Board of Directors of RJR Nabisco had the right to call
a special meeting. Following this report, a number of prominent stock market
analysts speculated publicly that the Board had amended the Bylaws to eliminate
the right of stockholders to call a special meeting. On September 20, 1995,
Reuters reported that a spokeswoman for RJR Nabisco had confirmed this
speculation. In this report, the spokeswoman was quoted as saying that RJR
Nabisco had eliminated stockholders' right to call a meeting in order to "make
[the Bylaws] more consistent with other companies." She declined to comment on
when this amendment had been made, nor did RJR Nabisco disclose that the Board
had also amended the Bylaws to add the new written consent procedure.
On October 17, 1995, Brooke Group and its wholly-owned subsidiary BGLS
entered into an agreement with High River, an entity owned by Carl C. Icahn. New
Valley and ALKI Corp., a subsidiary of New Valley ("ALKI"), also entered into a
separate agreement with High River at that time. Pursuant to each of these
agreements, the parties agreed to take certain actions designed to cause RJR
Nabisco to effectuate a spinoff of Nabisco at the earliest possible date. These
actions are discussed in detail below, see "Certain Information Concerning
Brooke Group."
On October 30, 1995, Bennett S. LeBow, the Chairman of the Board, President
and Chief Executive Officer of Brooke Group, sent the following letter to each
of the members of the RJR Nabisco Board:
We at Brooke Group Ltd. believe that it's time to spin off Nabisco. We
believe that the market value of RJR Nabisco can be increased by as much as
50% as a result of a spinoff. The immediate and significant increase in
value that can be obtained for the Company's stockholders is recognized by
most knowledgeable investors.
Earlier this year, however, the Board vigorously opposed a resolution
proposed at the annual meeting by two stockholders that would have
recommended that management take steps to separate the tobacco and non-
tobacco businesses. The Board's stated reasons for opposing this initiative
were its prediction that the Company's stock would be boosted by the 1994
partial sale of Nabisco and by the Company beginning to pay a quarterly
dividend of 37-1/2 cents. Notably, the Board expressed its desire not to
be constrained by any specific program or timetable, putting off action
into the vague future. Since the Board's defeat of this small group of
stockholders, the Board has touted its victory as a sign that stockholders
do not want a spinoff. What the Board now ignores is that its predictions
about the benefits to our stock price were totally wrong.
Last year's sale of less that 20% of Nabisco has done nothing to
improve RJR Nabisco's stock price. The real beneficiaries were the banks
and bondholders. In order to maintain debt ratings at the time of the sale,
the Board adopted an anti-spinoff policy, declaring that they would not
allow a spinoff of Nabisco until 1997 at the earliest, and that even then
they would not allow a spinoff before 1999 if RJR Nabisco's debt ratings
22
would fall below investment grade. While the banks and other creditors
benefit from this policy, it is harming the stockholders.
The Company's stock price has continued to suffer, as you well know.
Rather than addressing its problems forthrightly through a complete
separation of the tobacco and food businesses, the Company has resorted
repeatedly to half-measures and quick fixes. Recently, the Board put John
Greeniaus, the head of Nabisco, in charge of its faltering tobacco
business. At that time, RJR Nabisco's spokeswoman admitted: "It's clear
that we need to strengthen our share performance. . . . That's one reason
why the marketing expertise of John Greeniaus could bring some additional
talent to that operation." When it was pointed out to her that this change
would be short-term if there was a spinoff, she commented: "There's nothing
temporary about this. We have no plans to split this company."
In moving John Greeniaus to cover both tobacco and foods, the Board is
diluting his attention and impact, and impractically trying to meld
unrelated businesses rather than sensibly split them. It is worth noting
that Nabisco's current earnings have slipped below expectations.* Most
recently, the Company announced that it expects poor performance for the
rest of 1995 and through 1996.
In the face of mounting evidence that its strategy has failed, the
Board apparently is no longer willing to let stockholders' voices be heard.
Soon after we presented the management with our spinoff proposal, the Board
acted secretly to eliminate the right of stockholders to call a special
meeting. When first asked by the press about the right to call a special
meeting the Company's spokeswoman maintained that "only the Chairman or the
board of directors can call a special meeting." This was ill-advised lack
of candor. When the secret action to cut out stockholder rights came to
light, the Company's spokeswoman then attempted to justify it by claiming
that the Board "changed the bylaws to make them more consistent with other
companies." This flimsy pretext cannot disguise the true nature of the
Board's grab for power -- which deprives stockholders of a right that RJR
Nabisco's bondholders continue to hold -- the right to convene a special
meeting at which they can express their views to management.
We and our affiliates hold a major position in RJR Nabisco stock. We
have entered into a binding agreement with Carl Icahn, who has agreed to
support our efforts. Together, we currently hold approximately 13 million
RJR Nabisco shares, making us the Company's second largest stockholder,
based on publicly available information. Other dissatisfied stockholders
have indicated publicly that they are interested in a spinoff.
We are today requesting a stockholders' list. In the next few days we
will be filing materials with the Securities and Exchange Commission for a
solicitation of stockholders. We will be soon asking them to adopt a
resolution advising the Board to
- ----------
* The New York Times reported on October 24, 1995 that Nabisco's net income
fell 20% in the third quarter of 1995 from the third quarter of 1994.
Nabisco stated that earnings per share fell to $.20 from $.28 in the third
quarter of 1994. It was further reported that, according to the average
estimate of 8 analysts surveyed by Zacks Investment Research, "Wall Street
had been expecting profits from operations of 29 cents." Mr. Greeniaus,
Nabisco's Chief Executive Officer was quoted as saying, "Our third-quarter
results are disappointing to us." This footnote did not appear in Mr.
LeBow's letter.
23
spin off Nabisco. We will also be asking them to vote to roll back the
change in the Company's by-laws to once again allow stockholders to be able
to call special meetings. We believe, as you must have when you changed the
Company's by-laws, that 25% or more of the outstanding shares would have
acted to call a special meeting, as permitted under the old by-laws, to
express their interest in a spinoff. In our impending solicitation, we
believe that other dissatisfied stockholders will join that nucleus.
There have been numerous reports by analysts and in the press which
indicate that the Board members' misguided fears of personal liability are
preventing the Board from entertaining and effectuating a spinoff. Recent
events have lent credence to these reports.
We believe that any actions the Board may take which would, directly
or indirectly, make it more difficult to effect a spinoff would be contrary
to the Board's fiduciary obligations to the stockholders, reflecting the
Board's effort, at the expense of the stockholders, to avoid a risk of
personal liability which we believe to be negligible. Should the Board
undertake any such actions, we will hold the directors personally
accountable and will strive, among other things, to assure that such
self-interested conduct is not indemnified by the Company or otherwise
underwritten by the stockholders.
As we indicated above, after our last meeting with you, the Board
acted in secret, behind the backs of the stockholders, to restrict the
ability of stockholders to take action at a special meeting, and then the
management attempted to mislead the press. Given the spotlight of public
scrutiny now upon you, we doubt that you would give serious thought to any
further such actions without notice to and approval of the stockholders.
Rest assured that we will react vigorously to prevent or nullify any Board
action which in our view makes more difficult the free exercise of
stockholder choice to spin off Nabisco.
We believe that it is time to spin off Nabisco, and that the
stockholders are entitled to the benefits of a spinoff now. We will be
proposing a slate of Directors for the annual meeting next year to
facilitate implementation of a spinoff resolution -- if the Board does not
follow the stockholders' advice. The Company's by-laws require us to
propose a slate by November 20, 1995, and we will be doing so to avoid
losing any rights. However, if the Company unequivocally commits to effect
a spinoff immediately, we will happily terminate our solicitation of
stockholders.
On October 31, 1995, Liggett caused its nominee, Cede & Co., to deliver to
RJR Nabisco a demand for a stockholder list and certain other information. Later
that day, Mr. LeBow received a letter from Charles M. Harper, the Chairman of
the Board of RJR Nabisco, reading in full as follows:
The RJR Nabisco board of directors has met to consider your October 30
letter demanding an immediate separation of our food and tobacco
businesses. The board rejects your demand and your characterization of its
position. As you know, the board has been and continues to be fully
committed to a spin-off of Nabisco Holdings Corp. The board will accomplish
a spin-off just as soon as it is able to determine that the
24
spin-off is in the best interests of all the shareholders and consistent
with the corporation's commitments.
There is absolutely no need for a shareholder referendum on the
spin-off question. Based on discussions with shareholders, we know that a
majority are in favor of a spin-off just as soon as it can be reasonably
accomplished. In short, they agree with the board's position on this
matter.
The board has considered several significant transactions in the past
few years that would have resulted in a spin-off of Nabisco Holdings.
However, before being able to proceed, serious issues arose that forced the
corporation to not go forward. In order for a spin-off to be in the best
interests of the shareholders, it must meet three conditions:
o It must be tax-free;
o It must be accomplished in a manner that avoids long litigation
delays and the resulting uncertainty that would erode shareholder
value; and
o It must preserve the financial integrity of both the food and
tobacco businesses.
The board has periodically reviewed the spin-off issue and has
consulted with independent financial, tax and legal advisors and, to repeat
a point that needs no repeating, the board continues to be in favor of a
spin-off. Again, the board has authorized me to inform you and all the
shareholders that the corporation will spin-off Nabisco Holdings as soon as
the spin-off can be completed in a manner that the board determines is in
the best interests of the shareholders and is consistent with the
corporation's commitments.
Your threatened consent solicitation would, if carried out, endanger
this company's ability to successfully effect a spin-off at what would be
the right time. The more your actions focus attention on the
non-business-related aspects of such a transaction and the more your
actions ignore the current litigative situation, the greater the likelihood
that a development will arise to jeopardize the possibility of ever
completing a spin-off. That's not in the shareholders' interest.
Apart from an unnecessary referendum on the spin-off, you are, of
course, free to solicit proxies to elect a new board of directors at the
annual meeting of shareholders. We do not believe the shareholders will
support you and turn over to you control of their $9 billion investment.
Your proposal ignores the current dangers a spin-off presents for all
shareholders and fails to recognize the binding financial commitments the
company has made in the past. We do not believe our shareholders will
support your express intention to cause the corporation to violate its
commitments to the holders of our securities.
Our intention has been and continues to be to effect a separation of
our food and tobacco businesses. Given that both the litigative and policy
environments are currently at their most uncertain points in the company's
history, pursuing a consent solicitation to attempt to force a separation
of the businesses now is not only imprudent, it is irresponsible.
Also on October 31, 1995, RJR Nabisco filed the 1995 Third Quarter 10-Q,
which included a copy of its then current By-Laws as an exhibit. This filing was
the first time that RJR Nabisco had
25
made its then current By-Laws publicly available since the Board's August 21,
1995 amendments were made. The filing also disclosed for the first time the
addition of the burdensome new written consent procedure.
On November 7, 1995, Mr. Harper sent a letter to the stockholders of RJR
Nabisco. The Board of Directors of RJR Nabisco filed with the SEC its Revocation
of Consent Statement in connection with the Board's opposition to the
solicitation by Brooke Group on November 9, 1995. On November 14, 1995, Mr.
LeBow sent a letter to the stockholders of RJR Nabisco. On November 20, 1995,
Brooke Group, acting to preserve its right to nominate a slate of directors at
RJR Nabisco's 1996 annual stockholders' meeting in the event RJR Nabisco does
not irrevocably commit to effectuate an immediate spinoff of Nabisco, submitted
to RJR Nabisco information with respect to nominees committed to an immediate
spinoff of Nabisco. Also, on November 20, 1995, RJR Nabisco filed a lawsuit in
U.S. District Court for the Middle District of North Carolina, naming Brooke
Group and Messrs. LeBow and Icahn as defendants. On November 20, 1995, Brooke
Group filed an action in the United States District Court of the Southern
District of Florida, naming RJR Nabisco and its tobacco subsidiary R.J. Reynolds
Tobacco Company("RJ Reynolds") as defendants. See "Certain Litigation" below.
On December 5, 1995, RJR Nabisco again filed its amended and restated
By-Laws in its Current Report on Form 8-K, dated December 5, 1995. The filing
did not disclose any additional By-Law amendments to which Brooke Group
currently objects. On December 11, 1995 and December 21, 1995, Mr. LeBow sent
letters to stockholders of RJR Nabisco. On December 19, 1995, Mr. Goldstone sent
a letter to the stockholders of RJR Nabisco.
CERTAIN LITIGATION
On November 20, 1995, RJR Nabisco filed an action against Brooke Group, Mr.
LeBow and Mr. Icahn in the United States District Court for the Middle District
of North Carolina. In that action, RJR Nabisco alleges that Brooke Group, LeBow
and Icahn violated sections 14(a) and 10(b) of the Securities Exchange Act of
1934, as amended, and Rules 14a-9 and 10b-5 promulgated thereunder, by allegedly
making materially false or incomplete statements concerning the purpose and
background of "their" consent solicitation. RJR Nabisco seeks temporary and
permanent injunctions barring Brooke Group, LeBow and Icahn from proceeding with
the consent solicitation until such time as they remedy the alleged disclosure
obligation violations. RJR Nabisco is alleging that Brooke Group, LeBow and
Icahn secretly attempted to form a group of investors to purchase a 21% interest
in RJR Nabisco on the open market, with the ultimate goal of combining the
tobacco businesses of RJR Nabisco and Brooke Group. According to the complaint,
the principal purpose for such a combination is to eliminate certain alleged
actual or potential issues with which Brooke and/or New Valley may be confronted
under the Investment Company Act of 1940. Mr. LeBow is alleged to have met with
persons involved in the international tobacco business in furtherance of this
claimed secret plan. Brooke Group and Mr.LeBow filed a motion to dismiss or
transfer the North Carolina action on December 13, 1995. On December 20, 1995,
Brooke Group, Mr. LeBow, and Mr. Icahn filed answers to the Complaint, and
Brooke Group and Mr. LeBow filed a counterclaim to this action. All defendants
denied RJR Nabisco's allegations, and Brooke Group and Mr. LeBow alleged in
their counterclaim that RJR Nabisco violated Section 14(a) of the Exchange Act,
and Rule 14a-9 promulgated thereunder, by making false and misleading statements
in, and by omitting material information from, communications and disclosures to
stockholders in opposition to Brooke Group's proposed consent soli-
26
citation. The relief sought includes RJR Nabisco and its affiliates being
preliminarily and permanently enjoined from soliciting stockholders either to
grant revocations of consent or to withhold consents from Brooke Group.
RJR Nabisco's allegations directly contradict the repeated public
statements made by Mr. LeBow that the sole purpose of this solicitation is to
ask the stockholders of RJR Nabisco to inform RJR Nabisco's Board that they
desire an immediate spinoff of Nabisco. As Mr. LeBow has repeatedly stated, and
as we are reaffirming in this Consent Statement, we will abandon this
solicitation if the current RJR Nabisco Board of Directors unequivocally commits
to effectuate an immediate spinoff and allow stockholders to realize the true
value of their investment.
Simultaneously with its submission to RJR Nabisco of the names of nominees,
Brooke Group filed an action against RJR Nabisco and RJ Reynolds in the United
States District Court of the Southern District of Florida. In the action, Brooke
Group is seeking a declaratory judgment that the nominees are not barred from
serving as directors of RJR Nabisco under the terms of Section 8 of the Clayton
Act, 15 U.S.C. ss. 19 (the "Clayton Act"). Brooke Group brought the action
because it anticipated that RJR Nabisco would commence litigation under the
Clayton Act in an attempt to interfere with Brooke Group's right to nominate
and/or elect a slate of directors committed to an immediate spinoff of Nabisco.
Brooke Group believes that any such potential litigation would be meritless. In
response to Brooke Group's action for declaratory judgment, RJ Reynolds and RJR
Nabisco filed a motion to dismiss. Brooke Group filed a memorandum of law in
opposition to such motion on December 27, 1995.
CERTAIN INFORMATION CONCERNING BROOKE GROUP
Brooke Group is principally engaged, through its ownership of Liggett, in
the manufacture and sale of cigarettes and, through its affiliate, New Valley,
in the acquisition of operating companies. Brooke Group also has investments in
a number of additional companies engaged in a diverse group of businesses. The
principal executive offices of Brooke Group are located at 100 S.E. Second
Street, Miami, Florida 33131.
Brooke Group beneficially owns, directly, 200 shares of Common Stock.
Brooke Group beneficially owns 100% of the outstanding capital stock of BGLS,
which beneficially owns 100% of the outstanding capital stock of Liggett.
Liggett beneficially owns, directly, 200 shares of Common Stock and beneficially
owns, directly, 1,000 shares of Class A Common Stock, par value $.01 per share,
of Nabisco. In addition, BGLS directly and indirectly owns 618,326 Class A
Senior Preferred Shares (approximately 56% of such class), 250,885 Class B
Preferred Shares (approximately 9% of such class) and 79,794,229 Common Shares,
(approximately 42% of such class), of New Valley, which beneficially owns all of
the outstanding capital stock of ALKI which beneficially owns, directly,
4,892,550 shares of Common Stock, or approximately 1.8% of the outstanding
Common Stock. Bennett S. LeBow, who is the Chairman of the Board, President and
Chief Executive Officer of Brooke Group and of BGLS, may be deemed to be the
beneficial owner of 10,521,208 shares of common stock of Brooke Group, or
approximately 56.8% of Brooke Group's outstanding common stock, and thus may be
deemed to control Brooke Group. The disclosure of this information shall not be
construed as an admission that Mr. Lebow is the beneficial owner of any of the
Common Stock owned by Brooke Group, BGLS, New Valley, ALKI and/or Liggett either
for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended, or for any other purpose, and such beneficial ownership is expressly
disclaimed.
27
Likewise, Brooke Group beneficially owns 200 shares of Common Stock
directly, and may be deemed to beneficially own, indirectly, the 4,892,550
shares of Common Stock owned by ALKI and the 200 shares of Common Stock owned by
Liggett. The disclosure of this information shall not be construed as an
admission that Brooke Group is the beneficial owner of any of the Common Stock
owned by ALKI and/or Liggett, either for purposes of Section 13(d) of the
Exchange Act or for any other purpose, and such beneficial ownership is
expressly disclaimed.
For the same reasons, BGLS may be deemed to beneficially own, indirectly,
the 4,892,550 shares of Common Stock owned by ALKI and the 200 shares of Common
Stock owned by Liggett. The disclosure of this information shall not be
construed as an admission that BGLS is the beneficial owner of any of the Common
Stock owned by ALKI and/or Liggett, either for purposes of Section 13(d) of the
Exchange Act or for any other purpose, and such beneficial ownership is
expressly disclaimed.
For information concerning the directors and executive officers of Brooke
Group, see Annex B. For information about the number of RJR Nabisco Voting
Securities beneficially owned by certain principal stockholders and members of
RJR Nabisco's management, see Annex C.
On October 17, 1995, Brooke Group and BGLS entered into the High River
Agreement with High River, an entity owned by Carl C. Icahn. High River
beneficially owns 8,013,000 shares of Common Stock. High River agreed in the
High River Agreement to grant a written consent to the Proposals with respect to
all shares of Common Stock held by it, and to grant a proxy with respect to all
such shares in the event that Brooke Group or BGLS seeks to replace the
incumbent Board of Directors of RJR Nabisco at the 1996 annual meeting of
stockholders with a slate of directors committed to effect the spinoff. Brooke
Group and BGLS agreed in the High River Agreement to include, in any
solicitation statement relating to any solicitation of (i) stockholder demands
to call a special meeting, (ii) written consents or (iii) proxies, in respect of
a proposal to elect an opposing slate of directors, a pledge to the effect that
Brooke Group, BGLS and their affiliates (the "BGL Group") (A) will not engage in
certain mergers, material sales of stock or assets or other transactions
(including a sale of Liggett or shares of Common Stock to RJR Nabisco) providing
a material benefit to the BGL Group not available to other stockholders of RJR
Nabisco (each, a "Business Combination"), other than a Business Combination
consummated simultaneously with or subsequent to a spinoff of RJR Nabisco's
remaining equity interest in Nabisco or another transaction providing
substantially equivalent value to stockholders ("Permitted Business
Combination") (I) prior to the 1996 annual meeting of RJR Nabisco stockholders,
or earlier if the BGL Group is unsuccessful in (a) a solicitation of stockholder
demands to call a special meeting, (b) a solicitation of consents or proxies to
approve certain proposals or (c) having its nominees elected to constitute a
majority of RJR Nabisco's directors, or (II) during such time as nominees of the
BGL Group constitute a majority of the directors of RJR Nabisco; (B) prior to
the consummation of a spinoff of Nabisco, will not exercise management control
over Nabisco or Nabisco, Inc. or become involved in the ordinary course of its
business and will use its best efforts to ensure that a majority of the present
directors of Nabisco and Nabisco, Inc. remain as directors; and (C) will halt
any solicitation of stockholders demands, consents or proxies if the RJR Nabisco
Board effects a spinoff of Nabisco or a substantially equivalent transaction.
Similarly, High River agreed not to engage in or propose any Business
Combination prior to the earliest of (x) the later of the 1997 annual meeting of
stockholders of RJR Nabisco and the first anniversary of the termination of the
High River Agreement (the "Reference Date"), (y) any termination of the High
River Agreement that occurs at or after certain termination events relating to
failures or an inability to
28
effect the transactions contemplated by the High River Agreement ("Termination
Events") and (z) any termination of the High River Agreement by Brooke Group or
BGLS, or the New Valley Agreement (as defined below) by New Valley or ALKI, at a
time when High River is not in material breach of its obligations.
The High River Agreement will automatically terminate on October 17, 1996
or upon the earlier termination of the New Valley Agreement (as defined below)
by High River. In addition, any party to the High River Agreement may terminate
it at any time, although the terminating party will be required to pay a fee of
$50 million to the nonterminating party if no Termination Event has occurred and
the nonterminating party is not in material breach of its obligations. The High
River Agreement also provides that any party may terminate the High River
Agreement and be entitled to receive a fee of $50 million from the
nonterminating party if the nonterminating party is in material breach of its
obligations and no Termination Event has occurred. The High River Agreement
further provides that BGLS will be required to pay a $50 million fee to High
River upon the consummation of a Business Combination (including a Permitted
Business Combination) between the BGL Group and RJR Nabisco if (x) such Business
Combination is consummated prior to the Reference Date, (y) a legally binding
agreement to enter into a Business Combination is entered into prior to the
Reference Date and such Business Combination is consummated prior to the second
anniversary of the date of such agreement or (z) nominees of BGL are elected to
constitute a majority of the directors of RJR Nabisco prior to the Reference
Date and a Business Combination is consummated prior to the fifth anniversary of
the date of such election. Finally, the High River Agreement provides that High
River will be entitled to a payment equal to 20% of the net profit with respect
to Common Stock held or sold by New Valley, ALKI or the BGL Group, after
deduction of certain expenses, including the costs of this solicitation and
certain proxy solicitations by the BGL Group and the costs of acquiring the
shares of the Common Stock (all of which expenses will be borne by New Valley,
ALKI or the BGL Group). Notwithstanding any such termination, the obligations of
the BGL Group and of High River not to engage in a Business Combination with RJR
Nabisco or the other activities described above will continue for the periods
described above.
Also on October 17, 1995, New Valley and ALKI Inc., a subsidiary of New
Valley ("ALKI"), entered into a separate agreement with High River, as amended
(the "New Valley Agreement"). Pursuant to the New Valley Agreement, New Valley
sold 1,611,550 shares of Common Stock to High River for an aggregate purchase
price of $51,000,755, thereby approximately equalizing the number of shares of
Common Stock and total investment therein by the parties. In addition, the
parties agreed that each of New Valley and ALKI, on the one hand, and High River
and its affiliates, on the other hand, would invest up to approximately $150
million in shares of Common Stock, and may invest up to approximately $250
million in shares of Common Stock in order to maximize profits. The obligations
of the parties to make any investments is subject to their ability to obtain and
maintain margin loans (using the shares of Common Stock purchased by them as
collateral) to fund the purchases, and to certain provisions of the New Valley
Agreement which do not require any party to purchase shares of Common Stock to
the extent the purchase price would exceed certain hurdles ($35.50 per share in
respect of the first $150 million in investments by each party, and $31.00 per
share in respect of the next $100 million in investments). New Valley and ALKI
also agreed in the New Valley Agreement to grant a stockholder demand, written
consent or proxy with respect to all shares of Common Stock held by them in the
event that Brooke Group or BGLS seeks to call a special meeting of stockholders,
obtain the approval of any
29
of the Proposals or replace the incumbent Board of Directors of RJR Nabisco at
the 1996 annual meeting of stockholders. The New Valley Agreement automatically
terminates at the same time, and is subject to earlier termination by the
parties under the same circumstances as the High River Agreement. The parties to
the New Valley Agreement are required to pay fees in the same amounts and
generally under the same circumstances as described above under the High River
Agreement, although the fees payable to a party under the High River Agreement
generally will be offset by fees paid to such party under the New Valley
Agreement, and fees payable to a party under the New Valley Agreement generally
will be offset by fees paid to such party under the High River Agreement.
NO MATTER HOW MANY SHARES YOU OWN, YOUR CONSENT TO THE PROPOSALS IS VERY
IMPORTANT. PLEASE HELP US TO MAXIMIZE STOCKHOLDER VALUE BY COMPLETING, SIGNING
AND DATING THE ENCLOSED CONSENT AND RETURNING IT PROMPTLY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS NECESSARY IF THE ENVELOPE IS MAILED IN THE UNITED
STATES.
Sincerely,
BROOKE GROUP LTD.
December 29, 1995
30
ANNEX A
BYLAW PROVISION GOVERNING WRITTEN CONSENT PROCEDURE
Brooke Group proposes to eliminate Article I, Section 9 of the Bylaws which
currently reads as follows:
"Section 9. Record Date for Action by Written Consent; Inspectors and
Effectiveness.
(a) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within 10 days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business or to any officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded, to the attention of the Secretary of the Corporation. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
applicable law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the date on which the Board of Directors adopts the resolution
taking such prior action.
(b) In the event of the delivery, in the manner provided by Section 9(a),
to the Corporation of the requisite written consent or consents to take
corporate action and/or any related revocation or revocations, the Corporation
shall engage nationally recognized independent inspectors of elections for the
purpose of promptly performing a ministerial review of the validity of the
consents and revocations. For the purpose of permitting the inspectors to
perform such review, no action by written consent without a meeting shall be
effective until such date as the independent inspectors certify to the
Corporation that the consents delivered to the Corporation in accordance with
Section 9(a) represent at least the minimum number of votes that would be
necessary to take the corporate action. Nothing contained in this paragraph
shall in any way be construed to suggest or imply that the Board of Directors or
any stockholder shall not be entitled to contest the validity of any consent or
revocation thereof, whether before or after such certification by the
independent inspectors, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).
(c) Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within 60 days of the
earliest dated written consent delivered in accordance with Section 9(a), a
written consent or consents signed by a sufficient number of stockholders to
take such action are delivered to the Corporation in the manner prescribed in
Section 9(a)."
A-1
ANNEX B
INFORMATION CONCERNING THE DIRECTORS
AND EXECUTIVE OFFICERS OF BROOKE GROUP AND ADDITIONAL INFORMATION
The following table sets forth the name and the present principal
occupation or employment of the directors and executive officers of Brooke Group
and the name, principal business and address of any corporation or other
organization in which such employment is carried on. Unless otherwise indicated,
the principal business address of each director or executive officer is 100 S.E.
Second Street, Miami, Florida 33131.
Principal Office or Other
Name and Principal Principal Occupation or
Business Address Employment
- ------------------ -------------------------
Bennett S. LeBow ................ Chairman of the Board, President and Chief
Executive Officer of Brooke Group.
Chairman of the Board, President and Chief Executive Officer
of BGLS. Member of the Board of Directors of Liggett.
Chairman of the Board and Chief Executive Officer
of New Valley. Chairman of the Board, President and
Chief Executive Officer of ALKI Corp.
Gerald E. Sauter ................ Vice President, Chief Financial Officer and Treasurer
of Brooke Group. Vice President, Chief Financial
Officer and Treasurer of BGLS. Vice President, Chief
Financial Officer and Treasurer and member of the Board
of Directors of New Valley. Vice President, Chief Financial
Officer and Treasurer of ALKI Corp.
Robert J. Eide .................. Director of Brooke Group. Director of BGLS. Secretary and
70 E. Sunrise Hwy. Treasurer of Aegis Capital Corp., a registered broker-dealer.
Valley Stream, NY 11581
Jeffrey S. Podell ............... Director of Brooke Group. Director of BGLS. Chairman of the
26 Jefferson St. Board and President of Newsote, Inc., the Passaic, NJ
Passaic, NJ 07055 parent of Pantasote, Inc., a former manufacturer of
plastic products.
The persons listed in the above table may be deemed to be "participants" in
the solicitation. Additionally, the following persons may also be deemed to be
participants in the solicitation: Brooke Group, BGLS, Liggett, New Valley,
Andrew E. Balog, Marc N. Bell, Karen Eisenbud, J. Bryant Kirkland, III, Richard
J. Lampen, Howard M. Lorber, Robert M. Lundgren, High River and Carl C. Icahn.
Information on the beneficial ownership of RJR Nabisco stock by Brooke Group,
BGLS, Liggett, New Valley and Mr. LeBow is set forth in the Consent Statement
under the section entitled "Certain Information Concerning Brooke Group." Mr.
Lampen beneficially owns 2,000 shares of Common Stock. High River beneficially
owns directly 8,013,000 shares of Common Stock, and therefore, Mr. Icahn may be
deemed to beneficially own, indirectly, such 8,013,000 shares of Common Stock.
To the best of Brooke Group's knowledge, except as otherwise provided herein,
none of the persons listed in this Annex B owns any shares of RJR Nabisco Voting
Securities.
B-1
ANNEX C
PRINCIPAL STOCKHOLDERS AND STOCK HOLDINGS
OF RJR NABISCO'S MANAGEMENT
Security Ownership of Directors and Executive Officers
The following table (including the footnotes thereto) sets forth certain
information, as of December 11, 1995, the date RJR Nabisco filed its revised
preliminary revocation of consent statement ("Preliminary Revocation Statement")
with the SEC, regarding the beneficial ownership of (i) Common Stock and (ii)
Class A Common Stock, par value .01 per share, of Nabisco, by each director of
RJR Nabisco, by each of the five most highly compensated executive officers of
RJR Nabisco during the fiscal year,** and each associate of any such director or
officer and by all directors and executive officers of RJR Nabisco as a group.
Nabisco was a wholly-owned indirect subsidiary of RJR Nabisco prior to the
January 1995 initial public offering by Nabisco of its Class A Common Stock. As
of December 11, 1995, RJR Nabisco indirectly owned all 213,250,000 shares of
Nabisco Class B Common Stock outstanding, which represents approximately 80.5%
of the economic interest in Nabisco and approximately 97.6% of the combined
voting power of all classes of Nabisco voting stock. Except as otherwise noted,
the persons named in the table do not own any other capital stock of RJR Nabisco
or Nabisco and have sole voting and investment power with respect to all shares
shown as beneficially owned by them. All of the foregoing information and the
information set forth in the table below (including the footnotes thereto) have
been taken from RJR Nabisco's Preliminary Revocation Statement.
Number of Shares
of Nabisco Class A
Number of Shares Percent of Common Stock Percent of
Name of of RJR Nabisco Common Stock RJR Nabisco Beneficially Nabisco Class A
Beneficial Owner Beneficially Owned(1) Common Stock Owned(1)(3) Common Stock
---------------- --------------------------- ------------ ------------------- ---------------
John T. Chain, Jr. (2).............. 8,393 * 1,000 *
Julius L. Chambers (2).............. 6,393 * 0 *
John L. Clendenin (2)............... 6,846 * 500 *
Steven F. Goldstone................. 16,529 * 0 *
H. John Greeniaus (2)............... 126,308 * 10,100 *
Ray J. Groves (2)................... 7,000 * 0 *
Charles M. Harper (2)............... 524,882 0.1920 71,429 0.1380
James W. Johnston (2)(5)............ 114,381 * 1,000 *
John G. Medlin, Jr. (2)............. 7,259 * 1,000 *
Roxanne L. Ridgway (2).............. 6,393 * 0 *
Andrew J. Schindler (2)............. 28,891 * 0 *
All Directors and Officers
as a Group (2)(4)................. 1,351,824 0.4943% 91,229 0.1763%
- ----------
* Less than 0.1%
** Item 5(a) of Schedule 14A of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires that RJR Nabisco disclose the
securities ownership of its directors and executive officers as of the
beginning of the last fiscal year. Item 6(d) of Schedule 14A and Items
403(b) and 402(a)(3) of Regulation S-K of the Exchange Act require that RJR
Nabisco disclose the securities ownership of its five most highly
compensated executives as of the end of the last fiscal year. Item
402(a)(3)(iii) also requires that RJR Nabisco update such disclosures with
the securities ownership of two more executives who are currently among RJR
Nabisco's five most highly compensated
C-1
executives, but did not fall within the group of RJR Nabisco's five most
highly compensated executives at the end of the last fiscal year. Because
several directors and executive officers of RJR Nabisco have resigned since
the end of the last fiscal year, and in order to make the following table
easier to read, RJR Nabisco included only the beneficial ownership of the
current directors and executive officers in such table. RJR Nabisco has
disclosed that it has complied with its obligations under the Exchange Act
by disclosing in the footnotes to this table the beneficial ownership of
the Common Stock by the directors and executive officers who served in such
capacities at the beginning and the end, respectively, of the last fiscal
year but no longer serve in such capacities.
(1) For purposes of this table, a person or group of persons is deemed to be
the "beneficial owner" of any shares that such person has the right to
acquire within 60 days. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above on a
given date, any security that such person or persons has the right to
acquire within 60 days is deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) The number of shares of Common Stock beneficially owned includes (i) 6,393
shares subject to currently exercisable options granted to each of Gen.
Chain, Messrs. Chambers and Clendenin and Ms. Ridgway; 6,000 shares and 393
shares respectively subject to currently exercisable options granted to
each of Messrs. Groves and Medlin; 462,500 and 741,664 shares subject to
currently exercisable options granted to Mr. Harper and all directors and
executive officers as a group, respectively; and (ii) 272, 160, 274, 271
and 2,466 shares of Common Stock currently issuable on conversion of shares
of ESOP Preferred Stock owned by, respectively, Messrs. Greeniaus, Harper,
Johnston, Schindler and all directors and executive officers as a group.
(3) No director or officer of RJR Nabisco holds any options exercisable within
60 days to acquire shares of Nabisco Class A Common Stock.
(4) On March 14, 1995, Kohlberg Kravis Roberts & Co. LLP ("KKR") sold all of
its then remaining holdings in RJR Nabisco. James H. Greene, Jr., Henry R.
Kravis, Paul E. Raether, Clifton S. Robbins, George R. Roberts, Scott M.
Stuart, and Michael T. Tokarz previously served on the Board as
representatives of KKR. Messrs. Greene, Kravis, Raether, Robbins, Roberts,
Stuart and Tokarz (the "KKR Directors") did not run for reelection at RJR
Nabisco's Annual Meeting of Stockholders held on April 12, 1995. Their
respective terms in office expired effective as of that date. RJR Nabisco
has disclosed that it cannot independently verify the exact nature of their
current holdings in RJR Nabisco because they are no longer subject to the
disclosure requirements of Section 16(a) of the Exchange Act, discussed
below. However, their last Section 16(a) filings with the Securities and
Exchange Commission (the "SEC") dated as of April 7, 1995 indicate that, as
of that date, none of the KKR Directors had any beneficial ownership in the
capital stock of RJR Nabisco.
(5) The outstanding shares of Common Stock shown as beneficially owned by Mr.
Johnston include 12,000 shares held in trust for the benefit of Mr.
Johnston's children, as to which Mr. Johnston disclaims beneficial
ownership.
(6) Lawrence R. Ricciardi retired as both an executive officer and a director
of RJR Nabisco effective March 3, 1995. Mr. Ricciardi is no longer subject
to the disclosure requirements of Section 16(a) of the Exchange Act.
Therefore, RJR Nabisco has disclosed that it cannot
C-2
independently verify Mr. Ricciardi's current stock ownership. As of
September 3, 1995, Mr. Ricciardi beneficially owned 407,845 shares of
Common Stock of RJR Nabisco.
(7) Eugene R. Croisant retired as an executive officer of RJR Nabisco effective
March 3, 1995. Mr. Croisant is no longer subject to the disclosure
requirements of Section 16(a) of the Exchange Act. Therefore, RJR Nabisco
has disclosed that it cannot independently verify Mr. Croisant's current
stock ownership. As of September 3, 1995, Mr. Croisant beneficially owned
324,597 shares of Common Stock of RJR Nabisco.
Security Ownership of Certain Beneficial Owners
The following table (including the footnotes thereto) sets forth certain
information, as of December 11, 1995, regarding the beneficial ownership of
persons known to RJR Nabisco to be the beneficial owners of more than five
percent of any class of RJR Nabisco Voting Securities. The information set forth
in the table below (including the footnotes thereto) have been taken from RJR
Nabisco's Preliminary Revocation Statement. Except as otherwise noted, the
persons named in the table below have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
Title Name and Address Number of Shares Percent
of Class of Beneficial Owner Beneficially Owned of Class
-------- ------------------- ------------------ --------
Common Stock FMR Corp.(1)...................................... 35,305,862 12.58%
82 Devonshire Street
Boston, MA 02109
Series C College Retirement Equities Fund(2)............... 1,782,680 6.68%
Conversion 730 Third Avenue
Preferred Stock New York, NY 10017
Series C Brinson Partners, Inc.(3)......................... 1,745,310 6.54%
Conversion 209 South LaSalle
Preferred Stock Chicago, IL 60604-1295
Series C The Prudential Insurance Company
Conversion of America(4)................................... 1,680,205 6.30%
Preferred Stock Prudential Plaza
Newark, NJ 07102-3777
ESOP Convertible Wachovia Bank of North Carolina, N.A.(5).......... 15,187,141 100.00%
Preferred Stock Box 3075, Trust Operations
Winston-Salem, NC 27102
Nabisco Class A Janus Capital Corporation(6)...................... 4,472,875 9.90%
Common Stock 100 Fillmore Street, Suite 300
Denver, CO 80206-4923
Nabisco Class A Tiger Management Corporation(7)................... 9,145,300 17.7%
Common Stock 101 Park Avenue
New York, NY 10178
- ----------
(1) According to Amendment No. 1 to Schedule 13G dated February 13, 1995
jointly filed by FMR Corp. and Edward C. Johnson 3d, Chairman of FMR Corp.
and a member of a controlling group with respect to FMR Corp., the
34,305,862 shares of Common Stock shown as beneficially owned by FMR Corp.
and Mr. Johnson as of December 31, 1994
C-3
include (i) 32,551,043 shares beneficially owned by Fidelity Management &
Research Company, a registered investment adviser and wholly owned
subsidiary of FMR Corp., as a result of acting as investment adviser to
several registered investment companies that own such shares (the "Fidelity
Funds"), (ii) 2,712,180 shares beneficially owned by Fidelity Management
Trust Company ("Fidelity Trust"), a bank and wholly owned subsidiary of FMR
Corp., as a result of serving as investment manager of institutional
accounts, (iii) 10,400 shares owned directly by Mr. Johnson or in trusts
for the benefit of Mr. Johnson or a member of his family and (iv) 65,400
shares beneficially owned by Fidelity International Limited ("Fidelity
International"), an investment advisor of which Mr. Johnson is also
Chairman and a member of a controlling group, but which is managed
independently from FMR Corp. Each of FMR Corp. and Fidelity International
disclaim beneficial ownership of shares beneficially owned by the other.
According to the Schedule 13G, FMR Corp. and Mr. Johnson also beneficially
own 5,165,800 shares of Series C Preferred Stock as a result of (i) the
Fidelity Funds owning 4,071,700 Series C Depositary Shares and (ii) the
institutional accounts managed by Fidelity Trust owning 1,094,100 Series C
Depositary Shares. According to the Schedule 13G, (a) FMR Corp. and Mr.
Johnson each has sole investment power, but neither has sole voting power,
over the shares owned by the Fidelity Funds, (b) FMR Corp. and Mr. Johnson
each has sole investment power over all of, has sole voting power over
certain of, and has no voting power over the remainder of, the shares owned
by the institutional accounts managed by Fidelity Trust and (c) Mr. Johnson
has sole voting and investment power over certain of, has shared voting and
investment power over certain of, and has no voting or investment power
over the remainder of, the shares owned directly by him or in family
trusts. All of the figures in this footnote related to holdings of the
Common Stock have been revised to reflect a one-for-five split of the
Common Stock which occurred on April 12, 1995.
(2) College Retirement Equities Fund, a registered investment company,
beneficially owned 1,782,680 shares of Series C Preferred Stock as of
December 31, 1994 as a result of its beneficial ownership of 17,826,800
Series C Depositary Shares as reported in its Schedule 13G dated February
10, 1995.
(3) According to the Schedule 13G dated February 10, 1995 jointly filed by
Brinson Partners, Inc. ("Brinson Partners"), Brinson Trust Company
("Brinson Trust") and Brinson Holdings, Inc. ("Brinson Holdings"), as of
December 31, 1994 (i) Brinson Partners, a registered investment adviser and
wholly owned subsidiary of Brinson Holdings, beneficially owned 1,238,560
shares of Series C Preferred Stock as a result of its beneficial ownership
of 12,385,600 Series C Depositary Shares and (ii) Brinson Trust, a bank and
wholly owned subsidiary of Brinson Partners, beneficially owned 506,750
shares of Series C Preferred Stock as a result of its beneficial ownership
of 5,067,500 Series C Depositary Shares.
(4) According to the Schedule 13G dated March 10, 1995 filed by The Prudential
Insurance Company of America ("Prudential"), a registered insurance
company, broker-dealer and investment adviser Prudential beneficially owned
an aggregate of 1,680,205 shares of Series C Preferred Stock as of December
31, 1994 as a result of having shared voting and investment discretion over
16,802,050 Series C Depositary Shares which were held for the benefit of
its clients.
C-4
(5) Wachovia Bank holds the shares of the ESOP Preferred Stock in its capacity
as Trustee of the RJR Nabisco Defined Contribution Master Trust. Under the
terms of the Master Trust, Wachovia Bank is required to vote shares of ESOP
Preferred Stock allocated to participants' accounts in accordance with
instructions received from such participants and to vote allocated shares
of ESOP Preferred Stock for which it has not received instructions and
unallocated shares in the same ratio as shares with respect to which
instructions have been received. The holders of the ESOP Preferred Stock
vote as a class with the common stock at a ratio of one vote for each share
of ESOP Preferred Stock for every five shares of the Common Stock. Wachovia
has no investment power with respect to shares of ESOP Preferred Stock.
(6) According to Amendment No. 2 to the Schedule 13G dated September 8, 1995
jointly filed by the Janus Capital Corporation ("Janus Capital"), a
registered investment adviser, and Thomas H. Bailey ("Bailey"), President
and Chairman of, stockholder in, and thereby, a control person of Janus
Capital, Janus Capital and Bailey beneficially own 4,472,875 shares of the
Nabisco Class A Common Stock as a result of shared voting and dispositive
power over such shares held for the benefit of its clients. Such beneficial
ownership includes 4,169,500 shares of the Nabisco Class A Common Stock, or
9.3% of the Nabisco Class A Common Stock outstanding, beneficially owned by
the Janus Fund, a registered investment company to which Janus Capital
provides investment advice.
(7) According to Amendment No. 1 to the Schedule 13G dated June 6, 1995 filed
jointly by Tiger Management Corporation ("Tiger"), Panther Partners L.P.
("Panther") and Panther Management Company L.P. ("PMCLP"), and Julian H.
Robertson, Jr. ("Robertson") as the ultimate controlling person of Tiger
and PMCLP, (i) Tiger, a registered investment adviser, beneficially owned
9,145,300 shares of Nabisco Class A Common Stock, (ii) Panther, a
registered investment company, beneficially owned 744,700 shares of Nabisco
Class A Common Stock, and (iii) PMCLP, a registered investment adviser,
beneficially owned 744,700 shares of Nabisco Class A Common Stock. As
ultimate controlling person of Tiger and PMCLP, Robertson beneficially
owned 9,890,000 shares of Nabisco Class A Common Stock. According to the
Schedule 13G, Tiger, Panther, PMCLP and Robertson, by virtue of his
controlling interest in Tiger and PMCLP, each possess shared voting and
investment discretion over such shares that they respectively beneficially
own on behalf of their clients.
The information concerning RJR Nabisco and Nabisco contained herein has
been taken from or is based upon RJR Nabisco's Preliminary Revocation Statement,
which was filed with the SEC on December 11, 1995. Although Brooke Group does
not have any knowledge that would indicate that any statements contained herein
based on such filing are untrue, Brooke Group does not take responsibility for
the accuracy or completeness of the information contained in such document, or
for any failure by RJR Nabisco to disclose events that may have occurred and may
affect the significance or accuracy of any such information but which are
unknown to Brooke Group.
C-5
IMPORTANT
1. If your shares are held in your own name, please sign, date and mail the
enclosed BLUE consent card to our Information Agent, Georgeson & Company
Inc., in the postage-paid envelope provided.
2. If your shares are held in the name of a brokerage firm, bank nominee or
other institution, only it can execute a consent with respect to your
shares and only upon receipt of your specific instructions. Accordingly,
you should contact the person responsible for your account and give
instructions for a BLUE consent card to be signed representing your shares.
Brooke Group urges you to confirm in writing your instructions to the
person responsible for your account and to provide a copy of those
instructions to Brooke Group in care of Georgeson & Company Inc. so that
Brooke Group will be aware of all instructions given and can attempt to
ensure that such instructions are followed.
If you have any questions or require any assistance in executing your
consent, please call Georgeson & Company Inc. at the following number:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Toll Free: (800) 223-2064
Banks and Brokerage Firms, please call collect:
(212) 440-9800
INTERNET INFORMATION
To access more information about our solicitation on the World Wide Web,
use the following address:
http://www.georgeson.com
APPENDIX
(Pursuant to Rule 304 of Regulation S-T)
1. Page 4 contains a description in tabular form of a graph entitled "One Year
Rate of Return" which represents the comparison of peer group members for
the one year period commencing August 24, 1994 and ending August 28, 1995,
which graph is contained in the paper format of this Consent Statement
being sent to Stockholders.
2. Page 5 contains a description in tabluar form of a graph entitled
"Compounded Annual Rates of Return" which represents the comparison of peer
group members for the period commencing February 1, 1991 and ending August
28, 1995, which graph is contained in the paper format of this Consent
Statement being sent to Stockholders.
3. Page 8 contains a description in tabular form of a graph entitled "Volume
of U.S. Spinoffs" which represents in Dollars the volume of corporate
spinoffs for the five year period from 1991 to 1995 including completed and
pending spinoffs, which graph is contained in the paper format of this
Consent Statement being sent to Stockholders.
[FRONT OF CONSENT CARD FOR HOLDERS OF COMMON STOCK]
CONSENT CARD
Solicited by Brooke Group Ltd.
The undersigned is the record holder of shares of Common Stock, par value
$.01 per share (the "Shares"), of RJR Nabisco Holdings Corp. ("RJR Nabisco") and
hereby acts as follows concerning the following two proposals.
PLEASE SIGN AND DATE REVERSE SIDE AND MAIL YOUR CONSENT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE ENCLOSED.
Unless otherwise indicated below, the action taken on the following
proposals relates to all Shares held by the undersigned.
(Continued and to be signed on the reverse side)
[REVERSE OF CONSENT CARD FOR HOLDERS OF COMMON STOCK]
[X] Please mark your vote as in this example.
INSTRUCTION: TO TAKE ACTION WITH REGARD TO THE FOLLOWING PROPOSALS, CHECK
THE APPROPRIATE BOX. IF NO BOX IS MARKED BELOW WITH RESPECT TO THE PROPOSAL, THE
UNDERSIGNED WILL BE DEEMED TO CONSENT TO SUCH PROPOSAL.
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO THE SPINOFF RESOLUTION.
1. SPINOFF RESOLUTION: relating to the spinoff of Nabisco to the
stockholders of RJR Nabisco.
[ ] CONSENTS [ ] DOES NOT CONSENT [ ] ABSTAINS
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO THE BYLAW AMENDMENT.
2. BYLAW AMENDMENT: relating to reinstating the right of stockholders to
call a Special Meeting and repealing the new procedures governing action by
written consent.
[ ] CONSENTS [ ] DOES NOT CONSENT [ ] ABSTAINS
Please see the Solicitation Statement for additional details regarding the
above Proposals.
Please note any change in your address from that set forth to the left. If
no label has been affixed hereto, please fill in the Stockholder information in
the space provided.
SIGNATURE
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, guardian, corporate officer or
partner, please give full title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a partnership,
please sign a partnership name by authorized person.
_______________________________________________ __________________
Signature(s) of Stockholder(s) Date
_______________________________________________
Title, if any
[FRONT OF CONSENT CARD FOR HOLDERS OF PERCS]
CONSENT CARD
Solicited by Brooke Group Ltd.
The undersigned is the record holder of shares of Series C Conversion
Preferred Stock, par value $.01 per share (the "Shares"), of RJR Nabisco
Holdings Corp. ("RJR Nabisco") and hereby acts as follows concerning the
following two proposals.
PLEASE SIGN AND DATE REVERSE SIDE AND MAIL YOUR CONSENT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE ENCLOSED.
Unless otherwise indicated below, the action taken on the following
proposals relates to all Shares held by the undersigned.
(Continued and to be signed on the reverse side)
[REVERSE OF CONSENT CARD FOR HOLDERS OF PERCS]
[X] Please mark your vote as in this example.
INSTRUCTION: TO TAKE ACTION WITH REGARD TO THE FOLLOWING PROPOSALS, CHECK
THE APPROPRIATE BOX. IF NO BOX IS MARKED BELOW WITH RESPECT TO THE PROPOSAL, THE
UNDERSIGNED WILL BE DEEMED TO CONSENT TO SUCH PROPOSAL.
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO THE SPINOFF RESOLUTION.
1. SPINOFF RESOLUTION: relating to the spinoff of Nabisco to the
stockholders of RJR Nabisco.
[ ] CONSENTS [ ] DOES NOT CONSENT [ ] ABSTAINS
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO THE BYLAW AMENDMENT.
2. BYLAW AMENDMENT: relating to reinstating the right of stockholders to
call a Special Meeting and repealing the new procedure governing action by
written consent.
[ ] CONSENTS [ ] DOES NOT CONSENT [ ] ABSTAINS
Please see the Solicitation Statement for additional details regarding the
above Proposals.
Please note any change in your address from that set forth to the left. If
no label has been affixed hereto, please fill in the Stockholder information in
the space provided.
SIGNATURE
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, guardian, corporate officer or
partner, please give full title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a partnership,
please sign a partnership name by authorized person.
_______________________________________________ __________________
Signature(s) of Stockholder(s) Date
_______________________________________________
Title, if any
[FRONT OF CONSENT CARD FOR HOLDERS OF ESOP PREFERRED STOCK]
CONSENT CARD
Solicited by Brooke Group Ltd.
The undersigned is the record holder of shares of ESOP Convertible
Preferred Stock, par value $.01 per share and stated value $16 per share (the
"Shares"), of RJR Nabisco Holdings Corp. ("RJR Nabisco") and hereby acts as
follows concerning the following two proposals.
PLEASE SIGN AND DATE REVERSE SIDE AND MAIL YOUR CONSENT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE ENCLOSED.
Unless otherwise indicated below, the action taken on the following
proposals relates to all Shares held by the undersigned.
(Continued and to be signed on the reverse side)
[REVERSE OF CONSENT CARD FOR HOLDERS OF ESOP PREFERRED STOCK]
[X] Please mark your vote as in this example.
INSTRUCTION: TO TAKE ACTION WITH REGARD TO THE FOLLOWING PROPOSALS, CHECK
THE APPROPRIATE BOX. IF NO BOX IS MARKED BELOW WITH RESPECT TO THE PROPOSAL, THE
UNDERSIGNED WILL BE DEEMED TO CONSENT TO SUCH PROPOSAL.
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO THE SPINOFF RESOLUTION.
1. SPINOFF RESOLUTION: relating to the spinoff of Nabisco to the
stockholders of RJR Nabisco.
[ ] CONSENTS [ ] DOES NOT CONSENT [ ] ABSTAINS
BROOKE GROUP RECOMMENDS THAT YOU CONSENT TO THE BYLAW AMENDMENT.
2. BYLAW AMENDMENT: relating to reinstating the right of stockholders to
call a Special Meeting and repealing the new procedure governing action by
written consent.
[ ] CONSENTS [ ] DOES NOT CONSENT [ ] ABSTAINS
Please see the Solicitation Statement for additional details regarding the
above Proposals.
Please note any change in your address from that set forth to the left. If
no label has been affixed hereto, please fill in the Stockholder information in
the space provided.
SIGNATURE
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, guardian, corporate officer or
partner, please give full title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a partnership,
please sign a partnership name by authorized person.
_______________________________________________ __________________
Signature(s) of Stockholder(s) Date
_______________________________________________
Title, if any
IMPORTANT
RE: RJR Nabisco Holdings Corp.
Solicitation of Written Consents to Spinoff Resolution
and Bylaw Amendment Made by Brooke Group Ltd.
- -------------------------------------------------------------------------------
To RJR Nabisco Stockholders:
Enclosed for your consideration is soliciting material furnished to us by
Brooke Group Ltd. in connection with their solicitation of your written consent.
Only we, as the holder of record, can execute a written consent on your
behalf.
If you wish us to execute a written consent on your behalf, please
complete, sign, date and mail the BLUE consent card in the postage-free envelope
provided.
WE CANNOT EXECUTE A WRITTEN CONSENT FOR YOUR SHARES UNLESS WE RECEIVE YOUR
SPECIFIC INSTRUCTIONS.
If you have any questions or any difficulty in executing a BLUE consent
card for your shares, please call:
GEORGESON & COMPANY INC.
(800) 223-2064
A REPLY IS NECESSARY TO EXECUTE A CONSENT
PLEASE ACT PROMPTLY
1996 ANNUAL MEETING OF STOCKHOLDERS
OF
RJR NABISCO HOLDINGS CORP.
-------------------
PROXY STATEMENT
OF
BROOKE GROUP LTD.
-------------------
To Our Fellow RJR Nabisco Stockholders:
Based on a preliminary count, over a majority of the outstanding shares of
RJR Nabisco consented to an advisory resolution (the "Spinoff Resolution")
requesting that RJR Nabisco's incumbent board of directors (the "Incumbent
Board") immediately spin off the remaining 80.5% of Nabisco Holdings Corp.
("Nabisco") held by RJR Nabisco to stockholders.* The Incumbent Board and
current management have made it clear on numerous occasions that they will not
listen to your demand for an immediate spinoff of Nabisco. In fact, it was
reported that an RJR Nabisco spokeswoman said that "THE COMPANY WON'T AGREE TO
SPIN OFF NABISCO, EVEN IF AS MANY AS 90% OF THE SHAREHOLDERS FAVOR IT."(1)
Brooke Group is soliciting proxies in favor of a slate of directors who are
committed to listening to stockholders.(2) Hopefully, continued stockholder
pressure will force the Incumbent Board to realize that its primary obligation
is to the RJR Nabisco stockholders. Brooke Group will terminate this proxy
solicitation if, prior to the Annual Meeting, RJR Nabisco irrevocably and
responsibly commits to an immediate spinoff of its remaining equity interest in
Nabisco. See "Certain Information Regarding Brooke Group."
We believe that the Incumbent Board is abusing the fundamental principles
of corporate democracy. Stockholders are the true owners of publicly-traded
companies. Brooke Group believes that, as the true owners, the stockholders have
the right to tell management how best to realize the true value of their
investment. The results of the Spinoff Resolution confirm that stockholders
believe that the benefits of an immediate spinoff of Nabisco are compelling. It
is clear to us, and should be clear to the Incumbent Board, that stockholders
have spoken and favor an immediate spinoff.* Brooke Group believes that the
Incumbent Board's fear of personal liability for hypothetical suits alleging
that a spinoff is a fraudulent conveyance is causing it to prefer its own self
interests over those of the Company's stockholders. We think stockholders have
good reason to question whether the Incumbent Board will ever spin off Nabisco.
- ------------
(1) Bloomberg Business News, January 18, 1996.
(2) This Proxy Statement and the BLUE proxy card are first being furnished to
RJR Nabisco stockholders on or about March 1, 1996. The principal executive
offices of RJR Nabisco are located at 1301 Avenue of the Americas, New
York, New York 10019.
* Brooke Group is not aware of the extent of any revocations obtained by RJR
Nabisco. Final results have not yet been determined and may vary from any
preliminary results.
ELECT THE BROOKE GROUP NOMINEES AS RJR NABISCO DIRECTORS. Brooke Group
remains committed to revitalizing RJR Nabisco and allowing stockholders to
realize the true value of their investment by creating two distinct unaffiliated
companies, each better able to operate and achieve strong results in their
respective businesses. Accordingly, Brooke Group is soliciting your proxy in
support of the election of the nominees (the "Brooke Group Nominees") named
below under "Election of Directors" as the Directors of RJR Nabisco. ALL OF THE
BROOKE GROUP NOMINEES WILL TAKE THE NECESSARY STEPS TO SPIN OFF THE REMAINING
80.5% OF NABISCO IMMEDIATELY AFTER THEY ARE ELECTED AND HAVE ASSUMED OFFICE. If
a spinoff of RJR Nabisco's remaining equity interest in Nabisco is not declared
within six months of their election and assumption of office, the Brooke Group
Nominees will call a special stockholders meeting for the election of directors
at which they may solicit proxies for their re-election. The Brooke Group
Nominees believe that a declaration of a dividend creates a binding commitment
of the Company; however, there can be no assurance that a spinoff would be
completed within the six month period.
The Brooke Group Nominees also intend to increase your dividend. The Brooke
Group Nominees will adopt a new dividend policy with respect to the post-spinoff
tobacco company (the "Tobacco Company") as a means to deliver additional value
on your investment. The Brooke Group Nominees currently anticipate a new
dividend policy providing that at least 60% of the Tobacco Company's Net Cash
Flow (as defined herein) will be declared as cash dividends on the Tobacco
Company common stock. Based on RJR Nabisco's public financial statements, and
analysts' and Brooke Group's estimates, the Brooke Group Nominees expect to
increase the annual dividend of the Tobacco Company to approximately $2.00 per
share of common stock.
The Incumbent Board, however, is attempting to divert your attention from
the real issue and is asserting that Bennett S. LeBow, the Chairman of Brooke
Group, is seeking to gain control of RJR Nabisco to exploit your investment in
the Company. Brooke Group's only desire is to obtain an immediate spinoff of
Nabisco for the benefit of all stockholders. Since the Incumbent Board has
ignored your wishes, Brooke Group is compelled to seek the election of a new
board committed to listening to stockholders. The Brooke Group Nominees have
agreed to the following corporate governance guidelines, discussed in further
detail below, to demonstrate their commitment to shareholder democracy:
o Any extraordinary corporate transaction (other than matters in the
ordinary course of business) between the Tobacco Company and its
subsidiaries and Brooke Group and its affiliates will be subject to
approval of stockholders and a special committee of independent
directors.
o The Brooke Group Nominees will not propose a staggered board of
directors or a poison pill.
o The Brooke Group Nominees will adopt a confidential voting procedure
on all future matters acted upon by stockholders.
o Brooke Group and its affiliates will not exercise any management
control over Nabisco.
o The Brooke Group Nominees will terminate the RJR Nabisco Directors
Retirement Plan for new directors elected at or after the Annual
Meeting.
IF, LIKE US, YOU BELIEVE THAT YOU SHOULD HAVE A VOICE IN DECIDING THE
FUTURE OF RJR NABISCO AND THAT YOU ARE ENTITLED TO RECOGNIZE THE TRUE VALUE OF
YOUR INVESTMENT, WE URGE YOU TO VOTE YOUR BLUE PROXY CARD FOR THE BROOKE GROUP
NOMINEES, WHO ARE COMMITTED TO AN IMMEDIATE SPINOFF OF NABISCO.
2
IMPORTANT
This Proxy Statement and the accompanying BLUE proxy card are being
furnished in connection with the solicitation of proxies by Brooke Group Ltd.
("Brooke Group"), to be used at the 1996 Annual Meeting (the "Annual Meeting")
of Stockholders of RJR Nabisco Holdings Corp. ("RJR Nabisco" or the "Company"),
and at any adjournments, postponements or reschedulings thereof. The Company has
not yet publicly announced the date, time and place of the Annual Meeting.
However, in response to public criticism by Brooke Group, the Company did
announce that the Company plans to hold the Annual Meeting in the third week in
April.
At the Annual Meeting, Brooke Group will seek to elect the Brooke Group
Nominees. The election of the Brooke Group Nominees requires the affirmative
vote of a plurality of the votes cast, assuming a quorum is present or otherwise
represented at the Annual Meeting. Brooke Group urges you to mark, sign, date
and return the enclosed BLUE proxy card to vote FOR the election of the Brooke
Group Nominees.
BROOKE GROUP URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU BY RJR
NABISCO. IF YOU HAVE ALREADY DONE SO, YOU MAY REVOKE YOUR PROXY BY DELIVERING A
WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY FOR THE ANNUAL MEETING TO
BROOKE GROUP, C/O GEORGESON & COMPANY INC., WALL STREET PLAZA, NEW YORK, NEW
YORK 10005, OR TO THE SECRETARY OF RJR NABISCO, OR BY VOTING IN PERSON AT THE
ANNUAL MEETING. SEE "VOTING AND PROXY PROCEDURES" BELOW.
The record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting is February 29, 1996 (the "Record Date").
Stockholders of record at the close of business on the Record Date will be
entitled to one vote at the Annual Meeting for each share of common stock, par
value $.01 per share (the "Common Stock"), and one-fifth of a vote at the Annual
Meeting for each share of Series C Conversion Preferred Stock, par value $.01
per share (the "PERCS"), and ESOP Convertible Preferred Stock, par value $.01
per share and stated value $16 per share ("ESOP Preferred Stock" and, together
with the Common Stock and the PERCS, the "RJR Nabisco Voting Securities"), of
RJR Nabisco, held on the Record Date. According to the preliminary proxy
statement of RJR Nabisco filed with the Securities and Exchange Commission ("RJR
Nabisco's Proxy Statement"), there were 26,675,000 shares of PERCS and
15,003,379 shares of ESOP Preferred Stock outstanding on the Record Date. As of
the date of this proxy statement, the number of shares of Common Stock
outstanding is unknown. However, according to a stockholder list received by
Brooke Group from RJR Nabisco, as of February 12, 1996 there were 273,018,962
shares of Common Stock outstanding. Brooke Group does not anticipate that there
will be a significant change in the number of shares of Common Stock outstanding
as of the Record Date. All of the shares of PERCS are held by First Chicago
Trust Company of New York as Depositary for the holders of the Series C
Depositary Shares ("Series C Depositary Shares"). Each Series C Depositary Share
represents one-tenth of a share of PERCS. Consequently, holders of Series C
Depositary Shares are entitled to one-fiftieth (1/50) of a vote per share.
As of February 29, 1996, Brooke Group and its affiliates beneficially owned
an aggregate of 5,162,150 shares of Common Stock, representing approximately
1.9% of the outstanding shares of Common Stock. Brooke Group and its affiliates
intend to vote such shares FOR the election of
3
the Brooke Group Nominees. On February 29, 1996, New Valley entered into a total
return equity swap transaction with a financial institution relating to an
additional 1,000,000 shares of Common Stock. In addition, Brooke Group and BGLS
Inc. ("BGLS") have entered into an agreement, as amended (the "High River
Agreement"), with High River Limited Partnership ("High River"), an entity owned
by Carl C. Icahn. High River, and two of its affiliates also owned by Mr. Icahn,
beneficially own 8,897,900 shares of Common Stock, representing approximately
3.3% of the outstanding shares of Common Stock, pursuant to which High River has
agreed, among other things, to vote such shares FOR the election of the Brooke
Group Nominees. See "Certain Information Concerning Brooke Group." Brooke Group
is hereby pledging to the stockholders of RJR Nabisco that it will not accept
any form of greenmail from RJR Nabisco during its solicitation of proxies with
respect to the Brooke Group Nominees. High River has agreed in the High River
Agreement that it will not accept any form of greenmail from RJR Nabisco during
the solicitation.
COMMITMENT TO INCREASE VALUE
IMMEDIATE SPINOFF OF NABISCO
THE BROOKE GROUP NOMINEES WILL TAKE THE NECESSARY STEPS TO EFFECT AN
IMMEDIATE SPINOFF OF NABISCO. The Brooke Group Nominees will listen to
stockholders. The Brooke Group Nominees will take the steps necessary to
effectuate an immediate spinoff of the remaining 80.5% of Nabisco held by RJR
Nabisco to its stockholders immediately upon their election and assumption of
office. You should not support the Incumbent Board, which has displayed its
contempt for stockholder rights, has undeniably disregarded the views of
stockholders and has not presented you with a plan to immediately unlock
stockholder value by improving the separate tobacco and food businesses. The
Brooke Group Nominees are hereby pledging to the stockholders of RJR Nabisco
that if they do not declare a spinoff of RJR Nabisco's remaining equity interest
in Nabisco within six months of their election and assumption of office, they
will call a special stockholders meeting for the election of directors at which
they may solicit proxies for their re-election. The Brooke Group Nominees
believe that a declaration of a dividend creates a binding commitment of the
Company; however, there can be no assurance that a spinoff would be completed
within the six month period.
INCREASED DIVIDEND
THE BROOKE GROUP NOMINEES INTEND TO INCREASE YOUR DIVIDEND. The Brooke
Group Nominees will adopt a new dividend policy for the Tobacco Company as an
additional means to deliver enhanced value on your shares. Upon their election
and assumption of office, the Brooke Group Nominees currently anticipate a
dividend policy providing that at least 60% of the Tobacco Company's Net Cash
Flow will be declared as cash dividends out of funds legally available therefor.
Net Cash Flow means the Tobacco Company's after-tax net income plus amortization
on an after-tax basis plus depreciation less capital expenditures. Based on RJR
Nabisco's public financial statements, and analysts' and Brooke Group's
estimates, the Brooke Group Nominees expect to increase the Tobacco Company's
1996 annual dividend to approximately $2.00 per share of Common Stock. It is
anticipated that the Tobacco Company will increase its annual dividend rate to
$2.00 per share, effective in the third quarter of 1996. The dividend
calculation is based on the average of the 1996 and 1997 earnings per share
estimate projections ($2.74 per share of RJR Nabisco and $1.05 per Nabisco share
owned by RJR Nabisco) by I/B/E/S International Inc.* dated February 23, 1996. In
addition, the amounts used for depreciation ($238 million) and after-tax
- ----------
* The estimates of I/B/E/S International Inc. are compilations of sixteen
analysts covering RJR Nabisco and fourteen analysts covering Nabisco. No
permission has been sought or received to quote or refer to this material.
4
amortization expenses ($368 million) are based on the tobacco segment's
after-tax amortization and depreciation expenses for the year ended December 31,
1995. Estimated capital expenditures are based on the Company's tobacco
segment's three-year average from 1993 to 1995 ($233 million).
MANAGEMENT PLANS
REVITALIZING THE TOBACCO COMPANY
The Brooke Group Nominees currently intend to appoint Ronald Fulford as the
President and Chief Executive Officer of RJR Nabisco upon their election and
assumption of office. Until February 21, 1996, Mr. Fulford was executive
chairman of Hanson PLC's Imperial Tobacco and is a senior associate director of
Hanson PLC. Mr. Fulford, 61, joined Imperial Tobacco in 1987, where he
engineered the dramatic turnaround at Britain's second largest tobacco maker.
Operating profit rose from 127 million (English Pounds) in fiscal 1987 to 348
million (English Pounds) in fiscal 1995, while profit per employee rose 10-fold.
Before Imperial Tobacco, Mr. Fulford was chief executive of three other Hanson
companies: London Brick (1985-1987), British Ever Ready UK & South Africa
(1982-1987) and United Gas Industries UK & Europe (1980-1983).
Brooke Group has entered into an agreement with Mr. Fulford. Pursuant to
this agreement, Mr. Fulford agreed to provide various services to Brooke Group
(including, without limitation, consulting services, attendance at and
participation in meetings related to this solicitation and presentations to
financial analysts and institutional investors). Brooke Group, in turn, agreed
that if the Brooke Group Nominees are elected to the Board of Directors of RJR
Nabisco, Brooke Group will use its reasonable best efforts to have Mr. Fulford
appointed to serve as the President and Chief Executive Officer of RJR Nabisco
under a minimum 3-year employment agreement with RJR Nabisco that would provide
for an annual salary of at least $1 million, plus such bonus, stock option, and
other compensation arrangements as the Board of Directors of RJR Nabisco, after
receiving the recommendations of a major multi-national compensation consultant,
shall determine to be commensurate with the compensation arrangements for the
chief executive officers of other large multi-national tobacco companies. Brooke
Group also agreed to use its reasonable best efforts to have Mr. Fulford elected
or appointed as a member of the Board of Directors of RJR Nabisco. During the
term of the agreement, Mr. Fulford will receive compensation equal to
UK(pound)33,417 (or approximately US$21,833) per month and reimbursement for all
reasonable business and travel expenses incurred in performing services under
the agreement and all reasonable personal expenses incurred in connection with
relocation to the United States. Brooke Group also agreed to reimburse Mr.
Fulford for any reduction in pension benefits (currently estimated at
approximately UK(pound)14,400 (or approximately US$9,408) per annum) resulting
from his terminating his current employment to enter into the agreement. The
term of the agreement will end on March 31, 1997 or, if earlier, the effective
date of an employment agreement between Mr. Fulford and RJR Nabisco, as
described above.
The Brooke Group Nominees do not currently have any other plans with
respect to the management of the tobacco business but intend to reconsider this
issue upon their election and assumption of office.
NABISCO
The Brooke Group Nominees do not have any plans to change the current
management or operations of Nabisco. The Brooke Group Nominees intend that the
management and operations of any post-spinoff Nabisco will be substantially
similar to Nabisco as constituted today. Accordingly, Brooke Group, BGLS and the
Brooke Group Nominees hereby pledge to the
5
stockholders of RJR Nabisco that, prior to the consummation of a Nabisco
spinoff, none of Brooke Group, BGLS, their respective affiliates or the Brooke
Group Nominees will exercise any management control over, and will refrain from
becoming involved in the ordinary course of business of, Nabisco or Nabisco,
Inc. Additionally, such persons will use their best efforts to ensure that a
majority of the present directors of Nabisco and Nabisco, Inc. consists of
individuals who are presently members of the board of directors of Nabisco and
Nabisco Inc., respectively.
CORPORATE GOVERNANCE
We have said all along that we believe the Incumbent Board was trying to
mislead you by focusing on personal attacks against Mr. LeBow and Brooke Group.
The Company has claimed that Mr. LeBow is placing his personal agenda above the
interests of the other stockholders. We have not and will not sink to their
level and engage in hysterical name-calling. Instead, the Brooke Group Nominees
have agreed to a set of corporate governance guidelines (the "Corporate
Governance Guidelines") demonstrating their commitment to corporate governance
and shareholder democracy. The Brooke Group Nominees intend to adopt the
Corporate Governance Guidelines immediately upon being elected and assuming
office as Directors of RJR Nabisco. The Brooke Group Nominees upon their
election and assumption of office will amend the Bylaws of RJR Nabisco (the
"Bylaws") (which amendments by their terms could not be subsequently amended or
repealed without stockholder approval) to incorporate the Corporate Governance
Guidelines.
Affiliate Transactions. Any extraordinary corporate transaction or series
of similar transactions (other than compensation or other matters in the
ordinary course of business substantially in accordance with industry practice
or past practice) in excess of $2 million per annum between RJR Nabisco and,
after the spinoff of Nabisco, the Tobacco Company, and their subsidiaries, on
the one hand, and Brooke Group and its affiliates, on the other hand, will be
subject to approval of a special committee of independent directors. The
independent directors will have the benefit of independent financial advisors
and legal counsel. In addition, any such transaction will be subject to approval
by the stockholders of RJR Nabisco. The Brooke Group Nominees will consult with
an internationally recognized executive compensation firm to determine that all
compensation levels are commensurate with similarly situated executives at other
comparable companies. Contrary to the Incumbent Board's assertions, Brooke
Group and the Brooke Group Nominees are committed to act in the interests of all
stockholders of RJR Nabisco.
No Staggered Board. The Brooke Group Nominees will not propose, or
recommend that stockholders adopt, an amendment to the Bylaws or Certificate of
Incorporation of the Company which would provide for a classified Board of
Directors of RJR Nabisco. The Brooke Group Nominees believe that directors are
most responsive to stockholders when the entire board of directors stand for
election at each annual meeting of stockholders. Brooke Group and the Brooke
Group Nominees believe that this would enhance corporate democracy at RJR
Nabisco by making your Board of Directors more responsive to your wishes.
No Poison Pill. The Brooke Group Nominees will not propose or approve a
stockholder rights plan. The Brooke Group Nominees will amend the Bylaws to
prohibit RJR Nabisco from adopting a stockholder rights plan, entering into any
agreement or issuing any security or other rights, having the effect of
discriminating against any stockholder of RJR Nabisco based upon such
stockholder owning or offering to acquire a specified number or percentage of
RJR Nabisco Voting Securities. Brooke Group and the Brooke Group Nominees
believe that a poison-pill serves only to entrench incumbent management and is
not in the best interests of the stockholders.
6
Confidential Voting. The Brooke Group Nominees will adopt a confidential
voting procedure with respect to all future matters to be acted upon by
stockholders. The Brooke Group Nominees will amend the Bylaws to provide that
all votes of stockholders will remain strictly confidential from the Company and
its directors, officers and employees. Brooke Group and the Brooke Group
Nominees believe that confidential voting, a hallmark of the American system,
would increase shareholder democracy by permitting stockholders to vote as they
see fit, without fear of reprisal or undue influence.
Non-Employee Director Retirement Plan. The Brooke Group Nominees will take
all actions necessary to terminate, or waive benefits under, the RJR Nabisco
Directors Retirement Plan with respect to any directors elected at or after the
Annual Meeting. Pursuant to the existing plan, non-employee directors could
receive $60,000 per year for up to fifteen years upon their retirement. However,
the plan would not be unilaterally terminated by the Brooke Group Nominees with
respect to any former directors, including the Incumbent Board, of RJR Nabisco,
who would continue to receive their specified retirement payments in accordance
with the plan.
ITEM 1 -- ELECTION OF DIRECTORS
According to RJR Nabisco's Proxy Statement, RJR Nabisco currently has ten
Directors, all of whose terms will expire at the Annual Meeting. Brooke Group
proposes that RJR Nabisco stockholders elect the Brooke Group Nominees as the
ten Directors of RJR Nabisco at the Annual Meeting. The Brooke Group Nominees
are listed below and have furnished the following information concerning their
principal occupations or employment and certain other matters. Each Brooke Group
Nominee, if elected, would hold office until the 1997 Annual Meeting of
Stockholders and until a successor has been elected and qualified. Although
Brooke Group has no reason to believe that any of the Brooke Group Nominees will
be unable to serve as Directors, if any one or more of the Brooke Group Nominees
are not available for election, the persons named on the BLUE proxy card will
vote for the election of such other nominees as may be proposed by Brooke Group.
BROOKE GROUP NOMINEES FOR DIRECTORS:
ARNOLD I. BURNS, age 65, is currently, and has been during the past five
years, a Senior Partner at Proskauer Rose Goetz & Mendelsohn LLP, a New York
based law firm. Mr. Burns was the Associate Attorney General at the United
States Department of Justice in 1986 and the Deputy Attorney General from 1986
to 1988. Mr. Burns is a director of New Valley Corporation ("New Valley"), a
company engaged in the investment banking and brokerage business, the ownership
and management of commercial real estate and the acquisition of operating
companies and in which Brooke Group holds an indirect equity interest. Mr.
Burns's business address is c/o Proskauer Rose Goetz & Mendelsohn LLP, 1585
Broadway, New York, New York 10036.
ROUBEN V. CHAKALIAN, age 60, has since January 1995 been the Chairman of
the Board, and since June 1994 the President and Chief Executive Officer, of
Liggett Group Inc. ("Liggett"), the fifth largest manufacturer of cigarettes in
the United States and an indirect, wholly-owned subsidiary of Brooke Group.
Mr. Chakalian was a consultant to Liggett from June 1993 to May 1994, was the
consultant to and member of the office of the Chief Executive of Liggett from
March 1993 to May 1993, and was a consultant to Liggett from February 1991 to
January 1993. Prior thereto, Mr. Chakalian served as the Executive Vice
President of R.J. Reynolds Tobacco
7
International and a Senior Vice President of the R.J. Reynolds wine and spirits
subsidiary, Heublein, Inc., which is now a subsidiary of Grand Metropolitan PLC.
Mr. Chakalian's business address is c/o Liggett Group Inc., 700 West Main
Street, Durham, North Carolina 27702.
ROBERT L. FROME, age 56, is currently, and has been during the past five
years, a Senior Partner at Olshan Grundman Frome & Rosenzweig, a New York based
law firm. Mr. Frome has published numerous articles in the New York Law Journal
and other publications on a variety of topics, including shareholders' rights,
the liabilities and remedies of officers and directors of publicly traded
companies, the business judgment rule, initial public offerings, private
placements and initiatives for small businesses. Mr. Frome is a director of
Healthcare Services Group, Inc. and NUCO2. Mr. Frome's business address is c/o
Olshan Grundman Frome & Rosenzweig, 505 Park Avenue, New York, New York 10022.
DALE M. HANSON, age 53, is currently and has been since July, 1994 the
chief executive officer of American Partners Capital Group, Inc., a provider of
financial products and services to institutional investors. From 1987 until
July, 1994, Mr. Hanson served as chief executive officer of the California
Public Employees Retirement System ("CalPERS"). CalPERS is the largest public
employee retirement system in the United States and third largest pension system
in the world, with a market value of assets at that time of more than $82
billion and with 1.1 million members. Mr. Hanson, who is widely known as a
leader of the shareholder rights movement, currently sits on the Advisory Board
of Directorship, a Greenwich, Connecticut based consulting firm focusing on
issues of corporate governance. Mr. Hanson is also a member of the Board of ICN
Pharmaceuticals, Inc., the University of California-Davis Medical School Board
of Visitors and the California State University-Sacramento Trust Foundation. Mr.
Hanson's business address is c/o American Partners Capital Group, Inc., 2150
River Plaza Drive, Suite 170, Sacramento, CA 95833.
RICHARD J. LAMPEN, age 42, has been the Executive Vice President and
General Counsel of New Valley since October 1995. From May 1992 to September
1995, Mr. Lampen was a Partner at Steel Hector & Davis, a law firm located in
Miami, Florida. From January 1991 to April 1992, Mr. Lampen was a Managing
Director at Salomon Brothers Inc, an investment bank, and was an employee at
Salomon Brothers from 1986 to April 1992. Mr. Lampen has served as a director of
a number of companies, including U.S. Can Corporation and The International Bank
of Miami, N.A., as well as a court-appointed independent director of Trump Plaza
Funding, Inc. Mr. Lampen's business address is c/o New Valley Corporation, 100
S.E. Second Street, 32nd Floor, Miami, Florida 33131.
BENNETT S. LEBOW, age 58, has been the Chairman of the Board, President and
Chief Executive Officer of Brooke Group since June 1990 and a director of Brooke
Group since October 1986. Mr. LeBow has been the Chairman of the Board,
President and Chief Executive Officer of BGLS, a wholly-owned subsidiary of
Brooke Group principally engaged through subsidiaries in the manufacture and
sale of cigarettes, and through its investment in New Valley in the investment
banking and brokerage business, ownership and management of commercial real
estate and the acquisition of operating companies, since November 1990. Mr.
LeBow has been a director of Liggett since June 1990 and Chairman of the Board
of Directors of Liggett from July 1990 to May 1993. From March 1993 to May 1993
Mr. LeBow served as a member of the three person office of the Chief Executive
of Liggett. Mr. LeBow has been the Chairman of the Board of New Valley since
January 1988 and Chief Executive Officer thereof since November 1994. Mr. LeBow
was Chairman of the Board, and/or a director of Skybox International Inc., a
sports
8
and entertainment card company, from June 1990 to August 1994. Mr. LeBow was a
director of MAI Systems Corporation, a multi-user computer systems company
("MAI"), from September 1984 to October 1995, the Chairman of the Board from
November 1990 to May 1995 and the Chief Executive Officer from November 1990 to
April 1993. Mr. LeBow's business address is c/o Brooke Group Ltd., 100 S.E.
Second Street, 32nd Floor, Miami, Florida 33131.
BARRY W. RIDINGS, age 43, has been a Managing Director in the Investment
Banking Division of Alex. Brown & Sons Incorporated, an investment bank, since
March 1990. Mr. Ridings manages the firm's Restructuring Group and is active in
the firm's mergers and acquisitions and public debt activities. Mr. Ridings is a
director of Noodle Kidoodle, Inc., New Valley, Norex America, Inc., SubMicron
Systems Corp., Telemundo Group, Inc., TransCor Waste Services, Inc. and Trinity
Americas Inc. Mr. Ridings' business address is c/o Alex. Brown & Sons
Incorporated, 1290 Avenue of the Americas, 10th Floor, New York, New York 10104.
WILLIAM H. STARBUCK, age 61, has been the ITT Professor of Creative
Management at Stern School of Business, New York University, since January 1985.
Dr. Starbuck has been the Vice President of the Academy of Management, a
non-profit professional association, since August 1994. Dr. Starbuck has written
extensively on a variety of business topics, including accounting,
organizational design, the corporate environment, how organizations learn,
strategic change, adaptive design, entrepreneurship and organization, employee
performance and coping with strategic crises. He is a member of the editorial
boards of numerous publications, including the Journal of Management Inquiry,
the Journal of Management Studies, the British Journal of Management and
Accounting, Management and Information Technologies. Dr. Starbuck's business
address is 2 Washington Square Village, Penthouse G, New York, New York
10012-1711.
PETER STRAUSS, age 63, has been a consultant since January 1995 in the
consumer package goods area, primarily in the tobacco and confectionery
industries, where he has 37 years of experience. From December 1991 to December
1994, Mr. Strauss was the Senior Vice President, Trade Marketing (Domestic) and
International Operations at The American Tobacco Company, a tobacco company
which was merged with Brown & Williamson Tobacco Corporation, the U.S.
subsidiary of B.A.T., in 1994. While at American Tobacco, Mr. Strauss headed the
company's entry into the deep discount cigarette category, in addition to
reorienting the company's approach to international markets by forming alliances
with local sales and marketing organizations through which the company's
products would be sold. From October 1990 to November 1991, Mr. Strauss was the
President of Peter Strauss & Co., Inc., a consulting services company. Mr.
Strauss spent 28 years as an employee of the Culbro Corporation, a manufacturer
of tobacco and distributor of tobacco, candy and miscellaneous consumer
products, where he held a variety of positions, including Executive Vice
President of General Cigar Co., Inc., President and Chief Executive Officer of
Metropolitan Distribution Services, Inc. and President and Chief Executive
Officer of The Seneco Company. In 1984, Mr. Strauss was elected into the Tobacco
Industry Hall of Fame. In 1995, Mr. Strauss was elected Dean of Industry by the
American Wholesale Marketers Association. Mr. Strauss's business address is 156
Brite Avenue, Scarsdale, New York 10583.
FREDERICK W. ZUCKERMAN, age 61, has been the General Partner of Zuckerman,
Firstenberg & Associates, LLP, a financial advisory/investment banking company,
since January 1995. From September 1993 to December 1994, Mr. Zuckerman was the
Vice President and Treasurer of International Business Machines Corporation
(IBM), an information technology company. From
9
February 1991 to September 1993, Mr. Zuckerman was the Senior Vice President and
Treasurer of RJR Nabisco. From October 1990 to February 1991, Mr. Zuckerman was
a Partner at Zuckerman & Co., a consulting firm. Mr. Zuckerman was the Vice
President and Treasurer of Chrysler Corporation from December, 1981 to October
1990. Mr. Zuckerman is a director of Meditrust, Japan Equity Fund Inc.,
Singapore Fund Inc., Olympic Financial Ltd., Caere Corp., Anacomp Inc., Turner
Corp. and NVR Inc. Mr. Zuckerman's business address is Zuckerman, Firstenberg &
Associates, LLP, 1 State Street Plaza, 33rd Floor, New York, New York 10004.
BROOKE GROUP STRONGLY RECOMMENDS A VOTE FOR THE ELECTION OF THE BROOKE
GROUP NOMINEES. A VOTE FOR THE ELECTION OF THE BROOKE GROUP NOMINEES WILL
PROVIDE YOU WITH A BOARD OF DIRECTORS COMMITTED TO CORPORATE DEMOCRACY.
IF YOU HAVE SIGNED THE PROXY CARD AND NO MARKING IS MADE, YOU WILL BE
DEEMED TO HAVE GIVEN A DIRECTION TO VOTE THE RJR NABISCO VOTING SECURITIES
REPRESENTED BY THE BLUE PROXY CARD FOR THE ELECTION OF ALL THE BROOKE GROUP
NOMINEES.
Messrs. LeBow and Chakalian will take all necessary actions with respect to
Brooke Group, BGLS and Liggett, as applicable, in order to comply with federal
anti-trust laws, if elected as Directors of RJR Nabisco at the Annual Meeting.
An involuntary bankruptcy petition was filed against New Valley by certain
bondholders on November 15, 1991. On March 31, 1993, New Valley consented to the
entry of an order for relief under Chapter 11 of Title 11 of the United States
Code. On November 15, 1994, the United States Bankruptcy Court for the District
of New Jersey confirmed New Valley's plan of reorganization and on January 18,
1995, New Valley emerged from reorganization proceedings. In April 1993, MAI
filed for protection under Chapter 11 of Title 11 of the United States Code. In
November 1993, the United States Bankruptcy Court for the District of Delaware
confirmed MAI's plan of reorganization, and in November 1993 it emerged from
reorganization proceedings.
Brooke Group has paid each of Messrs. Burns, Frome, Ridings, Starbuck,
Strauss and Zuckerman $30,000, in connection with their agreeing to be a nominee
at the Annual Meeting. Brooke Group has also entered into an agreement with each
Brooke Group Nominee, whereby it has agreed to indemnify each Brooke Group
Nominee from and against any losses incurred by such Brooke Group Nominee
resulting from, relating to or arising out of any claim in connection with the
solicitation of proxies in support of the Brooke Group Nominee's election at the
Annual Meeting, including the right to be advanced by Brooke Group for any
expenses incurred in connection with any such claim.
Brooke Group has entered into a consulting services agreement with Mr.
Zuckerman. Pursuant to this agreement, Brooke Group agreed to pay Mr. Zuckerman
$10,000 monthly for a one-year period. Mr. Zuckerman, in turn, agreed to advise
and consult Brooke Group and its affiliates on various matters, including but
not limited to (i) financial and investment matters, (ii) matters relating to or
arising out of Brooke Group's consent solicitation relating to the Spinoff
Resolution, and (iii) such other matters as Brooke Group and Mr. Zuckerman agree
on from time to time. Brooke Group has also agreed to provide Mr. Zuckerman with
an office in New York City, and to reimburse Mr. Zuckerman for all ordinary,
necessary and reasonable business expenses incurred by Mr. Zuckerman in
connection with his performance of consulting services.
Brooke Group has entered into a services agreement with Mr. Hanson.
Pursuant to this agreement, Mr. Hanson agreed (a) to be a Brooke Group Nominee,
and (b) to advise and consult
10
with Brooke Group and its affiliates on various matters, including but not
limited to (i) matters generally relating to issues of corporate governance and
shareholder democracy in publicly traded corporations, (ii) matters relating to
or arising out of the solicitation by Brooke Group of consents from the
stockholders of RJR Nabisco for the Spinoff Resolution, (iii) matters relating
to or arising out of this solicitation, and (iv) such other matters as Brooke
Group and Mr. Hanson shall agree on from time to time. Brooke Group, in turn,
agreed to pay Mr. Hanson a one time fee of $150,000. Brooke Group also granted
to Mr. Hanson a stock appreciation right (the "SAR") with respect to 50,000
shares ("SAR Shares") of Common Stock, exercisable in whole or in part at any
time and from time to time from and after June 30, 1996. The SAR expires at the
close of business on the tenth business day after the end of the term of the
agreement. The agreement will terminate on May 31, 1997 unless earlier
terminated by the parties. Upon exercise, Brooke Group shall pay to Mr. Hanson
an amount, if any, equal to the excess of the fair market value of a share of
Common Stock on the date of exercise over $31.50 per share, multiplied by the
number of shares of Common Stock with respect to which the SAR shall have been
exercised. For purposes of this agreement, "fair market value", as of any date
shall mean the average of the daily closing prices of the Common Stock for the
ten consecutive trading days on or prior to such date, as reported on the
consolidated transaction reporting system for the New York Stock Exchange for
such dates. In the event of any change in capitalization affecting the Common
Stock, including, without limitation, a stock dividend or other distribution,
split, reverse certificate split, recapitalization, merger, consolidation,
subdivision, split-up, spin-off, combination or exchange of Common Stock or
other form of reorganization, or any other change affecting the Common Stock,
Brooke Group will automatically make such mathematically proportionate
adjustments in the number of SAR Shares covered by the SAR and the exercise
price in respect thereof, as are reasonably appropriate under the circumstances.
Brooke Group also agreed to reimburse Mr. Hanson for all ordinary, necessary and
reasonable business expenses incurred in connection with the services under the
agreement.
Certain additional information relating to, among other things, the
ownership, purchase and sale of securities of RJR Nabisco by Brooke Group, the
Brooke Group Nominees and their respective associates is set forth in Schedule I
hereto.
OTHER MATTERS TO BE CONSIDERED
AT THE ANNUAL MEETING
According to RJR Nabisco's Proxy Statement, RJR Nabisco is soliciting
proxies with respect to ten proposals other than the election of directors.
Please refer to RJR Nabisco's Proxy Statement for a detailed discussion of these
proposals, including various arguments in favor of and against such proposals.
These proposals are discussed below.
ITEM 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Brooke Group anticipates that at the Annual Meeting, the stockholders will
again be asked to ratify the appointment of Deloitte & Touche LLP as RJR
Nabisco's independent auditors for the year ending December 31, 1996. Brooke
Group recommends a vote for this proposal.
ITEM 3 -- EQUAL EMPLOYMENT OPPORTUNITY REPORTING PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "Be it resolved: A
report shall be prepared at reasonable
11
cost, by September 1996, excluding confidential information and shall focus on
the following areas:
1. A copy of the consolidated EEO-1 report for 1993, 1994, 1995
available to shareholders upon request.
2. Report the number of discrimination complaints and lawsuits
concerning race, gender and the physically challenged. The cost to the
company and shareholders from discrimination lawsuits and alternatives to
resolve the issue.
3. Report any federal audit, corporate management review, and letter
of compliance with corrective measures enacted to protect the company's
government contracts and legal penalties.
4. Report to shareholders on the race, ethnicity and gender among top
management.
5. A description of any policies and programs utilizing the purchase
of goods and services from minority- and/or female-owned business
enterprises."
Brooke Group is not making any recommendation on this proposal.
ITEM 4 -- USING PROFITS TO DISCOURAGE UNDERAGE SMOKING PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "RESOLVED that
shareholders request the Board to devise effective strategies to cease profiting
from underage smoking and to strengthen efforts to eliminate underage smoking.
In implementing this proposed resolution, shareholders ask the Board to
consider:
1. That the 3% of our cigarette/tobacco profits realized from sales to
minors be contributed to a third party such as the American Heart
Association or the American Cancer Society.
2. This third party would use the funds to run a national anti-smoking
advertising campaign aimed at discouraging minors from smoking.
3. The goal of the campaign would be to achieve a substantial
reduction in the number of underage smokers.
4. The campaign would be evaluated after three years to determine its
effectiveness."
Brooke Group is not making any recommendation on this proposal.
ITEM 5 -- INFANTS AND TOBACCO PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "RESOLVED shareholders
request the Board to devise effective strategies to prevent harm to infants from
tobacco smoke both before and after their birth." Brooke Group is not making any
recommendation on this proposal.
ITEM 6 -- RATING AND CURBING NICOTINE PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "RESOLVED that
shareholders request the Board to take steps to preserve the health of its
tobacco-using customers. We suggest the following steps:
12
1. Develop and publicize nicotine ratings for each of our cigarette
brands and to [sic] make this available in accurate information to our
customers about how much nicotine they consume when smoking.
2. Determine the nicotine level in cigarettes at which nicotine
addiction cannot be induced or maintained. With this information, the
company shall implement a program that would gradually reduce levels of
nicotine in our brands over an appropriate time period to a level that is
not addictive. This effort to reduce nicotine availability would be
undertaken in collaboration with independent health experts.
3. Develop and market new nicotine or nicotine-like products that have
minimal toxic agents that can be used by our consumers in lieu of cigarette
smoking, and market these products as drugs or medical devices to help
adult smokers quit tobacco use."
Brooke Group is not making any recommendation on this proposal.
ITEM 7 -- NON-TOBACCO SEPARATION PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "RESOLVED: that the
shareholders ask management to take the necessary steps to accomplish a
separation of the Corporation's non-tobacco business from all its tobacco
businesses no later than January 1, 1997." Brooke Group recommends a vote for
this proposal.
ITEM 8 -- EXECUTIVE OFFICER COMPENSATION PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "RESOLVED, that the
shareholders recommend that the Board refrain from granting any bonuses, stock
options, performance accelerated awards or options, deferred compensation, or
any other form of monetary or stock award, except base salary, to the top five
officers of our Corporation as listed in the Proxy Statement, until such time as
our stock price reaches $50 per share." Brooke Group is not making any
recommendation on this proposal.
ITEM 9 -- STOCK COMPENSATION FOR DIRECTORS PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "RESOLVED that the
shareholders recommend that the board of directors take the necessary steps to
ensure that from here forward all non-employee directors should receive a
minimum of fifty percent of their total compensation in the form of company
stock which cannot be sold for three years." Brooke Group is not making any
recommendation on this proposal.
ITEM 10 -- NON-EMPLOYEE DIRECTOR PENSIONS PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "RESOLVED that the
shareholders assembled in person and by proxy, recommend (i) that all future
non-employee directors not be granted pension benefits and (ii) current
non-employee directors voluntarily relinquish their pension benefits." Brooke
Group recommends a vote for this proposal.
ITEM 11 -- GOLDEN PARACHUTES PROPOSAL
Brooke Group anticipates that at the Annual Meeting, the stockholders will
be asked to vote on the following stockholder proposal: "RESOLVED, that the
shareholders recommend that the
13
board of directors adopt a policy against entering into future agreements with
officers and directors of this corporation which provide compensation contingent
on a change of control of the corporation, unless such compensation agreements
are submitted to a vote of the shareholders and approved by a majority of shares
present and voting on the issue." Brooke Group is not making any recommendation
on this proposal.
OTHER PROPOSALS
Except as set forth above, Brooke Group is not aware of any proposals to be
brought before the Annual Meeting. Should other proposals be brought before the
Annual Meeting, the persons named on the BLUE proxy card will abstain from
voting on such proposals unless such proposals adversely affect the interests of
Brooke Group and/or the Brooke Group Nominees as determined by Brooke Group in
its sole discretion, in which event such persons will vote on such proposals at
their discretion.
VOTING ON OTHER MATTERS IN ITEMS 2-11
The accompanying BLUE proxy card will be voted in accordance with your
instructions on such card. You may vote for or vote against, or abstain from
voting on, each of Items 2-11 described above by marking the proper box on the
BLUE proxy card. IF YOU HAVE SIGNED THE PROXY CARD AND NO MARKING IS MADE, YOU
WILL BE DEEMED TO HAVE GIVEN A DIRECTION TO VOTE THE RJR NABISCO VOTING
SECURITIES REPRESENTED BY THE BLUE PROXY CARD FOR ITEMS 2, 7 AND 10 AND TO
ABSTAIN FROM VOTING WITH RESPECT TO ITEMS 3, 4, 5, 6, 8, 9 AND 11.
VOTING PROCEDURES
The presence of a majority of the outstanding RJR Nabisco Voting
Securities, represented in person or by proxy at the Annual Meeting, will
constitute a quorum. RJR Nabisco Voting Securities represented by proxies that
are marked "abstain" will be counted as shares present for purposes of
determining the presence of a quorum on all matters. Proxies relating to "street
name" shares that are voted by brokers on some but not all of the matters will
be treated as shares present for purposes of determining the presence of a
quorum on all matters, but will not be treated as shares entitled to vote at the
Annual Meeting on those matters as to which authority to vote is withheld by the
broker ("broker non-votes"). Election of the Brooke Group Nominees requires the
affirmative vote of a plurality of the votes cast in the election at the Annual
Meeting, assuming a quorum is present or otherwise represented at the Annual
Meeting. Accordingly, abstentions and broker non-votes will not affect the
outcome of the election. With respect to each of the other matters described
herein that will be submitted to the stockholders for a vote, the affirmative
vote of the holders of at least a majority of the RJR Nabisco Voting Securities
represented in person or by proxy at the Annual Meeting and entitled to vote on
the particular matter is required, assuming the presence of a quorum at the
Annual Meeting. On any of such other matters, an abstention will have the same
effect as a negative vote but, because shares held by brokers will not be
considered entitled to vote on matters as to which the brokers withhold
authority, broker non-votes will have no effect on the vote.
14
PROXY PROCEDURES
IN ORDER FOR YOUR VIEWS TO BE REPRESENTED AT THE ANNUAL MEETING, PLEASE
MARK, SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY CARD AND RETURN IT TO BROOKE
GROUP, C/O GEORGESON & COMPANY INC. IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
The accompanying BLUE proxy card will be voted at the Annual Meeting in
accordance with your instructions on such card.
Any proxy may be revoked at any time prior to the time a vote is taken by
delivering to the secretary of RJR Nabisco a notice of revocation bearing a
later date, by a duly executed proxy bearing a later date or by attending the
Annual Meeting and voting in person.
Only holders of record as of the close of business on the Record Date will
be entitled to vote. If you were a stockholder of record on the Record Date, you
will retain your voting rights for the Annual Meeting even if you sell such
shares after the Record Date. Accordingly, it is important that you vote the
shares held by you on the Record Date, or grant a proxy to vote such shares on
the BLUE proxy card, even if you sell such shares after the Record Date.
If any of your Shares are held in the name of a brokerage firm, bank, bank
nominee or other institution on the Record Date, only it can vote such Shares
and only upon receipt of your specific instructions. Accordingly, please contact
the person responsible for your account and instruct that person to execute on
your behalf the BLUE proxy card.
SOLICITATION OF PROXIES
Solicitation of proxies may be made by the directors, officers, investor
relations personnel and other employees of Brooke Group and certain of its
subsidiaries and affiliates, none of whom will receive additional compensation
for such solicitation. Proxies may be solicited by mail, courier service,
advertisement, telephone or telecopier and in person. Certain information about
directors, officers and certain employees of Brooke Group and/or its
subsidiaries and affiliates, who may also assist in soliciting proxies, is set
forth in the attached Schedule II.
In addition, Brooke Group has retained Georgeson & Company Inc.
("Georgeson") to assist in the solicitation, for which Georgeson is to receive a
fee of approximately $150,000, plus reimbursement for its reasonable
out-of-pocket expenses. Brooke Group has also agreed to indemnify Georgeson
against certain liabilities and expenses, including certain liabilities and
expenses under the Federal securities laws. It is anticipated that Georgeson
will employ approximately 30 persons to solicit stockholders for the Annual
Meeting.
Brooke Group, New Valley and Liggett have engaged Jefferies & Company, Inc.
("Jefferies") to act as financial advisor in connection with New Valley's
investment in RJR Nabisco, the completed consent solicitation and this
solicitation by Brooke Group. In connection with this engagement, New Valley (i)
paid to Jefferies an initial fee of $1,500,000 and (ii) has agreed to pay
Jefferies during the period ending April 30, 1996 a monthly fee of $250,000,
which monthly fee increased to $500,000 on February 20, 1996 and, in addition,
during each of the four months ending April 30, 1996, an additional monthly fee
of $100,000. These companies also have agreed to pay Jefferies 10% of the net
profit (up to a maximum of $15,000,000) with respect to Common Stock (including
any distributions made by RJR Nabisco) held or sold by these companies and their
affiliates after deduction of certain expenses, including the costs of this
15
solicitation, the completed consent solicitation and certain proxy solicitations
by the BGL Group and the costs of acquiring the shares of Common Stock (all of
which expenses will be borne by New Valley, ALKI or the BGL Group (as defined
below)). These companies also agreed that upon (i) the appointment during the
term of the agreement as Chairman, President or Chief Executive Officer of RJR
Nabisco of either Mr. LeBow or any other designee or representative of Brooke
Group, Liggett, New Valley or any of their respective affiliates, or (ii) the
election or appointment during the term of the agreement of representatives or
designees of Brooke Group, Liggett, New Valley or any of their respective
affiliates to represent 50% or more of the membership of RJR Nabisco's Board of
Directors then in office, they will pay or cause to be paid to Jefferies a non
refundable cash fee of $7,500,000 payable only if and at the time RJR Nabisco
either reimburses the companies for or pays directly this fee, unless prohibited
by applicable law. In addition, New Valley agreed to reimburse Jefferies for all
reasonable out-of-pocket expenses, including the fees and expenses of its
counsel, incurred by Jefferies in connection with its engagement and New Valley
and Brooke Group agreed to indemnify Jefferies and certain related persons
against certain liabilities and expenses. Jefferies will assist in the
solicitation of proxies, which will be carried out by a team of individuals
consisting of officers, associates and analysts of Jefferies numbering
approximately 10 persons.
Banks, brokers, custodians, nominees and fiduciaries will be requested to
forward solicitation materials to the beneficial owners of RJR Nabisco Voting
Securities. Brooke Group and its affiliates will reimburse these record holders
for customary clerical and mailing expenses incurred by them in forwarding these
materials to the beneficial owners.
The cost of this solicitation will be borne by New Valley. New Valley has
entered into an agreement with Brooke Group pursuant to which it has agreed to
pay directly or reimburse Brooke Group and its subsidiaries for reasonable
out-of-pocket expenses incurred in connection with pursuing the proposals in
Brooke Group's recent consent solicitation and in connection with this
solicitation. New Valley has also agreed to pay to BGLS a fee of 20% of the net
profit received by New Valley or its subsidiaries from the sale of shares of
Common Stock after achieving a rate of return of 20% and after deduction of
certain expenses, including the costs of this solicitation and Brooke Group's
recent consent solicitation and of acquiring the shares of Common Stock. New
Valley has also agreed to indemnify Brooke Group against certain liabilities
arising out of the solicitation. Brooke Group, or New Valley, as applicable,
will seek reimbursement for such expenses from RJR Nabisco, which issue will not
be submitted to a vote of security-holders. Costs related to the solicitation of
proxies include expenditures for attorneys, accountants, public relations or
financial advisers, solicitors, advertising, printing, transportation,
litigation and related expenses and filing fees, and to date are approximately
$2 million and are expected to be approximately $7 million (not including
certain contingent fees based upon the outcome of this solicitation).
CERTAIN LEGAL PROCEEDINGS
On November 20, 1995, Brooke Group filed an action against RJR Nabisco and
its tobacco subsidiary R.J. Reynolds Tobacco Company ("RJ Reynolds") in the
United States District Court of the Southern District of Florida. In the action,
Brooke Group is seeking a declaratory judgment that the Brooke Group Nominees
are not barred from serving as directors of RJR Nabisco under the terms of
Section 8 of the Clayton Act, 15 U.S.C. ss.19 (the "Clayton Act"). Brooke Group
brought the action because it anticipated that RJR Nabisco would commence
litigation under the Clayton Act in an attempt to interfere with Brooke Group's
right to nominate and/or elect a slate of directors committed to an immediate
spinoff of Nabisco. Brooke Group believes that any such
16
potential litigation would be meritless. Brooke Group filed an amended complaint
on January 29, 1996 to supplement the allegations. RJ Reynolds filed a motion to
dismiss the amended complaint on February 16, 1996.
On November 20, 1995, RJR Nabisco filed an action against Brooke Group, Mr.
LeBow and Mr. Icahn in the United States District Court for the Middle District
of North Carolina. In that action, RJR Nabisco alleges that Brooke Group, LeBow
and Icahn violated sections 14(a) and 10(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rules 14a-9 and 10b-5 promulgated
thereunder, by allegedly making materially false or incomplete statements
concerning the purpose and background of the consent solicitation with respect
to the Spinoff Resolution. RJR Nabisco sought temporary and permanent
injunctions barring Brooke Group, LeBow and Icahn from proceeding with the
consent solicitation until such time as they remedied the alleged disclosure
obligation violations. Brooke Group delivered its blue consent cards with
respect to its consent solicitation to RJR Nabisco on February 20, 1996. RJR
Nabisco alleged that Brooke Group, LeBow and Icahn secretly attempted to form a
group of investors to purchase a 21% interest in RJR Nabisco on the open market,
with the ultimate goal of combining the tobacco businesses of RJR Nabisco and
Brooke Group. According to the complaint, the principal purpose for such a
combination is to eliminate certain alleged actual or potential issues with
which Brooke Group and/or New Valley may be confronted under the Investment
Company Act of 1940. Mr. LeBow is alleged to have met with persons involved in
the international tobacco business in furtherance of this claimed secret plan.
Brooke Group and Mr. LeBow filed a motion to dismiss or transfer the North
Carolina action on December 13, 1995. On December 20, 1995, Brooke Group and Mr.
LeBow filed an answer to the Complaint and filed a counterclaim in this action.
All defendants denied RJR Nabisco's allegations, and Brooke Group and Mr. LeBow
alleged in their counterclaim that RJR Nabisco violated Section 14(a) of the
Exchange Act, and Rule 14a-9 promulgated thereunder, by making false and
misleading statements in, and by omitting material information from,
communications and disclosures to stockholders in opposition to Brooke Group's
consent solicitation. The relief sought includes RJR Nabisco and its affiliates
being preliminarily and permanently enjoined from soliciting stockholders either
to grant revocations of consent or to withhold consents from Brooke Group. RJR
Nabisco's allegations directly contradict the repeated public statements made by
Mr. LeBow that the sole purpose of the consent solicitation was to ask the
stockholders of RJR Nabisco to inform RJR Nabisco's Board that they desire an
immediate spinoff of Nabisco. On February 12, 1996 Brooke Group amended its
counterclaim to supplement the allegations.
CERTAIN INFORMATION REGARDING BROOKE GROUP
Brooke Group is principally engaged, through its indirect ownership of
Liggett, in the manufacture and sale of cigarettes and, through its investment
in New Valley, in the investment banking and brokerage business, ownership and
management of commercial real estate and the acquisition of operating companies.
Brooke Group also has investments in a number of additional companies engaged in
a diverse group of businesses. The principal executive offices of Brooke Group
are located at 100 S.E. Second Street, Miami, Florida 33131.
Brooke Group beneficially owns, directly, 200 shares of Common Stock.
Brooke Group beneficially owns 100% of the outstanding capital stock of BGLS,
which beneficially owns 100% of the outstanding capital stock of Liggett.
Liggett beneficially owns, directly, 200 shares of Common Stock and beneficially
owns, directly, 1,000 shares of Class A Common Stock, par
17
value $.01 per share, of Nabisco. In addition, BGLS directly and indirectly owns
618,326 Class A Senior Preferred Shares (approximately 60% of such class),
250,885 Class B Preferred Shares (approximately 9% of such class) and 79,794,229
Common Shares (approximately 42% of such class), of New Valley, which
beneficially owns all of the outstanding capital stock of ALKI Corp., a
subsidiary of New Valley ("ALKI"), which beneficially owns, directly, 5,161,750
shares of Common Stock, or approximately 1.9% of the outstanding Common Stock.
Bennett S. LeBow, who is the Chairman of the Board, President and Chief
Executive Officer of Brooke Group and of BGLS, may be deemed to be the
beneficial owner of 10,451,208 shares of common stock of Brooke Group, or
approximately 56.5% of Brooke Group's outstanding common stock, and thus may be
deemed to control Brooke Group. The disclosure of this information shall not be
construed as an admission that Mr. LeBow is the beneficial owner of any of the
Common Stock owned by Brooke Group, BGLS, New Valley, ALKI and/or Liggett either
for purposes of Section 13(d) of the Exchange Act or for any other purpose, and
such beneficial ownership is expressly disclaimed.
Likewise, Brooke Group beneficially owns 200 shares of Common Stock
directly, and may be deemed to beneficially own, indirectly, the 5,161,750
shares of Common Stock owned by ALKI and the 200 shares of Common Stock owned by
Liggett. The disclosure of this information shall not be construed as an
admission that Brooke Group is the beneficial owner of any of the Common Stock
owned by ALKI and/or Liggett, either for purposes of Section 13(d) of the
Exchange Act or for any other purpose, and such beneficial ownership is
expressly disclaimed.
For the same reasons, BGLS may be deemed to beneficially own, indirectly,
the 5,161,750 shares of Common Stock owned by ALKI and the 200 shares of Common
Stock owned by Liggett. The disclosure of this information shall not be
construed as an admission that BGLS is the beneficial owner of any of the Common
Stock owned by ALKI and/or Liggett, either for purposes of Section 13(d) of the
Exchange Act or for any other purpose, and such beneficial ownership is
expressly disclaimed.
On October 17, 1995, Brooke Group and BGLS entered into the High River
Agreement with High River, an entity owned by Carl C. Icahn. High River, and two
of its affiliates also owned by Mr. Icahn, beneficially own 8,897,900 shares of
Common Stock. High River agreed in the High River Agreement to grant a written
consent to Brooke Group's proposals in its consent solicitation with respect to
all shares of Common Stock held by it, and to grant a proxy with respect to all
such shares at the 1996 annual meeting for a slate of directors committed to
effect the spinoff. Brooke Group and BGLS agreed in the High River Agreement to
include, in any solicitation statement relating to any solicitation of (i)
stockholder demands to call a special meeting, (ii) written consents or (iii)
proxies, in respect of a proposal to elect an opposing slate of directors, a
pledge to the effect that Brooke Group, BGLS and their affiliates (the "BGL
Group") (A) will not engage in certain mergers, material sales of stock or
assets or other transactions (including a sale of Liggett or shares of Common
Stock to RJR Nabisco) providing a material benefit to the BGL Group not
available to other stockholders of RJR Nabisco (each, a "Business Combination"),
other than a Business Combination consummated simultaneously with or subsequent
to a spinoff of RJR Nabisco's remaining equity interest in Nabisco or another
transaction providing substantially equivalent value to stockholders ("Permitted
Business Combination") (I) prior to the 1996 annual meeting of RJR Nabisco
stockholders, or earlier if the BGL Group is unsuccessful in (a) a solicitation
of stockholder demands to call a special meeting, (b) a solicitation of consents
or proxies to approve certain proposals or (c) having its nominees elected to
constitute a majority of
18
RJR Nabisco's directors, or (II) during such time as nominees of the BGL Group
constitute a majority of the directors of RJR Nabisco; (B) prior to the
consummation of a spinoff of Nabisco, will not exercise management control over
Nabisco or Nabisco, Inc. or become involved in the ordinary course of its
business and will use its best efforts to ensure that a majority of the present
directors of Nabisco and Nabisco, Inc. remain as directors; and (C) will halt
any solicitation of stockholders demands, consents or proxies if the RJR Nabisco
Board effects a spinoff of Nabisco or a substantially equivalent transaction.
Similarly, High River agreed not to engage in or propose any Business
Combination prior to the earliest of (x) the later of the 1997 annual meeting of
stockholders of RJR Nabisco and the first anniversary of the termination of the
High River Agreement (the "Reference Date"), (y) any termination of the High
River Agreement that occurs at or after certain termination events relating to
failures or an inability to effect the transactions contemplated by the High
River Agreement ("Termination Events") and (z) any termination of the High River
Agreement by Brooke Group or BGLS, or the New Valley Agreement (as defined
below) by New Valley or ALKI, at a time when High River is not in material
breach of its obligations.
The High River Agreement will automatically terminate on October 17, 1996
or upon the earlier termination of the New Valley Agreement (as defined below)
by High River. In addition, any party to the High River Agreement may terminate
it at any time, although the terminating party will be required to pay a fee of
$50 million to the nonterminating party if no Termination Event has occurred and
the nonterminating party is not in material breach of its obligations. The High
River Agreement also provides that any party may terminate the High River
Agreement and be entitled to receive a fee of $50 million from the
nonterminating party if the nonterminating party is in material breach of its
obligations and no Termination Event has occurred. The High River Agreement
further provides that BGLS will be required to pay a $50 million fee to High
River upon the consummation of a Business Combination (including a Permitted
Business Combination) between the BGL Group and RJR Nabisco if (x) such Business
Combination is consummated prior to the Reference Date, (y) a legally binding
agreement to enter into a Business Combination is entered into prior to the
Reference Date and such Business Combination is consummated prior to the second
anniversary of the date of such agreement or (z) nominees of BGL are elected to
constitute a majority of the directors of RJR Nabisco prior to the Reference
Date and a Business Combination is consummated prior to the fifth anniversary of
the date of such election. Finally, the High River Agreement provides that High
River will be entitled to a payment equal to 20% of the net profit with respect
to Common Stock held or sold by New Valley, ALKI or the BGL Group, after
deduction of certain expenses, including the costs of the consent solicitation
and certain proxy solicitations by the BGL Group and the costs of acquiring the
shares of the Common Stock (all of which expenses will be borne by New Valley,
ALKI or the BGL Group). Notwithstanding any such termination, the obligations of
the BGL Group and of High River not to engage in a Business Combination with RJR
Nabisco or the other activities described above will continue for the periods
described above.
Also on October 17, 1995, New Valley and ALKI, a subsidiary of New Valley,
entered into a separate agreement with High River, as amended (the "New Valley
Agreement"). Pursuant to the New Valley Agreement, New Valley sold 1,611,550
shares of Common Stock to High River for an aggregate purchase price of
$51,000,755, thereby approximately equalizing the number of shares of Common
Stock and total investment therein by the parties. In addition, the parties
agreed that each of New Valley and ALKI, on the one hand, and High River and its
affiliates, on the other
19
hand, would invest up to approximately $150 million in shares of Common Stock,
and may invest up to approximately $250 million in shares of Common Stock in
order to maximize profits. The obligations of the parties to make any
investments is subject to their ability to obtain and maintain margin loans
(using the shares of Common Stock purchased by them as collateral) to fund the
purchases, and to certain provisions of the New Valley Agreement which do not
require any party to purchase shares of Common Stock to the extent the purchase
price would exceed certain hurdles ($35.50 per share in respect of the first
$150 million in investments by each party, and $31.00 per share in respect of
the next $100 million in investments). New Valley and ALKI also agreed in the
New Valley Agreement to grant a stockholder demand, written consent or proxy
with respect to all shares of Common Stock held by them in the event that Brooke
Group or BGLS seeks to call a special meeting of stockholders, obtain the
approval of any of Brooke Group's consent solicitation proposals or replace the
Incumbent Board at the 1996 annual meeting of stockholders. The New Valley
Agreement automatically terminates at the same time, and is subject to earlier
termination by the parties under the same circumstances as the High River
Agreement. The parties to the New Valley Agreement are required to pay fees in
the same amounts and generally under the same circumstances as described above
under the High River Agreement, although the fees payable to a party under the
High River Agreement generally will be offset by fees paid to such party under
the New Valley Agreement, and fees payable to a party under the New Valley
Agreement generally will be offset by fees paid to such party under the High
River Agreement.
On February 29, 1996, New Valley entered into a total return equity swap
transaction with Internationale Nederlanden (U.S.) Capital Markets, Inc. (the
"Counterparty") relating to 1,000,000 shares of Common Stock. The transaction is
for a period of up to six months, subject to earlier termination at the election
of New Valley, and provides for New Valley to make a payment to the Counterparty
of approximately $1.52 million upon commencement of the swap. At the termination
of the transaction, if the price of the Common Stock during a specified period
prior to such date (the "Final Price") exceeds the price of the Common Stock
during a specified period following the commencement of the swap (the "Initial
Price"), the Counterparty will pay New Valley an amount in cash equal to the
amount of such appreciation with respect to 1,000,000 shares of Common Stock
plus the value of any dividends with a record date occurring during the swap
period. If the Final Price is less than the Initial Price, then New Valley will
pay the Counterparty at the termination of the transaction an amount in cash
equal to the amount of such decline with respect to 1,000,000 shares of Common
Stock, offset by the value of any dividends, provided that, with respect to
approximately 400,000 shares of Common Stock, New Valley will not be required to
pay any amount in excess of an approximate 25% decline in the value of the
shares. If the Initial Price differs from $34.25 per share, New Valley or the
Counterparty, as the case may be, will make an adjustment payment to the other
on March 14, 1996 in respect of that difference. The potential obligations of
the Counterparty under the swap are being guaranteed by ING Bank N.V., and New
Valley has pledged certain collateral in respect of its potential obligations
under the swap and has agreed to pledge additional collateral under certain
conditions.
Brooke Group, along with its wholly-owned subsidiary BGLS, is hereby
pledging to the stockholders of RJR Nabisco that it will terminate this
solicitation if, prior to the Annual Meeting, the Incumbent Board irrevocably
declares a dividend or other distribution to RJR Nabisco stockholders of all or
substantially all of RJR Nabisco's remaining equity interest in Nabisco or
20
makes a legally binding commitment to engage in another transaction with respect
to RJR Nabisco's investment in Nabisco providing substantially equivalent
economic benefits to stockholders.
Brooke Group, along with BGLS, is hereby pledging to the stockholders of
RJR Nabisco that the BGL Group will not engage in a Business Combination, other
than a Permitted Business Combination, at any time prior to the Annual Meeting
or during such time as the Brooke Group Nominees constitute a majority of the
directors of RJR Nabisco.
ADDITIONAL INFORMATION
Certain information regarding RJR Nabisco Voting Securities held by RJR
Nabisco's Directors, nominees, management and 5% stockholders is contained in
RJR Nabisco's Proxy Statement and is incorporated herein by reference.
Information concerning the date by which proposals of security holders intended
to be presented at the next annual meeting of stockholders of RJR Nabisco must
be received by RJR Nabisco for inclusion in RJR Nabisco's proxy statement and
form of proxy for that meeting is also contained in RJR Nabisco's Proxy
Statement and is incorporated herein by reference.
Brooke Group assumes no responsibility for the accuracy or completeness of
any information contained herein which is based on, or incorporated by reference
to, RJR Nabisco's Proxy Statement.
BROOKE GROUP LTD.
March 1, 1996
21
SCHEDULE I
SHARES HELD BY BROOKE GROUP, ITS DIRECTORS AND
EXECUTIVE OFFICERS, CERTAIN EMPLOYEES OF BROOKE GROUP,
THE BROOKE GROUP NOMINEES AND CERTAIN OTHER PERSONS WHO
ARE OR MAY BE PARTICIPANTS IN THIS SOLICITATION, AND CERTAIN
TRANSACTIONS BETWEEN ANY OF THEM AND RJR NABISCO
Certain information relating to the ownership of RJR Nabisco Voting
Securities by Brooke Group, BGLS, New Valley, ALKI, Liggett and Mr. LeBow is set
forth under "Certain Information Regarding Brooke Group." Additionally, Mr.
Chakalian, who is the Chairman of the Board, President and Chief Executive
Officer of Liggett, may be deemed to beneficially own the shares of Common Stock
beneficially owned by Liggett. The disclosure of this information shall not be
construed as an admission that Mr.Chakalian is the beneficial owner of any of
the Common Stock owned by Liggett either for purposes of Section 13(d) of the
Exchange Act or for any other purpose, and such beneficial ownership is
expressly disclaimed.
Mr. Lampen beneficially owns directly 2,000 shares of Common Stock. Dr.
Starbuck beneficially owns directly 1,000 shares of Common Stock. Mr. Strauss
beneficially owns directly 1,000 shares of Common Stock, as the trustee of a
trust. High River, and two of its affiliates also owned by Mr. Icahn,
beneficially owns 8,897,900 shares of Common Stock, and therefore, Mr. Icahn may
be deemed to beneficially own, indirectly, such shares of Common Stock.
Except as disclosed in this Proxy Statement, none of Brooke Group, New
Valley, BGLS, Liggett, ALKI, the Brooke Group Nominees or any other person named
in Schedule II owns any securities of RJR Nabisco or any parent or subsidiary of
RJR Nabisco, beneficially or of record, or is or was within the past year a
party to any contract, arrangement or understanding with any person with respect
to any such securities. Except as disclosed in this Proxy Statement, to the
knowledge of Brooke Group, New Valley, BGLS, Liggett, ALKI, the Brooke Group
Nominees and the persons named in Schedule II, none of their associates
beneficially owns, directly or indirectly, any securities of RJR Nabisco.
Except as disclosed in this Proxy Statement, none of Brooke Group, New
Valley, BGLS, Liggett, ALKI, the Brooke Group Nominees or any other person named
in Schedule II, or to their knowledge, any of their associates, has any
arrangements or understandings with any person with respect to (1) any future
employment by RJR Nabisco or its affiliates or (2) any future transactions to
which RJR Nabisco or any of its affiliates will or may be a party, nor had or
will have a direct or indirect material interest in any transaction or series of
similar transactions since the beginning of RJR Nabisco's last fiscal year, or
any currently proposed transaction or series of similar transactions, to which
RJR Nabisco or any of its subsidiaries was or is to be a party and in which the
amount involved exceeds $60,000.
In connection with its tobacco business, Liggett conducts business with
certain subsidiaries of RJR Nabisco. As of November 1, 1995, Liggett has entered
into an agreement with R.J. Reynolds Tobacco Company ("RJ Reynolds") an indirect
subsidiary of RJR Nabisco. Pursuant to this agreement, RJ Reynolds has agreed to
process tobacco products provided by Liggett into reconstituted sheet tobacco.
Liggett is obligated to pay to RJ Reynolds between $1.7 million and $2.5 million
during the term of the agreement, which expires on December 31, 1996, unless
extended or renewed. Liggett and RJR Packaging ("RJR Packaging") have entered
into supply agreements whereby RJR Packaging has agreed to supply certain
specified cigarette foil liner stock ("foil") from February 1, 1995 through
approximately December 31, 1996 to Liggett. Liggett will likely pay RJR
Packaging $180,000 per month for foil pursuant to this agreement.
I-1
The following table sets forth information relating to RJR Nabisco Voting
Securities purchased or sold within the past two years by the following persons:
Number of Shares
----------------------------------------
Date Purchased Sold
---- --------- ----
1. NEW VALLEY CORPORATION
02/24/95 ................................................... 200,000(1)(4)
02/27/95 ................................................... 200,000(1)(4)
03/01/95 ................................................... 100,000(1)(4)
03/02/95 ................................................... 12,900(1)(4)
03/06/95 ................................................... 100,000(2)(4)
1,000(2)(3)
108,600(1)(4)
03/16/95 ................................................... 1,000(2)(3)
07/28/95 ................................................... 200,000(4)
2. ALKI CORP. (5)
08/30/95 ................................................... 295,700
08/31/95 ................................................... 200,000
09/06/95 ................................................... 175,600
09/07/95 ................................................... 300,000
09/11/95 ................................................... 9,800
09/12/95 ................................................... 200,000
09/13/95 ................................................... 300,000
09/15/95 ................................................... 227,500
09/18/95 ................................................... 76,900
09/19/95 ................................................... 700,000
09/25/95 ................................................... 150,000
09/27/95 ................................................... 200,300
09/28/95 ................................................... 25,200
09/29/95 ................................................... 100,000
10/02/95 ................................................... 130,000
10/03/95 ................................................... 50,000
10/04/95 ................................................... 50,000
10/05/95 ................................................... 150,000
10/09/95 ................................................... 425,000
10/10/95 ................................................... 75,000
10/11/95 ................................................... 138,100
10/18/95 ................................................... 275,000
10/20/95 ................................................... 150,000
1,611,550(9)
10/23/95 ................................................... 650,000
10/24/95 ................................................... 950,000
10/26/95 ................................................... 200,000
621,500(1)
02/22/96 ................................................... 116,700
02/23/96 ................................................... 100,000
02/26/96 ................................................... 52,500
3. LIGGETT GROUP INC.
03/01/95 ................................................... 200(2)
4. BROOKE GROUP LTD.
11/15/95 ................................................... 200
5. WILLIAM STARBUCK
11/14/95 ................................................... 1,000
I-2
Number of Shares
----------------------------------------
Date Purchased Sold
---- --------- ----
6. RICHARD LAMPEN
11/13/95 ................................................... 2,000
7. PETER STRAUSS
2/6/96 ..................................................... 400
8. HIGH RIVER LIMITED PARTNERSHIP(6)
7/21/95 .................................................... 160,000(7)
140,000(8)
7/24/95 .................................................... 46,100
7/25/95 .................................................... 35,000
7/26/95 .................................................... 100,000
7/27/95 .................................................... 124,000
7/31/95 .................................................... 68,000
8/01/95 .................................................... 84,200
8/02/95 .................................................... 20,100
8/03/95 .................................................... 83,000(7)
8/04/95 .................................................... 11,100(7)
8/07/95 .................................................... 7,000(7)
8/14/95 .................................................... 50,000(7)
8/21/95 .................................................... 87,400(7)
8/22/95 .................................................... 135,000(7)
8/23/95 .................................................... 5,000
8/24/95 .................................................... 25,000
8/25/95 .................................................... 25,000
10/19/95 ................................................... 146,700
10/20/95 .................................................. 1,779,650(9)
10/23/95 .................................................. 667,300
10/24/95 .................................................. 900,450
10/25/95 .................................................. 998,000
10/26/95 .................................................. 1,366,000
10/27/95 .................................................. 949,000
2/21/96 .................................................... 150,000
2/22/96 .................................................... 257,500
2/26/96 .................................................... 52,500
2/28/96 .................................................... 105,500
2/29/96 .................................................... 319,400
Unless noted by either (1) or (3), securities traded are Common Stock.
(1) Securities are PERCS.
(2) Number of shares of Common Stock restated to reflect the April 12, 1995
one-for-five reverse split.
(3) Securities are Common Stock Call Options.
(4) New Valley subsequently transferred such securities to ALKI on or about
September 22, 1995.
(5) ALKI's RJR Nabisco Voting Securities are contained in a margin account in
the regular course of business of a broker in connection with the purchases
listed in the table. As of February 29, 1996, $83,143,846 of this
indebtedness was outstanding.
(6) On December 21, 1995, High River loaned to an affiliate 2,951,000 shares
of RJR Nabisco Voting Securities to further collateralize such affiliate's
line of bank credit. The balance of High River's shares of RJR Nabisco
Voting Securities are contained in margin accounts in the regular course
of business, at various broker dealers.
(7) Securities purchased through Riverdale Investors Corp., an affiliate of
High River.
(8) Securities purchased through Barberry Corp., an affiliate of High River.
(9) Pursuant to the terms of the New Valley Agreement.
I-3
SCHEDULE II
INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN
EMPLOYEES OF BROOKE GROUP, AND OTHER PARTICIPANTS.
The following table sets forth the name and the present principal
occupation or employment, and the name, principal business and address of any
corporation or other organization in which such employment is carried on, of (1)
the directors, executive officers and certain employees of Brooke Group and (2)
other persons who may be deemed participants in the solicitation. Unless
otherwise indicated, the principal business address of each director, executive
officer, employee or other listed person is 100 S.E. Second Street, Miami,
Florida 33131.
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES
OF BROOKE GROUP
Present Office or Other
Name and Principal Principal Occupation or
Business Address Employment
------------------ ------------------------
Bennett S. LeBow ....... Chairman of the Board, President and Chief Executive
Officer of Brooke Group. Chairman of the Board,
President and Chief Executive Officer of BGLS. Member
of the Board of Directors of Liggett. Chairman of the
Board and Chief Executive Officer of New Valley.
Gerald E. Sauter ....... Vice President, Chief Financial Officer and Treasurer
of Brooke Group. Vice President, Chief Financial
Officer and Treasurer of BGLS. Vice President, Chief
Financial Officer and Treasurer and member of the
Board of Directors of New Valley.
Robert J. Eide ......... Director of Brooke Group. Director of BGLS. Secretary
70 E. Sunrise Hwy and Treasurer of Aegis Capital Corp., a registered
Valley Stream, NY 11581 broker-dealer.
Jeffrey S. Podell ...... Director of Brooke Group. Director of BGLS. Chairman of
26 Jefferson St. the Board and President of Newsote, Inc., parent of
Passaic, NJ 07055 Pantasote, Inc., a former manufacturer of
plastic products.
Andrew E. Balog ........ Associate General Counsel and Assistant Secretary of
Brooke Group. Associate General Counsel and Assistant
Secretary of BGLS and New Valley.
Marc N. Bell ........... General Counsel and Secretary of Brooke Group.
Associate General Counsel and Secretary of New
Valley. Secretary of BGLS.
J. Bryant Kirkland, III. Director of Financial Research and Analysis of
New Valley Corporation.
Robert M. Lundgren ..... Controller of New Valley.
II-1
OTHER PERSONS WHO MAY BE DEEMED PARTICIPANTS
Present Office or Other
Name and Principal Principal Occupation or
Business Address Employment
------------------ ------------------------
Carl C. Icahn ................... Chairman of Board and Chief Executive Officer.
ACF Industries, Incorporated
620 N. Second Street
St. Charles, Missouri 63301
Karen Eisenbud .................. Consultant.
Brooke Group Ltd.
1285 Avenue of the Americas
33rd Floor
New York, NY 10019
Seth Lemler ..................... Consultant.
Brooke Group Ltd.
1285 Avenue of the Americas
33rd Floor
New York, NY 10019
Howard M. Lorber ................ President and Chief Operating Officer.
New Valley Corporation
100 S.E. Second Street
Miami, FL 33131
Michael Wainstein. .............. Consultant.
Brooke Group Ltd.
1285 Avenue of the Americas
33rd Floor
New York, NY 10019
Jorden Podell ................... Consultant.
Brooke Group Ltd.
1285 Avenue of the Americas
33rd Floor
New York, NY 10019
High River Limited Partnership .. Company engaged in investing in securities of
c/o Icahn Associates Corp. various companies.
114 West 47th Street
Suite 1925
New York, NY 10036
BGLS Inc. ........................ Company engaged through subsidiaries in the
manufacture and sale of cigarettes, and
through its investment in New Valley in the
investment banking and brokerage business,
ownership and management of commercial real
estate and the acquisition of operating
companies.
Liggett Group Inc. ............... Company engaged in the manufacture and sale
700 West Main St. of cigarettes.
Durham, NC 27701
New Valley Corporation ........... Company engaged in the investment banking and
brokerage business, ownership and
management of commercial real estate and
the acquisition of operating companies.
Ronald Fulford ................... Consultant.
10 Fawns Leap
Cuddington, Nr. Northwich
Cheshire CW8 2UF
England
II-2
IMPORTANT
1. If your shares are held in your own name, please mark, date and mail the
enclosed BLUE proxy card to our Information Agent, Georgeson & Company Inc., in
the postage-paid envelope provided.
2. If your shares are held in the name of a brokerage firm, bank nominee or
other institution, only it can vote such shares and only upon receipt of your
specific instructions. Accordingly, you should contact the person responsible
for your account and give instructions for a BLUE proxy card to be signed
representing your shares.
3. If you have already submitted a proxy to RJR Nabisco for the Annual
Meeting, you may change your vote to a vote FOR the election of the Brooke Group
Nominees by marking, signing, dating and returning the enclosed BLUE proxy card
for the Annual Meeting, which must be dated after any proxy you may have
submitted to RJR Nabisco. ONLY YOUR LATEST DATED PROXY FOR THE ANNUAL MEETING
will count at such meeting.
If you have any questions or require any assistance, please call Georgeson
& Company Inc. at the following number:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, New York 10005
Toll Free: 1-800-SPINOFF
Banks and Brokerage Firms, please call collect:
(212) 440-9800
INTERNET INFORMATION
To access more information about our solicitation on the World Wide Web,
use the following address:
http://www.georgeson.com
or
http://www.brookegroup.com
PROXY CARD
RJR NABISCO HOLDINGS CORP.
1996 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY BROOKE GROUP LTD.
The undersigned is the record holder of Common Stock, par value $.01 per
share (the "Shares"), of RJR Nabisco Holdings Corp. and hereby appoints each of
Bennett S. LeBow, Howard M. Lorber and Marc N. Bell and each of them with full
power of substitution, for and in the name of the undersigned, to represent and
to vote, as designated below, all Shares that the undersigned is entitled to
vote if personally present at the 1996 Annual Meeting of Stockholders of RJR
Nabisco Holdings Corp., and at any adjournment, postponement or rescheduling
thereof. The undersigned hereby revokes any previous proxies with respect to the
matters covered by this Proxy.
This Proxy, when properly executed, will be voted in the manner marked
herein by the undersigned stockholder. IF NO MARKING IS MADE, THIS PROXY WILL BE
DEEMED TO BE A DIRECTION TO VOTE FOR ALL BROOKE GROUP NOMINEES IN ITEM 1, FOR
THE PROPOSALS LISTED IN ITEMS 2, 7 AND 10 AND TO ABSTAIN FROM VOTING ON ITEMS 3,
4, 5, 6, 8, 9 AND 11.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE POSTAGE-PAID
ENVELOPE ENCLOSED.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
BROOKE GROUP LTD. RECOMMENDS A VOTE FOR ITEMS 1, 2, 7 AND 10.
1. Election of Arnold I. Burns, Rouben V. Chakalian, Robert L. Frome, Dale M.
Hanson, Richard J. Lampen, Bennett S. LeBow, Barry W. Ridings, William H.
Starbuck, Peter Strauss and Frederick W. Zuckerman as directors whose terms
expire in 1997.
FOR all nominees (except as marked below) [ ] WITHOLD AUTHORITY for all
nominees [ ]
(INSTRUCTION: To withhold authority to vote for one or more nominees, mark
FOR above and print the name(s) of the person(s) with respect
to whom you wish to withhold authority in the space provided
below.)
---------------------------------------------------------------
2. Ratification of Auditors FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Equal Employment Reporting
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Discourage Underage
Smoking Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Infants and Tobacco Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Rating and Curbing
Nicotine Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Non-Tobacco Separation Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Executive Officer Compensation
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Stock Compensation for Directors
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Non-Employee Director Pensions
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Golden Parachutes Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
When shares are held by joint tenants, both should sign. When
signing as attorney-in-fact, executor, administrator, trustee,
guardian, corporate officer or partner, please give full title as
such. If a corporation, please sign in corporate name by
President or other authorized officer. If a partnership, please
sign a partnership name by authorized person.
-----------------------------------------------------------------
Signature(s) of Stockholder(s) Date
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Title, if any
PROXY CARD SERIES C
RJR NABISCO HOLDINGS CORP.
1996 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY BROOKE GROUP LTD.
The undersigned is the record holder of shares of Series C Conversion
Preferred Stock, par value $.01 per share (the "Shares"), of RJR Nabisco
Holdings Corp. and hereby appoints each of Bennett S. LeBow, Howard M. Lorber
and Marc N. Bell and each of them with full power of substitution, for and in
the name of the undersigned, to represent and to vote, as designated below, all
Shares that the undersigned is entitled to vote if personally present at the
1996 Annual Meeting of Stockholders of RJR Nabisco Holdings Corp., and at any
adjournment, postponement or rescheduling thereof. The undersigned hereby
revokes any previous proxies with respect to the matters covered by this Proxy.
This Proxy, when properly executed, will be voted in the manner marked
herein by the undersigned stockholder. IF NO MARKING IS MADE, THIS PROXY WILL BE
DEEMED TO BE A DIRECTION TO VOTE FOR ALL BROOKE GROUP NOMINEES IN ITEM 1, FOR
THE PROPOSALS LISTED IN ITEMS 2, 7 AND 10 AND TO ABSTAIN FROM VOTING ON ITEMS 3,
4, 5, 6, 8, 9 AND 11.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE POSTAGE-PAID
ENVELOPE ENCLOSED.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
BROOKE GROUP LTD. RECOMMENDS A VOTE FOR ITEMS 1, 2, 7 AND 10.
1. Election of Arnold I. Burns, Rouben V. Chakalian, Robert L. Frome, Dale M.
Hanson, Richard J. Lampen, Bennett S. LeBow, Barry W. Ridings, William H.
Starbuck, Peter Strauss and Frederick W. Zuckerman as directors whose terms
expire in 1997.
FOR all nominees (except as marked below) [ ] WITHOLD AUTHORITY for all
nominees [ ]
(INSTRUCTION: To withhold authority to vote for one or more nominees, mark
FOR above and print the name(s) of the person(s) with respect
to whom you wish to withhold authority in the space provided
below.)
---------------------------------------------------------------
2. Ratification of Auditors FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Equal Employment Reporting
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Discourage Underage
Smoking Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Infants and Tobacco Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Rating and Curbing
Nicotine Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Non-Tobacco Separation Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Executive Officer Compensation
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Stock Compensation for Directors
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Non-Employee Director Pensions
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Golden Parachutes Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
When shares are held by joint tenants, both should sign. When
signing as attorney-in-fact, executor, administrator, trustee,
guardian, corporate officer or partner, please give full title as
such. If a corporation, please sign in corporate name by
President or other authorized officer. If a partnership, please
sign a partnership name by authorized person.
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Signature(s) of Stockholder(s) Date
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Title, if any
PROXY CARD ESOP
RJR NABISCO HOLDINGS CORP.
1996 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY BROOKE GROUP LTD.
The undersigned is the record holder of shares of ESOP Convertible
Preferred Stock, par value $.01 per share and stated value $16 per share (the
"Shares"), of RJR Nabisco Holdings Corp. and hereby appoints each of Bennett S.
LeBow, Howard M. Lorber and Marc N. Bell and each of them with full power of
substitution, for and in the name of the undersigned, to represent and to vote,
as designated below, all Shares that the undersigned is entitled to vote if
personally present at the 1996 Annual Meeting of Stockholders of RJR Nabisco
Holdings Corp., and at any adjournment, postponement or rescheduling thereof.
The undersigned hereby revokes any previous proxies with respect to the matters
covered by this Proxy.
This Proxy, when properly executed, will be voted in the manner marked
herein by the undersigned stockholder. IF NO MARKING IS MADE, THIS PROXY WILL BE
DEEMED TO BE A DIRECTION TO VOTE FOR ALL BROOKE GROUP NOMINEES IN ITEM 1, FOR
THE PROPOSALS LISTED IN ITEMS 2, 7 AND 10 AND TO ABSTAIN FROM VOTING ON ITEMS 3,
4, 5, 6, 8, 9 AND 11.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE POSTAGE-PAID
ENVELOPE ENCLOSED.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
BROOKE GROUP LTD. RECOMMENDS A VOTE FOR ITEMS 1, 2, 7 AND 10.
1. Election of Arnold I. Burns, Rouben V. Chakalian, Robert L. Frome, Dale M.
Hanson, Richard J. Lampen, Bennett S. LeBow, Barry W. Ridings, William H.
Starbuck, Peter Strauss and Frederick W. Zuckerman as directors whose terms
expire in 1997.
FOR all nominees (except as marked below) [ ] WITHOLD AUTHORITY for all
nominees [ ]
(INSTRUCTION: To withhold authority to vote for one or more nominees, mark
FOR above and print the name(s) of the person(s) with respect
to whom you wish to withhold authority in the space provided
below.)
---------------------------------------------------------------
2. Ratification of Auditors FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Equal Employment Reporting
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Discourage Underage
Smoking Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Infants and Tobacco Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Rating and Curbing
Nicotine Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Non-Tobacco Separation Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Executive Officer Compensation
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Stock Compensation for Directors
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Non-Employee Director Pensions
Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Golden Parachutes Proposal FOR [ ] AGAINST [ ] ABSTAIN [ ]
When shares are held by joint tenants, both should sign. When
signing as attorney-in-fact, executor, administrator, trustee,
guardian, corporate officer or partner, please give full title as
such. If a corporation, please sign in corporate name by
President or other authorized officer. If a partnership, please
sign a partnership name by authorized person.
-----------------------------------------------------------------
Signature(s) of Stockholder(s) Date
-----------------------------------------------------------------
-----------------------------------------------------------------
Title, if any
AGREEMENT
This AGREEMENT among Brooke Group Ltd., a Delaware corporation ("BGL"),
BGLS Inc., a Delaware corporation and a direct wholly owned subsidiary of BGL
("BGLS"), and High River Limited Partnership, a Delaware limited partnership
("High River"), dated October 17, 1995
W I T N E S S E T H:
WHEREAS, High River, directly or indirectly, and BGL and BGLS, indirectly
through their ownership of stock of New Valley Corporation, a New York
corporation ("New Valley"), are stockholders of RJR Nabisco Holdings Corp., a
Delaware corporation ("RJRN");
WHEREAS, the parties hereto believe that the value of RJRN stockholders'
investment can be substantially increased through a spinoff (the "Spinoff") of
all or substantially all of RJRN's remaining investment in Nabisco Holding
Corp., a Delaware corporation ("Nabisco");
WHEREAS, BGL and BGLS desire to obtain the assistance and advice of High
River with respect to measures designed to effectuate the Spinoff at the
earliest possible date;
WHEREAS, High River is willing to give such assistance and advice to BGL
and BGLS in consideration of the agreements by BGL and BGLS set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises set forth herein, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. Solicitation of Other Investors and RJRN Stockholders. (a) Each
of the parties hereto intends to use its best efforts to encourage other
investors to acquire shares of common stock, par value $.01 per share
("Shares"), of RJRN and to persuade such investors and other major stockholders
of RJRN to cooperate with the parties hereto in order to cause RJRN to
effectuate the Spinoff. The parties hereto anticipate that, as an inducement to
such investors and stockholders, the parties hereto may enter into binding
contractual arrangements with such investors and stockholders on terms which
may but need not be
similar to the terms of this Agreement, and that this Agreement may be amended
amended or supplemented from time to time to reflect such arrangements. The
parties hereto agree that, in the event any party hereto proposes to enter into
any such contractual arrangement or so to amend or supplement this Agreement,
the parties hereto shall attempt in good faith to reach mutually acceptable
terms with respect to any such proposed arrangement, amendment or supplement.
(b) BGL and BGLS intend to seek RJRN stockholder approval, either at RJRN's
1996 annual meeting of stockholders (the "1996 Annual Meeting") or at a special
meeting of RJRN stockholders (a "Special Meeting") or through action by written
consent of the RJRN stockholders without a meeting, of any or all of the
following proposals (the "Proposals"): (i) a proposal to recommend that the
Board of Directors of RJRN (the "RJRN Board") cause RJRN to effectuate the
Spinoff (the "Spinoff Proposal"), (ii) a proposal to remove the entire RJRN
Board and to elect as directors of RJRN a slate of nominees who shall be
selected by BGL (the "BGL Nominees") and who shall pledge to carry out the
Spinoff as promptly as practicable following their election (the "Election
Proposal"), (iii) a proposal for the combination, incident to the Spinoff, of
the tobacco business of Liggett Group Inc., a Delaware corporation ("Liggett"),
with the tobacco business of RJRN and (iv) a proposal to amend the by-laws of
RJRN in any manner that may be necessary in order to ensure that RJRN
stockholders are permitted to call a Special Meeting and to vote freely at such
Special Meeting or at the 1996 Annual Meeting on any or all of the Proposals, or
in any other way necessary to facilitate the Proposals (the "By-Law Amendment
Proposal"). In connection with the foregoing, BGL and BGLS may seek written
demands or requests from RJRN stockholders ("Stockholder Demands") that a
Special Meeting be held for the purpose of voting on any or all of the
Proposals. BGL and BGLS may also seek written consents from RJRN stockholders
("Written Consents") to adopt any or all of the Proposals.
(c) Prior to the 1996 Annual Meeting, BGL or BGLS shall solicit Written
Consents in favor of the Spinoff Proposal and the By-Law Amendment Proposal. BGL
or BGLS may also, in its sole discretion, conduct solicitations, in addition to
the solicitation described in the preceding sentence, of Stockholder Demands or
Written Consents in favor of the other Proposals, or of proxies to be voted in
favor of one or more of the Proposals at the 1996 Annual Meeting or a Special
Meeting ("Proxies"). In respect of any such solicitation of Stockholder Demands,
Written Consents or Proxies:
(i) BGL or BGLS shall prepare and file with the Securities and
Exchange Commission (the "SEC") and mail to
2
RJRN stockholders, a solicitation statement under Regulation 14A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating
to such solicitation (the "Solicitation Statement");
(ii) the Solicitation Statement relating to any solicitation of
Written Consents or Proxies seeking RJRN stockholder approval of the
Election Proposal, or of Stockholder Demands for a Special Meeting at which
RJRN stockholder approval of the Election Proposal will be sought, shall
contain a pledge (the "BGL Pledge") by BGL and BGLS stating, in substance,
that (A) BGL, BGLS and their affiliates (the "BGL Group") will not engage
in any Business Combination (as defined below in Section 3(a)) other than a
Permitted Business Combination (as defined below in Section 3(b)) at any
time (I) prior to the earlier of (x) the 1996 Annual Meeting and (y) the
occurrence of a Termination Event (as defined below in Section 3(c))
described in Section 3(c)(iii) (in the case of a solicitation of
Stockholder Demands), Section 3(c)(iv) (in the case of a solicitation of
Written Consents) or Section 3(c)(v) (in the case of a solicitation of
Proxies), or (II) when BGL Nominees constitute a majority of the RJRN
Board, (B) the BGL Group will not exercise any management control over
Nabisco prior to the consummation of the Spinoff and (C) the BGL Group will
halt its solicitation of Stockholder Demands, Written Consents or Proxies,
as the case may be, if the RJRN Board takes any action described in Section
3(c)(vi); and
(iii) if BGL and BGLS take the actions described in clause (ii) with
respect to any solicitation described in clause (i), then (A) promptly upon
the request of BGL or BGLS, High River shall (and shall cause each of its
affiliates to) execute and deliver to BGL or BGLS a valid Stockholder
Demand, Written Consent or Proxy, as the case may be (and not withdraw such
Stockholder Demand, Written Consent or Proxy), with respect to all of the
Shares and all of the depositary shares representing Series C Conversion
Preferred Stock, par value $.01 per share ("Series C Depositary Shares"),
of RJRN beneficially owned by it and (B) each of BGL and BGLS shall (and
shall cause each of its affiliates to) vote in favor of such Proposal all
Shares and all Series C Depositary Shares beneficially owned by it.
Section 2. Termination. (a) This Agreement shall automatically terminate
upon the earlier of (i) the first anniversary of the date hereof and (ii) the
termination of the Agreement dated as of October 17, 1995 among New Valley, ALKI
Corp., a Delaware corporation ("NV Sub"), and High River (the "New Valley
Agreement") by High River, and any party hereto may
3
terminate this Agreement sooner at any time in its sole discretion by written
notice to the other parties hereto, provided, however, that if New Valley or NV
Sub terminates the New Valley Agreement, then BGL and BGLS shall be deemed to
have simultaneously terminated this Agreement.
(b) If this Agreement is terminated pursuant to this Section 2, this
Agreement shall forthwith become null and void, and there shall be no liability
or obligation on the part of any party hereto, except for the obligations of the
parties hereto pursuant to Section 4, Section 5 and Section 8, which shall
remain in full force and effect for the periods set forth therein.
Section 3. Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(a) "Business Combination," with respect to any party hereto, means:
(i) Any material sale of capital stock or other equity interests of
RJRN beneficially owned by such party or any of such party's affiliates to
RJRN or any of RJRN's affiliates, other than a sale effected on a
registered securities exchange or through the NASDAQ system that satisfies
the following conditions: (A) such sale is not pursuant to any agreement,
understanding or arrangement with RJRN or any of its affiliates, agents or
representatives, (B) either (I) such party and its affiliates do not know
that RJRN or one of its affiliates is the buyer or (II) such sale is
pursuant to a market repurchase program which has previously been publicly
announced by RJRN or one of its affiliates and (C) such party has given
notice to the other parties at least one day prior to such sale of its
intention to sell such Shares (which notice shall describe the approximate
number of Shares to be sold and the approximate time period in which such
sales will be made, but need not specify the exact number of Shares to be
sold or the exact timing of such sales);
(ii) Any material sale of capital stock or other equity interests of
such party or any of such party's affiliates to RJRN or any of RJRN's
affiliates, other than pursuant to a sale effected on a registered
securities exchange or through the NASDAQ system which is not pursuant to
any agreement, understanding or arrangement with RJRN or any of its
affiliates, agents or representatives and such party and its affiliates do
not know that RJRN or one of its affiliates is the buyer;
4
(iii) Any merger, consolidation or combination of such party or any of
such party's material affiliates with RJRN or any of RJRN's affiliates;
(iv) Any material borrowings by such party or any of such party's
affiliates from RJRN or any of RJRN's affiliates, or by RJRN or any of
RJRN's affiliates from such party or any of such party's affiliates, other
than credit in the ordinary course of business substantially in accordance
with industry practice or past practice;
(v) Any sale or other disposition of any material assets or properties
of such party or any of such party's affiliates to RJRN or any of RJRN's
affiliates, or of any material assets or properties of RJRN or any of
RJRN's affiliates to such party or any of such party's affiliates, other
than in the ordinary course of business substantially in accordance with
industry practice or past practice; or
(vi) Any receipt by such party or any of such party's affiliates of
any material benefit, including any material payment in cash or in kind
from RJRN, other than benefits or payments in the ordinary course of
business substantially in accordance with industry practice or past
practice;
except, in each case, for a transaction that is made available to all other
holders of Shares substantially at the same time on substantially equivalent
terms.
(b) "Permitted Business Combination" means any Business Combination which
is either (i) consummated substantially simultaneously with or subsequently to
(A) a dividend or other distribution to RJRN's stockholders of all or
substantially all of RJRN's remaining equity interest in Nabisco or (B) another
transaction with respect to RJRN's investment in Nabisco which would provide
substantially equivalent value to RJRN's stockholders or (ii) approved by the
holders of a majority of the outstanding Shares not then beneficially owned by
the BGL Group or by New Valley and its affiliates (the "New Valley Group").
(c) "Termination Event" means any of the following events:
(i) Any judgment, ruling, order or decree of any court or any other
governmental agency or authority prohibiting, enjoining or restraining, or
which has the effect of prohibiting, enjoining or restraining, any party to
this Agreement or the New Valley Agreement from
5
fulfilling its material obligations under this Agreement or the New Valley
Agreement, or which would otherwise render unlawful, the fulfillment of any
party's material obligations under this Agreement or the New Valley
Agreement, except any judgment, ruling, order or decree (A) arising out of
a breach of any representation contained in Section 7 of this Agreement or
in Section 8 of the New Valley Agreement or (B) prohibiting, enjoining or
restraining, or which has the effect of prohibiting, enjoining or
restraining, or otherwise rendering unlawful any Business Combination other
than a Permitted Business Combination (an "Order") is in effect and such
party has not appealed such Order by appropriate proceedings prior to or on
the tenth day after such Order is entered, or any Order has been in effect
for at least 30 days and has not been vacated or reversed, or any
governmental agency or authority has indicated to any party, orally or in
writing, its intention to issue or to seek to obtain an Order (an "Order
Threat"); provided, however, that any such event shall be a Termination
Event only if (x) in the case of any party which is (or a member of whose
Group is) the subject of an Order or Order Threat, such party gives prompt
notice thereof to the other party and thereafter terminates this Agreement
or the New Valley Agreement prior to or on the tenth day after such event
occurs and (y) in the case of a party which is not (and all of the members
of whose Group are not) the subject of such an Order or Order Threat, such
party thereafter terminates this Agreement or the New Valley Agreement
prior to or on the tenth day following the time such party receives notice
thereof from the subject party;
(ii) The Federal Trade Commission (the "FTC") or the Antitrust
Division of the Department of Justice (the "Antitrust Division") has
instituted any action or proceeding seeking to prohibit, enjoin or restrain
any party to this Agreement or the New Valley Agreement from fulfilling its
material obligations under this Agreement or the New Valley Agreement or to
require any such party or any of its affiliates to make any material
divestitures as a condition to the fulfillment of such obligations, or
otherwise to impose any conditions or restrictions which could have a
material adverse effect on any party hereto or on the transactions
contemplated by this Agreement or the New Valley Agreement, or the FTC or
the Antitrust Division has indicated to any such party, orally or in
writing, its intention to institute any such action or proceeding, in each
case other than any action, proceeding, requirement, condition or
restriction with respect to any Business Combination except a Permitted
Business Combination; provided, however, that any such event shall be a
6
Termination Event only if the party which is the subject of such action,
proceeding, requirement, condition or restriction thereafter terminates
this Agreement or the New Valley Agreement prior to or on the tenth day
after such event occurs;
(iii) BGL or BGLS has commenced a solicitation of Stockholder Demands
and has failed to receive within 120 days after the date of commencement
the number of validly executed and unwithdrawn Stockholder Demands
necessary to require RJRN to hold a Special Meeting, unless (A) the Special
Meeting has otherwise been called or held or (B) on or prior to such 120th
day, BGL and BGLS have taken all actions necessary to cause one or more of
the Proposals to be brought before the 1996 Annual Meeting;
(iv) BGL or BGLS has commenced a solicitation of Written Consents with
respect to one or more Proposals and has failed to receive within 120 days
after the date of commencement the number of validly executed and
unwithdrawn Written Consents necessary to approve at least one such
Proposal, unless (A) at least one such Proposal has been otherwise approved
at the 1996 Annual Meeting or a Special Meeting or (B) on or prior to such
120th day, BGL and BGLS have taken all actions necessary to cause at least
one such Proposal to be submitted for a stockholder vote at the 1996 Annual
Meeting or a Special Meeting;
(v) A Special Meeting or the 1996 Annual Meeting has been held, and
one or more of the Proposals has been voted upon thereat, the BGL Nominees
have not been elected to constitute a majority of the RJRN directors then
in office and either (A) BGL and BGLS have determined not to pursue any
further judicial review of the results of the vote at the Special Meeting
or the 1996 Annual Meeting, as the case may be, or (B) no such further
judicial review is available;
(vi) The RJRN Board has irrevocably declared a dividend or other
distribution to RJRN's stockholders of all or substantially all of RJRN's
remaining equity interest in Nabisco or has made any other legally binding
commitment to engage in a transaction with respect to RJRN's investment in
Nabisco which would provide substantially equivalent economic benefits to
RJRN's stockholders;
(vii) Any event has occurred, or RJRN has taken any action, which is
reasonably likely to have a material adverse effect on the business,
operations or financial condition of RJRN and its subsidiaries, taken as a
whole;
7
(viii) BGL or BGLS determines, reasonably and in good faith, that any
event has occurred as a result of which no solicitation of Stockholder
Demands, Written Consents or Proxies with respect to the Proposals would
have a reasonable chance of success; provided, however, that any such event
shall be a Termination Event only if BGL or BGLS notifies High River of
such determination (which notice shall specify in reasonable detail the
nature of the event which has occurred and the reasons for such
determination) at least five business days prior to terminating this
Agreement or the New Valley Agreement and thereafter BGL or BGLS terminates
this Agreement, and New Valley or NV Sub terminates the New Valley
Agreement, on such fifth business day; and provided that in any challenge
by High River of a termination under this subpart (viii), High River shall
bear the burden, in order to prevail, of establishing that BGL's or BGLS's
determination as first set forth in this subpart (viii) was unreasonable or
was made in bad faith;
(ix) BGL and BGLS (A) fail to nominate the BGL Nominees prior to
November 20, 1995, or such later date as may be designated by RJRN as the
final date for such nominations to be made, for election to the RJRN Board
at the 1996 Annual Meeting in accordance with the procedures set forth in
the most recent version of the by-laws of RJRN filed with the SEC prior to
such date, (B) fail to mail to RJRN stockholders a Solicitation Statement
relating to a solicitation of Written Consents with respect to the Spinoff
Proposal and/or the By-Law Amendment Proposal prior to December 15, 1995,
(C) fail to file the Solicitation Statement relating to the Annual Meeting
preliminarily with the SEC prior to the earlier of (I) February 15, 1996
and (II) the date on which a Solicitation Statement described in clause (B)
of this Section 3(c)(ix) is first mailed to RJRN stockholders, (D) fail to
make the BGL Pledge in any Solicitation Statement relating to any
solicitation of Written Consents or Proxies seeking RJRN stockholder
approval of the Election Proposal, or of Stockholder Demands for a Special
Meeting at which RJRN stockholder approval of the Election Proposal will be
sought, or (E) take any action in violation of the BGL Pledge after it is
made; provided, however, that any such event shall be a Termination Event
only if High River thereafter terminates this Agreement or the New Valley
Agreement prior to or on the tenth day after the first date that High River
becomes aware that such event has occurred, but in no event shall the
failure to terminate this Agreement after the occurrence of any such event
prohibit the termination of this Agreement upon the subsequent occurrence
of any other such event; or
8
(x) Either Group sells any Shares under the circumstances described in
clause (x) of the first proviso to the first sentence of Section 1(d)(i) of
the New Valley Agreement, or is required to offer any Shares to another
party pursuant to the first sentence of Section 1(d)(ii) of the New Valley
Agreement; provided, however, that any such event shall be a Termination
Event only if a party to the New Valley Agreement which is not a member of
such Group thereafter terminates the New Valley Agreement prior to or on
the tenth day after the first date that such party becomes aware that such
event has occurred.
Section 4. Certain Fees and Percentage Payments. (a) BGLS shall pay or
cause to be paid to High River the sum of $50 million promptly upon:
(i) any termination of this Agreement by BGL or BGLS at a time when
(A) no Termination Event has occurred and (B) High River is not in material
breach of its obligations (the "High River Obligations") under Section
1(c)(iii) or Section 8 of this Agreement or Section 1(a), the fourth
sentence of Section 1(c)(v), the ninth sentence of Section 1(c)(v) or
Section 1(d)(i) of the New Valley Agreement;
(ii) any termination of this Agreement by High River at a time when
(A) no Termination Event has occurred, (B) BGL or BGLS is in material
breach of its obligations (the "BGL Obligations") under Section 1(c)(iii)
of this Agreement and (C) High River is not in material breach of the High
River Obligations; or
(iii) the consummation of any Business Combination (including any
Permitted Business Combination) with respect to the BGL Group, if:
(A) such Business Combination is consummated prior to the later
of (I) the date of RJRN's annual meeting of stockholders for 1997 and
(II) the first anniversary of the date of termination of this
Agreement (the later of such dates being referred to herein as the
"Reference Date");
(B) a legally binding agreement to enter into such Business
Combination or any other Business Combination is entered into prior to
the Reference Date and such Business Combination is consummated prior
to the second anniversary of the date of such agreement; or
9
(C) the BGL Nominees are elected to constitute a majority of the
RJRN Board prior to the Reference Date and such Business Combination
is consummated prior to the fifth anniversary of the date of such
election;
provided, however, that (x) High River shall not be entitled to more than one
fee under this Section 4(a), (y) High River shall not be entitled to any fee
under this Section 4(a) if BGL shall have previously or shall concurrently
become entitled to the fee described in Section 4(b) of this Agreement or if New
Valley shall have previously become entitled to the fee described in Section
5(b) of the New Valley Agreement and (z) the amount of any fee to which High
River may be entitled at any time pursuant to this Section 4(a) shall be reduced
by the amount of any fee (the "New Valley Fee") which High River shall
theretofore have been paid pursuant to Section 5(a) of the New Valley Agreement
and by any percentage payment (the "New Valley Percentage Payment") which High
River shall theretofore have been paid pursuant to Section 5(d) of the New
Valley Agreement, in either of which events BGL or BGLS shall promptly upon
request by New Valley reimburse New Valley for all or any part of the New Valley
Fee or the New Valley Percentage Payment paid by or on behalf of New Valley.
(b) High River shall pay or cause to be paid to BGL the sum of $50 million
promptly upon:
(i) any termination of this Agreement by High River at a time when (A)
no Termination Event has occurred, (B) BGL and BGLS are not in material
breach of any of the BGL Obligations and (C) New Valley and NV Sub are not
in material breach of any of their obligations (the "New Valley
Obligations") under Section 1(a), the fourth sentence of Section 1(c)(v),
the ninth sentence of Section 1(c)(v), Section 1(d)(i) or Section 2 of the
New Valley Agreement;
(ii) any termination of this Agreement by BGL or BGLS at a time when
(A) no Termination Event has occurred, (B) High River is in material breach
of its obligations under Section 1(c)(iii) or Section 8 of this Agreement,
(C) BGL and BGLS are not in material breach of the BGL Obligations and (D)
New Valley and NV Sub are not in material breach of the New Valley
Obligations;
provided, however, that (x) BGL shall not be entitled to more than one fee under
this Section 4(b), (y) BGL shall not be entitled to any fee under this Section
4(b) if High River shall have previously or shall concurrently become entitled
to the fee described in Section 4(a) of this Agreement or the fee described
10
in Section 5(a) of the New Valley Agreement and (z) the amount of any fee to
which BGL may be entitled at any time pursuant to this Section 4(b) shall be
reduced by the amount of any fee which New Valley shall theretofore have been
paid pursuant to Section 5(b) of the New Valley Agreement.
(c) Notwithstanding anything in this Agreement or the New Valley Agreement
to the contrary,
(i) if the New Valley Group (as such term is defined in the New Valley
Agreement) or the BGL Group sells any Shares or any Other Securities (as
such term is defined in the New Valley Agreement) of any class or series
prior to the Reference Date, then BGLS shall pay or cause to be paid to
High River promptly upon the consummation of such sale a percentage payment
equal to the product of (A) the Net Profit Override (as such term is
defined in the New Valley Agreement) realized in such sale, multiplied by
(B) a fraction (the "Sale Fraction," which shall be calculated separately
for the Shares and for each class or series of Other Securities), the
numerator of which is the number of Shares or such Other Securities (as the
case may be) held as of the date hereof, or hereafter acquired prior to
such sale, by the BGL Group and the denominator of which is the number of
Shares or such Other Securities (as the case may be) held as of the date
hereof, or hereafter acquired prior to such sale, by the BGL Group and the
New Valley Group; and
(ii) if the New Valley Group or the BGL Group holds any Shares or any
Other Securities of any class or series on the Reference Date, then New
Valley shall pay or cause to be paid to High River promptly upon the
Reference Date a percentage payment equal to the product of (A) the Net
Profit Override existing on the Reference Date in respect of such Shares or
such Other Securities, multiplied by (B) a fraction (the "Holdings
Fraction," which shall be calculated separately for the Shares and for each
class or series of Other Securities), the numerator of which is the number
of Shares or such Other Securities (as the case may be) held as of the date
hereof, or hereafter acquired prior to the Reference Date, by the BGL Group
and the denominator of which is the number of Shares or such Other
Securities (as the case may be) held as of the date hereof, or hereafter
acquired prior to the Reference Date, by the BGL Group and the New Valley
Group;
provided, however, that (x) the amount of any percentage payment to which High
River is entitled at any time under this Section 4(c) shall be reduced by the
product of (1) the amount of any fee which High River shall have theretofore
been paid by or on behalf
11
of New Valley under Section 5(a) of the New Valley Agreement or by BGLS under
Section 4(a) of this Agreement, multiplied by (2) the Sale Fraction or the
Holdings Fraction, as the case may be, (y) High River shall not be entitled to
any percentage payment under this Section 4(c) if BGL shall have previously
become entitled to the fee described in Section 4(b) of this Agreement or if New
Valley shall have previously become entitled to the fee described in Section
5(b) of the New Valley Agreement and (z) in the event that the New Valley Group
or the BGL Group realizes a Net Loss (as defined in the New Valley Agreement) on
any sale of any Shares or any Other Securities of any class or series, or that
any Net Loss exists on the Reference Date in respect of any Shares or any Other
Securities of any class or series held by the New Valley Group or the BGL Group
on the Reference Date, then in each such event High River shall repay or cause
to be repaid to BGLS promptly upon receipt of notice from BGLS an amount equal
to the product of (1) the excess, if any, of (X) 20% of such Net Loss over (Y)
the aggregate amount of such percentage payments theretofore received by High
River, multiplied by (2) a fraction, the numerator of which is the aggregate
amount of such percentage payments theretofore paid by or on behalf of BGLS and
the denominator of which is the aggregate amount of such percentage payments
theretofore paid by or on behalf of New Valley and BGLS. BGL and BGLS shall use
their reasonable best efforts to provide to High River (x) once each calendar
week, commencing from the date of this Agreement, a report containing a
reasonably detailed calculation of the number of Shares and the amount of Other
Securities then held by the BGL Group and the Weighted-Average Cost (as defined
in the New Valley Agreement) of such Shares and Other Securities and (y)
promptly after the close of business on each business day on which any Shares
are sold by the BGL Group, a report setting forth the number of Shares or Other
Securities sold since the close of business on the previous business day, the
aggregate price realized in such sales and the aggregate commissions paid in
such sales; provided, however, that BGL and BGLS shall not incur any liability
or suffer any prejudice as a result of its provision of any such estimate.
(d) The parties hereto hereby acknowledge and agree that the arrangements
in Section 4(c) with respect to percentage payments constitute a partnership for
Federal income tax purposes and that the parties hereto shall file income tax
returns in a consistent manner.
(e) Each of BGL and High River shall give notice to the other promptly upon
becoming aware that a Termination Event has occurred or that any event has
occurred that would be a Termination Event but for the giving of notice or the
termination of this Agreement.
12
Section 5. Costs and Expenses. (a) Except as set forth in Section 5(b), the
BGL Group shall be responsible for all out-of-pocket costs and expenses of
soliciting Stockholder Demands, Written Consents and Proxies from the
stockholders of RJRN, including without limitation, to the extent related
thereto, (i) all registration and filing fees under the Exchange Act or the
Securities Act of 1933, as amended (the "Securities Act"), (ii) all printing,
messenger, telephone and delivery expenses, (iii) all fees and disbursements of
counsel and (iv) all fees and disbursements of public relations firms, proxy
solicitation firms, investment bankers and other financial advisors.
(b) Notwithstanding the provisions of Section 5(a), each party hereto shall
be solely responsible for (i) all costs and expenses relating to the acquisition
of the Shares beneficially owned or hereafter acquired by such party and its
affiliates, (ii) its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing duties relating
to the transactions contemplated by this Agreement) and (iii) all other expenses
incurred by it, other than expenses described in Section 5(a), all of which
shall be the sole responsibility of the BGL Group.
Section 6. Required Filings; Publicity. (a) Each of the parties hereto
shall (and shall cause each of its affiliates to) (i) take all actions necessary
to comply promptly with all legal requirements which may be imposed on such
party (or its affiliates) as a result of this Agreement or any of the
transactions contemplated hereby, and (ii) without limiting the foregoing, make
all required filings pursuant to the Securities Act and the Exchange Act.
(b) To the extent reasonably practicable, the parties hereto shall consult
with each other prior to all public statements or filings to be issued or made
by any of them or their affiliates with respect to this Agreement and the
transactions contemplated hereby.
Section 7. Representations and Warranties. (a) Each of the parties hereto
hereby represents and warrants to the other parties hereto as follows:
(i) Such party is a corporation or partnership duly organized, validly
existing and in good standing under the laws of the state of its
incorporation or organization, and has full corporate or partnership power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated
hereby.
13
(ii) The execution and delivery by such party of this Agreement and
the performance by such party of its obligations hereunder have been duly
and validly authorized by all necessary corporate or partnership action.
This Agreement has been duly and validly executed and delivered by such
party and constitutes a legal, valid and binding obligation of such party
enforceable against such party in accordance with its terms.
(iii) The execution and delivery by such party of this Agreement do
not, and the performance by such party of its obligations under this
Agreement will not, conflict with or result in a violation or breach of any
of the provisions of the certificate of incorporation, bylaws or other
organizational documents of such party, any law or order applicable to such
party or any of such party's contractual obligations to other persons, in
each case, in any manner that would prevent or materially impede such party
from fulfilling its obligations hereunder.
(b) BGL and BGLS hereby represent and warrant to High River that as of the
date hereof the BGL Group owns beneficially and of record 200 Shares, free and
clear of all liens and encumbrances whatsoever, which Shares were purchased by
the BGL Group at an aggregate cost (including all brokerage fees and commissions
incurred in the acquisition of such Shares) of $5,675, and in respect of which
the BGL Group has not received any dividends, except dividends of $75 received
on July 3, 1995 and dividends of $75 received on October 2, 1995.
(c) High River represents and warrants to BGL and BGLS that High River has
as of the date hereof, and will have on each date prior to the termination of
this Agreement, net partners' equity of at least $22 million.
Section 8. Certain Actions. High River shall not (and shall cause its
affiliates not to) engage in, agree to engage in or propose (either publicly or
to RJRN or any of its affiliates) to engage in, individually or in combination
with any other person, any Business Combination at any time prior to the
earliest of (a) the Reference Date, (b) any termination of this Agreement that
occurs at or after the time when a Termination Event has occurred and (c) any
termination of this Agreement by BGL or BGLS, or of the New Valley Agreement by
New Valley or NV Sub, at a time when High River is not in material breach of the
High River Obligations.
Section 9. Miscellaneous. (a) For purposes of this Agreement, (i) the terms
"affiliate" and "associate" have the meanings assigned to them in Rule 12b-2
promulgated under the
14
Exchange Act, provided, however, that New Valley and NV Sub shall not be deemed
to be "affiliates" or "associates" of the BGL Group for any purpose of this
Agreement, (ii) Liggett shall be deemed to be a material affiliate of BGL and
BGLS, (iii) the term "shall" is used herein to refer to actions which are
compulsory and thus to create binding obligations among the parties hereto, (iv)
the terms "will," "expect," "expectation," "intend" and "intention," and other
terms of similar import, are used herein solely to refer to the aspirations and
objectives of the parties hereto and thus are not used herein to create binding
obligations among the parties hereto and (v) the term "may" is used herein to
refer solely to conduct which is optional and not compulsory and thus is not
used herein to create binding obligations among the parties hereto.
(b) The parties hereto shall have no rights, power or duties except as
specified herein, and no such rights, powers or duties shall be implied. Nothing
herein shall give any party hereto the power to bind any other party hereto to
any contract, agreement or obligation to any third party.
(c) All notices and other communications hereunder shall be in writing and
shall be deemed given when received by the parties hereto at the following
addresses (or at such other address for any party hereto as shall be specified
by like notice):
If to BGL or BGLS:
100 S.E. Second Street
Miami, Florida 33131
Attention: Bennett S. LeBow
Telecopy: (305) 579-8001
With a copy to:
Michael L. Hirschfeld, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005-1413
Telecopy: (212) 530-5219
If to High River:
c/o Icahn Associates Corp.
114 West 47th Street
19th Floor
New York, New York 10036
Attention: Carl C. Icahn
Telecopy: (212) 921-3359
15
With a copy to:
Marc Weitzen, Esq.
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
20th Floor
New York, NY 10036
Telecopy: (212) 626-0799
(d) This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement.
(e) This Agreement constitutes the entire agreement among the parties
hereto and supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
(f) This Agreement shall be governed and construed in accordance with the
laws of the state of New York applicable to a contract executed and performed in
such State, without giving effect to the conflicts of laws principles thereof.
(g) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties
hereto; provided, however, that High River may assign any of its rights and
interests hereunder to (i) any corporation incorporated in any state of the
United States or in the District of Columbia if at least 98.5% of the shares of
each class of capital stock of such corporation are owned by Carl C. Icahn (a
"wholly-owned Icahn subsidiary"), either directly or through one or more
wholly-owned Icahn subsidiaries or (ii) any partnership whose partners are all
wholly-owned Icahn subsidiaries; and provided further that no such assignment
shall relieve High River of any of its obligations hereunder. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective successors and
assigns.
(h) This Agreement may be amended, supplemented or modified only by a
written instrument duly executed by or on behalf of each party hereto. No waiver
of any term or condition in this Agreement shall be effective unless set forth
in writing and signed by or on behalf of the waiving party. No waiver by any
party hereto of any term or condition of this Agreement shall
16
be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion.
(i) The terms and provisions of this Agreement are intended solely for the
benefit of the parties hereto and their successors and permitted assigns and are
not intended to confer upon any other person any rights or remedies hereunder,
except that the provisions of clause (z) of the proviso to Section 4(a), as they
relate to the reimbursement obligations of BGL and BGLS, are expressly for the
benefit of New Valley and shall be enforceable by New Valley against BGL and
BGLS (but not against High River) by appropriate proceedings in any court of
competent jurisdiction.
(j) In the event that any party hereto prevails in any action or proceeding
alleging a breach of this Agreement, such party shall be entitled to recover all
reasonable attorney's fees and other costs of prosecuting such action or
proceeding and, in addition, shall be entitled to receive simple interest on any
damages awarded in such action or proceeding at the rate of 10% per annum from
the date of such breach.
17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their representatives thereunto duly authorized, all as of the date
first above written.
BROOKE GROUP LTD.
By: /s/ BENNETT S. LEBOW
-------------------------------
Name: Bennett S. LeBow
Title: Chairman, President and
Chief Executive Officer
BGLS INC.
By: /s/ BENNETT S. LEBOW
-------------------------------
Name: Bennett S. LeBow
Title: Chairman, President and
Chief Executive Officer
HIGH RIVER LIMITED PARTNERSHIP
By: /s/ EDWARD E. MATTNER
-------------------------------
Name: Edward E. Mattner
Title: President
[Signature page to Agreement among Brooke Group Ltd., BGLS Inc.
and High River Limited Partnership dated October 17, 1995]
18
High River Limited Partnership
100 South Bedford Road
Mount Kisco, New York 10549
November 5, 1995
Brooke Group Ltd.
BGLS Inc.
100 S.E. Second Street
Miami, Florida 33131
Attn: Bennett S. LeBow
Dear Bennett:
By executing this letter in the space provided below, Brooke Group Ltd., a
Delaware corporation ("BGL"), BGLS Inc., a Delaware corporation and a direct
wholly-owned subsidiary of BGL ("BGLS") and High River Limited Partnership, a
Delaware limited partnership ("High River"), each hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in the Agreement by and among BGL, BGLS and
High River, dated October 17, 1995 (the "BGL Agreement").
2. Section 1(a) of the BGL Agreement is deleted in its entirety and all
reference thereto in the BGL Agreement is likewise deleted.
3. Section 1(c)(ii)(B) of the BGL Agreement is hereby amended to delete the
subsection in its entirety and to
substitute in lieu thereof the following:
"(B) Prior to the consummation of the Spinoff, the BGL Group will (I)
not directly or indirectly exercise any management control over
Nabisco or Nabisco, Inc., a Delaware corporation ("Nabisco, Inc."),
(II) refrain from becoming involved in the ordinary course of business
of Nabisco or Nabisco, Inc. and (III) use its best efforts to ensure
that
a majority of the directors of Nabisco and Nabisco, Inc. consists of
individuals who are presently members of the board of directors of
Nabisco and Nabisco, Inc., respectively and"
4. Section 3(c)(ix)(C) of the BGL Agreement is hereby amended to delete the
subsection in its entirety and to substitute in lieu thereof the following:
"(C) fail to file the Solicitation Statement relating to the Annual
Meeting preliminarily with the SEC prior to the earlier of (I)
February 15, 1996 and (II) sixty (60) days following the record date
for the solicitation of Written Consents with respect to the Spinoff
Proposal and the By-Law Amendment Proposal,"
5. In the event that prior to February 1, 1996 (i) the BGL Group provides
High River Group with notice of termination of the BGL Agreement or New Valley
Group (as defined below) provides High River Group with notice of termination of
the Agreement by and among New Valley Corporation, ALKI Corp. and High River,
dated October 17, 1995 (the "New Valley Agreement") at a time when a Termination
Event set forth in Section 3(c)(vii) or 3(c)(viii) of the BGL Agreement has
occurred or (ii) High River Group provides BGL Group with notice of termination
of the BGL Agreement or provides New Valley Group with notice of termination of
the New Valley Agreement at a time when a Termination Event set forth in Section
3(c)(ix)(A) of the BGL Agreement has occurred, BGL Group shall not transfer any
Shares beneficially owned by BGL Group until February 1, 1996 in consequence of
or in reliance upon such notice of termination. If the notice of termination
specified in clause (i) of the preceding sentence is provided after January 16,
1996, and the aggregate number of shares of common stock, par value $.01 per
share, of RJR Nabisco Holdings Corp. ("Shares") beneficially owned by High River
Group exceeds the aggregate number of Shares beneficially owned by (A) New
Valley Corporation, ALKI Corp. and any assignee of the foregoing ("New Valley
Group") plus (B) BGL Group (collectively, the "Aggregate LeBow Shares"), BGL
Group shall not Transfer any Shares beneficially owned by BGL Group for fifteen
(15) days following receipt by High River Group of BGL Group's or New Valley
Group's notice of termination; provided, however, that on such date not before
February 1, 1996 that the aggregate number of Shares beneficially owned by High
River Group is equal to or less than the Aggregate
LeBow Shares, and thereafter, BGL Group may Transfer any Shares beneficially
owned by BGL Group.
2
6. In the event that High River Group provides BGL Group with notice of
termination of the BGL Agreement or provides New Valley Group with notice of
termination of the New Valley Agreement at a time when a Termination Event under
any of Sections 3(c)(ix)(B) through (E) of the BGL Agreement has occurred and
the aggregate number of shares beneficially owned by High River Group exceeds
the Aggregate LeBow Shares, BGL Group shall not Transfer any Shares beneficially
owned by BGL Group in consequence of or in reliance upon such notice of
termination until the earlier of (i) fifteen (15) days following receipt by BGL
Group or New Valley Group of High River Group's notice of termination specified
in the preceding sentence and (ii) the date that the aggregate number of Shares
beneficially owned by High River Group is equal to or less than the Aggregate
LeBow Shares.
7. BGLS shall promptly make any payments due under Section 4(c) of the BGL
Agreement. In the event that High River Group believes that BGLS has breached
any of its obligations under Section 4(c) of the BGL Agreement, the parties
shall promptly follow the procedures set forth in Section 1(c)(v) of the New
Valley Agreement in order to resolve the dispute. If the Arbitrator (as defined
in the New Valley Agreement) determines that BGLS is required to make a payment
pursuant to Section 4(c) of the BGL Agreement, BGLS shall make or cause to be
made to High River Group such payment within twenty (20) days after receiving
the Arbitrator's notice of decision. In the event that BGLS fails to make such
payment within twenty (20) days after receipt of the Arbitrator's notice of
decision, BGLS shall immediately pay or cause to be paid to High River Group an
additional sum in the amount of $50 million.
8. Section 9(k) shall be added to the BGL Agreement to read as follows:
"(k) Anything in this Agreement to the contrary notwithstanding, High
River shall have no obligation with respect to the selection of the BGL
Nominees or the solicitation of Written Consents or Proxies."
9. Nothing herein contained shall be construed to otherwise abrogate the
rights and obligations of the parties to this letter agreement with respect to
all other provisions of the
3
BGL Agreement, the New Valley Agreement and the letter agreement by and among
New Valley, ALKI Corp. and High River, dated October 17, 1995 (the "Letter
Agreement").
If the foregoing reflects your understanding, please sign this letter
below. Upon your execution hereof, this letter agreement will become a binding
contract between us.
Very truly yours,
HIGH RIVER LIMITED PARTNERSHIP
By: RIVERDALE INVESTORS CORP., INC.
Its: General Partner
By: /s/ EDWARD E. MATTNER
---------------------------------
Name: Edward E. Mattner
Title: President
Agreed to and Accepted:
BROOKE GROUP LIMITED
By: /s/ BENNETT S. LEBOW
---------------------------------
Name: Bennett S. LeBow
Title: Chairman, President and
Chief Executive Officer
BGLS INC.
By: /s/ BENNETT S. LEBOW
---------------------------------
Name: Bennett S. LeBow
Title: Chairman, President and
Chief Executive Officer
[Signature page for letter agreement by and among Brooke Group
Limited, BGLS Inc. and High River Limited Partnership, dated
November 5, 1995]
4
AGREEMENT
This AGREEMENT among New Valley Corporation, a New York corporation ("New
Valley"), ALKI Corp., a Delaware corporation and a direct wholly owned
subsidiary of New Valley ("NV Sub"), and High River Limited Partnership, a
Delaware limited partnership ("High River"), dated October 17, 1995.
W I T N E S S E T H:
WHEREAS, each of the parties hereto, directly or indirectly, is a
stockholder of RJR Nabisco Holdings Corp., a Delaware corporation ("RJRN");
WHEREAS, the parties hereto believe that the value of RJRN stockholders'
investment can be substantially increased through a spinoff (the "Spinoff") of
all or substantially all of RJRN's remaining investment in Nabisco Holding
Corp., a Delaware corporation ("Nabisco");
WHEREAS, New Valley and NV Sub desire to obtain the assistance and advice
of High River with respect to measures designed to effectuate the Spinoff at the
earliest possible date;
WHEREAS, High River is willing to give such assistance and advice to New
Valley and NV Sub (the "New Valley Group") in consideration of the agreements by
the New Valley Group set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises set forth herein, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. Investment. (a) High River hereby agrees to purchase from New
Valley and NV Sub, and New Valley and NV Sub hereby agree to sell, assign,
transfer and deliver to High River, at the Closing (as defined below), 1,611,550
shares of common stock, par value $.01 per share ("Shares"), of RJRN (the
"Purchased Shares"). The closing of the purchase and sale of the Purchased
Shares (the "Closing") shall occur at 10:00 a.m. on October 23, 1995 (the
"Closing Date") at the offices of Milbank, Tweed, Hadley & McCloy, One Chase
Manhattan Plaza, New York, New York. At the Closing, High River will pay
to New Valley $50,976,921 (the "Purchase Price"), by wire transfer of
immediately available funds to an account designated by New Valley, against
delivery to High River ofthe Purchased Shares in a commercially customary manner
such that, upon the payment of the Purchase Price for such Purchased Shares,
High River shall have acquired good and marketable title to such Shares, free
and clear of all encumbrances and liens whatsoever.
(b) It is the intention of the New Valley Group and High River to cooperate
to invest a minimum of at least $300 million ($150 million each) in Shares, and
they may further increase their investment to a minimum of at least $500 million
in Shares ($250 million each), in accordance with the following plan:
(i) Each of the New Valley Group and High River and its affiliates
(the "High River Group") is expected to make a minimum equity investment in
Shares of $75 million (the "First Stage Equity Investments").
(ii) In addition to their respective First Stage Equity Investments,
each of the New Valley Group and the High River Group is expected to invest
in Shares at least a minimum additional amount (the "First Stage Margin
Investments" and, together with the First Stage Equity Investments, the
"First Stage Investments") equal to the lesser of (A) $75 million and (B)
the maximum additional amount that such group would lawfully have been able
to invest in Shares if (I) the Shares acquired pursuant to such group's
First Stage Equity Investment had been acquired with funds not obtained
from the proceeds of "purpose credit" secured directly or indirectly by
"margin stock" (as such terms are defined in Regulation T and Regulation U
promulgated by the Board of Governors of the Federal Reserve System (the
"Margin Rules")) ("Margin Loans") and (II) such group had used its best
efforts to borrow additional funds by pledging the Shares so acquired as
collateral to secure Margin Loans to the extent that such Margin Loans
could have been obtained lawfully and on reasonable commercial terms and
had used the proceeds of such Margin Loans to acquire additional Shares,
which had been similarly pledged to secure additional Margin Loans and to
acquire further Shares, and so forth until no further such Margin Loans had
been lawfully available.
(iii) Following the completion of the First Stage Investments, each of
the New Valley Group and the High River Group may make a further investment
in Shares of up to the sum of (A) $50 million of equity (the "Second Stage
Equity Investment") plus (B) an additional amount (the "Second Stage Margin
Investments" and, together with the Second
2
Stage Equity Investments, the "Second Stage Investments") equal to the
lesser of (I) $50 million and (II) the maximum amount that such group would
lawfully have been able to invest in Shares, in the manner described in
Section 1(b)(ii)(B), using the Shares acquired through the Second Stage
Equity Investment as collateral.
(c) In order to effectuate the objectives of the parties hereto described
in Section 1(b), each of the New Valley Group and High River agrees that it
shall (or shall cause its affiliates to) make the following investments in
Shares:
(i) Promptly after the close of business on each business day during
the term of this Agreement, each of New Valley and High River shall notify
the other of (A) the number of Shares acquired or sold by the New Valley
Group and the High River Group, respectively, since the last such notice,
(B) the purchase price or sale price of each Share so acquired or sold and
(C) the amount of brokerage fees or commissions incurred in acquiring or
selling each such Share.
(ii) On the last business day of each second calendar week (commencing
with the end of the second full calendar week following the date of this
Agreement) prior to such time as the High River Group has made an
investment in Shares equal to at least the Second Stage Investment (the
"Second Stage Completion Date"), promptly after the exchange of notices
described in Section 1(c)(i), the parties hereto shall calculate the
aggregate number and the average price of all Shares acquired during such
two calendar weeks by either the New Valley Group or the High River Group
at a price per Share equal to the Hurdle Price (as defined below in this
paragraph (ii)) or less (exclusive of brokerage fees and commissions
incurred in such acquisition) ("Qualifying Shares"). Thereupon, each party
shall make or cause to be made to the other party (or the other party's
designee) such transfers of Shares and such payments in immediately
available funds (in each case in the manner described in Section 1(c)(iv))
as would have been necessary so that, after giving effect to such transfers
and payments, the New Valley Group and the High River Group would have
acquired the same number of Qualifying Shares during such two calendar
weeks and the aggregate investment (excluding brokerage fees and
commissions incurred in the acquisition of Shares) of the New Valley Group
and the High River Group in Qualifying Shares during such week would have
been identical. For purposes of this Agreement, "Hurdle Price" means (x)
prior to the time that both the New Valley Group
3
and the High River Group have made investments in Shares equal to at least
the First Stage Investment (the "First Stage Completion Date"), $35.50 per
Share and (y) at all times from and after the First Stage Completion Date
and prior to the Second Stage Completion Date, $31.00 per Share.
(iii) In addition to the obligations of the parties hereto under
Section 1(c)(ii), for each business day prior to the Second Stage
Completion Date, New Valley may, in its sole discretion, by notice to High
River promptly after the exchange of the notices with respect to such
business day described in Section 1(c)(i), put to High River a number of
Shares equal to or less than one-half of the excess, if any, of (A) the
aggregate number of Shares other than Qualifying Shares ("Non-Qualifying
Shares") acquired by the New Valley Group since the close of business on
the previous business day over (B) the number of Non-Qualifying Shares
acquired by the High River Group since the close of business on the
previous business day. The put price per Share shall be equal to the Hurdle
Price. Thereupon, the New Valley Group shall sell and transfer or cause to
be sold and transferred to High River or another member of the High River
Group designated by High River the number of Shares so put to High River,
and High River shall purchase or cause such designee to purchase such
Shares and shall pay or cause to be paid to New Valley or New Valley's
designee a purchase price equal to the put price of such Shares, in each
case in the manner described in Section 1(c)(iv).
(iv) All payments required to be made under Section 1(c)(ii) or
Section 1(c)(iii) shall be made in immediately available funds before the
opening of business on the fourth New York Stock Exchange trading day after
(A) in the case of Section 1(c)(ii), the last business day of each second
calendar week in which the exchange of notices referred to therein is made
and (B) in the case of Section 1(c)(iii), the last business day of the
calendar week in which New Valley delivers the notice referred to therein.
All transfers of Shares required by Section 1(c)(ii) and Section 1(c)(iii)
shall be made simultaneously with such payment in a commercially customary
manner such that upon the payment of the purchase price for such Shares,
the transferee shall have acquired good and marketable title to such
Shares, free and clear of all encumbrances and liens whatsoever.
(v) As promptly as practicable following the close of business on
November 27, 1995 (in the case of the First Stage Investments) and January
11, 1996 (in the case
4
of the Second Stage Investments), but in each case prior to the close of
business on the next business day, each of New Valley and High River shall
notify the other of (A) the date of purchase of any Shares acquired by the
New Valley Group and the High River Group, respectively, since the date of
this Agreement, (B) the number of Shares purchased on each such date and
(C) the purchase price of each Share so acquired. If prior to January 17,
1996, either New Valley or High River believes that the other has breached
any of its obligations under Section 1(c)(ii) or Section 1(c)(iii), such
party (the "Notifying Party") shall deliver to the other party (the
"Receiving Party") a notice setting forth in reasonable detail the nature
of the breach and the reasons for such belief (the "Notice of Breach"). The
Notice of Breach shall specifically describe the number of Shares that the
Receiving Party must transfer to the Notifying Party, or that the Notifying
Party must transfer to the Receiving Party, and the amount of the payments
that the Receiving Party must make to the Notifying Party, or that the
Notifying Party must make to the Receiving Party, in order to cure such
breach, and shall demand performance of such transfers and payments. Prior
to the close of business on the third business day after receiving the
Notice of Breach, the Receiving Party shall either (x) pay the amounts and
transfer the Shares described in the Notice of Breach, against receipt of
the amounts to be paid and/or the Shares to be transferred by the Notifying
Party as described in the Notice of Breach or (y) deliver to the Notifying
Party a notice stating that the Receiving Party disputes the demand made in
the Notice of Breach (the "Notice of Dispute"). In the event that the
Receiving Party delivers a Notice of Dispute, then prior to the close of
business on the next business day, the parties hereto shall by mutual
agreement choose an independent, nationally recognized public accounting
firm, which shall be retained by the parties hereto to arbitrate the
dispute (the "Arbitrator"), or if they cannot agree, each of New Valley and
High River shall choose one such accounting firm, and such firms shall
choose a third such accounting firm to serve as Arbitrator. The fees and
expenses of the Arbitrator shall be shared equally by New Valley and High
River. The parties hereto shall make available to the Arbitrator all
information which the Arbitrator may reasonably request for the purpose of
arbitrating the dispute. Prior to the close of business on the fifth
business day after being retained, the Arbitrator shall make its own
independent calculations and shall notify New Valley and High River in
writing of its decision, indicating the amounts to be paid and the number
of Shares to be transferred by each of the parties hereto to cure any
breach
5
of Section 1(c)(ii) or 1(c)(iii), identified by the Arbitrator as having
occurred. Prior to the close of business on the third business day after
receiving the notice of such decision, each party hereto shall make
payments and transfer Shares in accordance with such decision. In each case
where a party is required to make any payment pursuant to this Section
1(c)(v) by reason of any breach by such party of Section 1(c)(ii) or
Section 1(c)(iii), the amount of such payment shall be based on a purchase
price per Share, without interest, equal to the Hurdle Price in effect at
the time that the relevant transfer of Shares would have originally
occurred if not for the relevant breach.
(d) (i) Except as provided in subpart (ii) of this subparagraph (d),
until the termination of this Agreement, (i) the New Valley Group shall not
make or agree to make any sale, transfer or other disposition (a
"Transfer") of Shares beneficially owned by it, if following such Transfer
the New Valley Group's total investment in Shares would be less than the
sum of the First Stage Investment plus the Second Stage Investment and (ii)
High River shall not (and shall cause the High River Group not to) make or
agree to make any Transfer of Shares beneficially owned by it, if following
such Transfer the High River Group's total investment in Shares would be
less than the sum of the First Stage Investment plus the Second Stage
Investment; provided, however, that (x) the New Valley Group and the High
River Group may sell Shares to an unaffiliated third party on an
arms'-length basis if (1) such sale is made solely in response to a demand
for repayment or additional collateral (other than Shares) of the sort
usually made by a lender extending Margin Loans secured by such Shares,
which demand results from a decline in the market price of the Shares so
that the account with the lender falls below the lender's pre-established
maintenance requirement for the New Valley Group or the High River Group,
as the case may be, (2) the proceeds of such sale are used solely to repay
Margin Loans, (3) the total number of Shares sold does not exceed the
minimum number that must be sold in order to satisfy such demand and (y) in
the event the New Valley Group or the High River Group (each, a "Group")
sells any Shares pursuant to clause (x) of this proviso and following such
sale such first Group's investment in Shares is less than the second
Group's investment in Shares, then the second Group may Transfer Shares so
long as following such Transfer the second Group's investment in Shares is
equal to or greater than the first Group's investment in Shares; and
provided further that each member of the New Valley Group and the High
River Group may Transfer Shares to any other member of
6
the New Valley Group or the High River Group (but only if, in the case of a
Transfer to another member of the High River Group, such member agrees to
be bound by the provisions of this Agreement to the same extent as High
River). Following a sale by either the New Valley Group or the High River
Group pursuant to clause (x) of the first proviso to the preceding
sentence, neither Group shall be obligated to purchase any additional
Shares pursuant to Section 1(c)(ii) or Section 1(c)(iii), but the
provisions of Section 1(c)(v) shall continue to be applicable with respect
to any purchases that were required to be made prior to such sale pursuant
to Section 1(c)(ii) or Section 1(c)(iii).
(ii) In addition, notwithstanding the terms of subpart (i) of this
subparagraph (d), in the event that the lender extending Margin Loans to a
member of the New Valley Group or the High River Group, as the case may be
(the "Borrower"), for any reason other than as set forth in clause (x) of
the first proviso to the first sentence of subpart (i) of this subparagraph
(d), terminates or reduces the loan facility or otherwise requires the sale
of Shares by Borrower (such Shares required as a result to be sold,
together with a number of Shares equal to the number of Shares (if any)
sold pursuant to such clause (x), during the thirty consecutive calendar
days immediately following the date that the Borrower is informed of such
required sale, being hereinafter referred to as the "Selloff Shares") and
after exercise of best efforts to replace such loan facility Borrower is
unable to do so, then the Borrower shall irrevocably offer to the other
party hereto the right for a five business day period, at the election of
the other party, either (A) to acquire the Selloff Shares at a price equal
to the lower (such lower price being referred to herein as the "Selloff
Price") of (I) 90% of the Weighted-Average Cost (calculated as set forth
in Section 4(h) but without giving effect to the interest factor described
in Section 4(h)(i) or Section 4(h)(ii)(B)) of the Selloff Shares, and (II)
90% of the then current market price of the Selloff Shares, as measured by
the average closing sales price of Shares on the New York Stock Exchange in
the five business days preceding said offer, or (B) to receive payment from
the Borrower in immediately available funds in an amount equal to the
excess of the then current market price of the Selloff Shares, as so
measured, over the Selloff Price. In the event the other party exercises
its right to acquire the Selloff Shares, the closing shall take place prior
to the close of business on the third business day after such party
exercises its right to purchase the Selloff Shares, and the party electing
to exercise its right to purchase shall be entitled to an order of specific
7
performance in the event of a failure by the Borrower to close as
hereinabove provided. In the event the other party does not exercise its
right to acquire the Selloff Shares within such five business day period,
or shall affirmatively elect to receive payment from the Borrower, the
Borrower shall thereafter have the right to sell the Selloff Shares to an
unaffiliated third party on an arms'-length basis. In the event the other
party exercises its right to receive payment from the Borrower, such
payment shall be made within five business days of notice to the Borrower
of the other party's election to exercise its right thereto.
(e) For purposes of this Section 1 and Section 4(c), in calculating the
amount of the investment in Shares by the New Valley Group and the High River
Group at any time, (i) each Group's acquisition of Shares shall be deemed to
increase such Group's investment by the actual cost, including all brokerage
fees and commissions incurred in the acquisition of such Shares, and (ii) each
Group's sale of Shares shall be deemed to decrease such Group's investment by
the actual price realized, net of all brokerage fees and commissions incurred in
such sale.
(f) In addition to the investments required by Section 1(c), each of the
parties hereto and its affiliates may, in its sole discretion, invest additional
amounts from time to time to acquire additional Shares. Notwithstanding any
other provision of this Agreement, the funds invested by any party hereto or its
affiliates in Shares, either pursuant to Section 1(c) or to this Section 1(f),
may be obtained through any lawful method, including, without limitation, Margin
Loans and other loans or borrowings subject to the Margin Rules.
(g) Notwithstanding anything in this Agreement to the contrary, (i) all
Shares acquired by any party hereto shall be held by it for its own account and
not for the account of any other party hereto, (ii) except as set forth in
Section 5(d), no party hereto shall have any right or obligation to share in the
profits or losses of any other party hereto arising from the acquisition,
holding or disposition of Shares beneficially owned by such other party or its
affiliates and (iii) all transfers of Shares pursuant to Section 1(c)(ii) or
Section 1(c)(iii), and all payments in respect of such Shares pursuant to
Section 1(c)(ii) or Section 1(c)(iii), shall be made simultaneously on the
respective dates such transfers and payments are required to be made pursuant to
Section 1(c)(iv), and no party hereto shall be deemed to own or to have any
rights of ownership in any such Shares (including, without limitation, any right
to vote such Shares or to receive dividends paid in respect of such Shares)
until such transfer and payment are made.
8
Section 2. Agreement to Vote. In the event that Brooke Group Ltd. ("BGL")
or BGLS Inc. ("BGLS") determines to solicit Stockholder Demands, Written
Consents or Proxies (as such terms are defined in the Agreement dated as of
October 17, 1995 among BGL, BGLS and High River (the "BGL Agreement")), the New
Valley Group shall execute and deliver to BGL or BGLS a valid Stockholder
Demand, Written Consent or Proxy, as the case may be (and not withdraw such
Stockholder Demand, Written Consent or Proxy) with respect to all of the Shares,
and all of the depositary shares representing Series C Conversion Preferred
Stock, par value $.01 per share, of RJRN, that it beneficially owns or has the
right to vote.
Section 3. Termination. (a) This Agreement shall automatically terminate
upon the earlier of (i) the first anniversary of the date hereof and (ii) the
termination of the BGL Agreement by High River, and any party hereto may
terminate this Agreement sooner at any time in its sole discretion by written
notice to the other parties hereto; provided, however, that if BGL or BGLS
terminates the BGL Agreement, then New Valley and NV Sub shall be deemed to have
simultaneously terminated this Agreement.
(b) If this Agreement is terminated pursuant to this Section 3, this
Agreement shall forthwith become null and void, and there shall be no liability
or obligation on the part of any party hereto, except that (i) the obligations
of the parties hereto pursuant to Section 5 and Section 6 shall remain in full
force and effect following any termination of this Agreement for the periods set
forth therein and (ii) if (A) either the New Valley Group or the BGL Group sells
any Shares under the circumstances described in clause (x) of the first proviso
to the first sentence of Section 1(d)(i) of this Agreement, or is required to
offer any Shares to another party pursuant to the first sentence of Section
1(d)(ii) of this Agreement, and (B) a party hereto which is not a member of such
Group thereafter terminates this Agreement prior to or on the tenth day after
the first date that such party becomes aware that such event has occurred, then
the obligations of any member of such Group pursuant to Section 1(d)(ii) shall
remain in full force and effect following such termination until the later of
(I) the end of the 30-day period set forth in Section 1(d)(ii) or (II) the time
that the Selloff Shares are delivered at the closing described in the second
sentence of Section 1(d)(ii), or the time when payment is made pursuant to the
fourth sentence of Section 1(d)(ii), as the case may be.
Section 4. Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
9
(a) "Termination Event" shall have the meaning assigned to it in the BGL
Agreement.
(b) "Other Securities" means any securities or assets (other than cash)
received by the New Valley Group from RJRN in respect of any Shares held by the
New Valley Group, whether by way of a dividend or other distribution in respect
of such Shares, in exchange for such Shares, pursuant to a reclassification of
such Shares, or otherwise.
(c) The "Trading Profit" realized in any sale of any Shares or any Other
Securities of any class or series by any member of the New Valley Group or by
BGL, BGLS or any of their affiliates (the "BGL Group") means the excess, if any,
of the actual price realized in such sale, net of all brokerage fees and
commissions incurred in such sale, over the Weighted-Average Cost (as defined
below in Section 4(h) and Section 4(i)) of the Shares or the Other Securities of
such class or series sold. The "Trading Profit" existing on the Reference Date
(as defined below in Section 5(a)) in respect of any Shares or Other Securities
of any class or series held by the New Valley Group or the BGL Group as of such
date means the excess, if any, of the Market Value (as defined below in Section
4(j) and Section 4(k)) as of the Reference Date of the Shares or the Other
Securities of such class or series so held over the Weighted-Average Cost of
such Shares or such Other Securities. Notwithstanding the foregoing, if the
aggregate investment in Shares and Other Securities made at any time, either
before or after the date of termination of this Agreement, by the New Valley
Group, before giving effect to any sales of Shares and Other Securities held by
the New Valley Group (the "Aggregate New Valley Investment"), exceeds the
greater of (x) the sum of the First Stage Investment plus the Second Stage
Investment and (y) the aggregate investment of the High River Group in Shares
and Other Securities made prior to the date of the termination of this Agreement
(the greater of such amounts being referred to herein as the "Target
Investment"), then the "Trading Profit" realized on any sale of Shares or any
Other Securities of any class or series, or existing on the Reference Date in
respect of any Shares or any Other Securities of any class or series held by the
New Valley Group on the Reference Date, means the product of (x) the "Trading
Profit," calculated as set forth in the previous two sentences, multiplied by
(y) a fraction, the numerator of which is the Target Investment and the
denominator of which is the Aggregate New Valley Investment.
(d) The "New Valley Expenses" means the out-of-pocket costs and expenses
incurred by the New Valley Group or the BGL Group in connection with the
preparation, negotiation and execution of this Agreement and the BGL Agreement,
the
10
consummation of the transactions contemplated hereby or thereby and the
solicitation of Stockholder Demands, Written Consents and Proxies from the
stockholders of RJRN (including without limitation, to the extent incurred in
connection therewith, (i) all registration and filing fees under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or the Securities Act of
1933, as amended (the "Securities Act"), (ii) all printing, messenger, telephone
and delivery expenses, (iii) all fees and disbursements of counsel and (iv) all
fees and disbursements of public relations firms, proxy solicitation firms,
investment bankers and other financial advisors), plus an amount equivalent to
simple interest on each such cost and expense at the rate of 10% per annum from
the date of payment thereof; provided, however, that "New Valley Expenses" shall
exclude, without duplication, (x) all costs and expenses relating to the
acquisition of the Shares beneficially owned or hereafter acquired by the New
Valley Group, (y) all internal costs and expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
duties relating to the transactions contemplated by this Agreement and the BGL
Agreement) and (z) all costs and expenses paid to the New Valley Group, or the
BGL Group, except as reimbursement for out-of-pocket costs and expenses incurred
by the New Valley Group or the BGL Group to unaffiliated third parties.
(e) The "Net Profit" realized on any sale of Shares or any Other Securities
of any class or series, or existing on the Reference Date in respect of any
Shares or any Other Securities of any class or series held by the New Valley
Group or the BGL Group on the Reference Date, means the excess, if any, of (i)
the Trading Profit realized on such sale or existing on the Reference Date with
respect to such Shares or such class or series of Other Securities, as the case
may be, together with the aggregate Trading Profit realized on all previous or
simultaneous sales (if any) of any Shares or any Other Securities of such class
or series, over (ii) the sum of (A) the aggregate New Valley Expenses incurred
on or prior to such sale or the Reference Date, as the case may be, and (B) five
times the excess, if any of (I) the aggregate percentage payments (if any) that
High River would have been entitled to receive under Section 5(d) of this
Agreement and Section 4(c) of the BGL Agreement with respect to such previous or
simultaneous sales if not for the effect of clauses (x) and (y) of the provisos
to such Sections over (II) any repayment that New Valley or BGLS would have been
entitled to receive under clause (z) of such provisos.
(f) The "Net Loss" realized on any sale of Shares or any Other Securities
of any class or series, or existing on the Reference Date in respect of any
Shares or any Other Securities of any class or series held by the New Valley
Group or the BGL
11
Group on the Reference Date, means the excess, if any, of (i) the sum of (A) the
aggregate New Valley Expenses incurred on or prior to such sale or the Reference
Date, as the case may be, and (B) five times the excess, if any of (I) the
aggregate percentage payments (if any) that High River would have been entitled
to receive under Section 5(d) of this Agreement and Section 4(c) of the BGL
Agreement with respect to any previous or simultaneous sale of Shares or any
Other Securities of such class or series if not for the effect of clauses (x)
and (y) of the provisos to such Sections over (II) any repayment that New Valley
or BGLS would have been entitled to receive under clause (z) of such provisos
over (ii) the Trading Profit realized on such sale or existing on the Reference
Date with respect to such Shares or such class or series of Other Securities, as
the case may be, together with the aggregate Trading Profit realized on all
previous or simultaneous sales (if any) of any Shares or any Other Securities of
such class or series, as the case may be.
(g) The "Net Profit Override" on any sale of Shares or any Other Securities
of any class or series, or existing on the Reference Date in respect of any
Shares or any Other Securities of any class or series held by the New Valley
Group or the BGL Group on the Reference Date, means 20% of the Net Profit, if
any, on such sale or existing on such date.
(h) The "Weighted-Average Cost" of any Shares means (i) the
weighted-average cost of all Shares owned by the New Valley Group and the BGL
Group as of the date hereof, or acquired by the New Valley Group and the BGL
Group hereafter prior to or at the time that the aggregate investment of the New
Valley Group in Shares first exceeds the Target Investment (including in each
case all brokerage fees and commissions incurred in the acquisition of such
Shares and including an amount equivalent to simple interest on the cost of any
Shares at the rate of 8-1/2% per annum from the date of payment for such Shares,
but excluding any other interest, fees, premiums and other costs of any loans or
borrowings incurred or maintained to acquire or carry such Shares), calculated
in accordance with generally accepted accounting principles, reduced by (ii) the
sum of (A) the amount of any cash dividends or distributions received in respect
of such Shares and the Market Value (as of the date received) of any Other
Securities received in respect of such Shares by way of any dividend or
distribution, plus (B) an amount equivalent to simple interest on such amount
and such Market Value at the rate of 8-1/2% per annum from such date received;
provided, however, that any exchange of Shares for Other Securities or
reclassification of Shares into Other Securities shall be treated for purposes
of calculating the Weighted-Average Cost of the remaining Shares as a sale of
the Shares so exchanged or reclassified at a price equal to their
Weighted-Average Cost.
12
(i) The "Weighted-Average Cost" of any Other Securities received by the New
Valley Group and the BGL Group means (i) in the case of any Other Securities
received by way of any dividend or distribution, the Market Value of such Other
Securities as of the date received, plus an amount equivalent to simple interest
on such Market Value at the rate of 8-1/2% per annum from the date of receipt of
such Other Securities, but excluding any other interest, fees, premiums and
other costs of any loans or borrowings incurred or maintained to carry such
Other Securities and (ii) in the case of any Other Securities received by the
New Valley Group and the BGL Group by way of any exchange of Shares for Other
Securities or reclassification of Shares into Other Securities, an amount equal
to the Weighted-Average Cost of the Shares so exchanged or reclassified, plus
an amount equivalent to simple interest on such amount at the rate of 8-1/2% per
annum from the date of receipt of such Other Securities, but excluding any other
interest, fees, premiums and other costs of any loans or borrowings incurred or
maintained to carry such Other Securities; provided, however, that the
Weighted-Average Cost of any Other Securities shall be reduced by the sum of (A)
the amount of any cash dividends or distributions received by the New Valley
Group and the BGL Group in respect of such Other Securities and the Market Value
(as of the date received) of any securities or assets (other than cash) received
by the New Valley Group and the BGL Group in respect of such Other Securities by
way of any dividend or distribution plus (B) an amount equivalent to simple
interest on the amount of such cash or the Market Value of such securities or
other assets at the rate of 8-1/2% per annum from the date received.
(j) The "Market Value" of any securities as of any date means the product
obtained by multiplying (i) the number or amount of such securities by (ii) the
average of the daily closing prices per share or other unit of such securities
for the ten consecutive trading days (or, if such securities have not traded for
ten consecutive trading days, such lesser number of trading days as they have
traded) on or prior to such date. For this purpose, the "closing price" of any
securities as of any date means, the closing sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices per share or other unit for such securities, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if such securities are not then listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such securities are listed or admitted to
trading or, if such securities are not then listed or admitted to
13
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices, per share or other
unit for such securities in the over-the-counter market, as reported by the
NASDAQ system or, if such system is not in use, any other similar system then in
use, or, if on any such date such securities are not then quoted by any such
system, the average of the closing bid and asked prices per share or other unit
for such securities as furnished by a professional market maker making a market
in such securities selected by mutual agreement of New Valley and High River or,
if no such person then makes a market in such securities, the fair market value
of such securities, as determined by an independent, nationally recognized
investment banking or appraisal firm selected by mutual agreement of New Valley
and High River; provided, however, that if any dividend or distribution shall
have been declared but not paid in respect of such securities as of the date in
question, and the ex-dividend date for the determination of the holders of
securities entitled to receive such dividend or distribution shall occur prior
to the date of valuation, the "Market Value" of such securities shall be
appropriately increased by the value of such dividend or distribution (as
determined by mutual agreement of New Valley and High River, or if they cannot
agree, by an independent, nationally recognized investment banking or appraisal
firm selected by mutual agreement of New Valley and High River, or if they
cannot agree, selected by the American Arbitration Association).
(k) The "Market Value" of any assets other than securities means the fair
market value of such assets, as determined by an independent, nationally
recognized investment banking or appraisal firm selected by mutual agreement of
New Valley and High River, or if they cannot agree, selected by the American
Arbitration Association).
Section 5. Certain Fees and Percentage Payments. (a) Subject to Section
5(c), New Valley shall pay or cause to be paid to High River the sum of $50
million promptly upon
(i) any termination of this Agreement by High River at a time when (A)
no Termination Event has occurred, (B) New Valley or NV Sub is in material
breach of its obligations (the "New Valley Obligations") under Section
1(a), the fourth sentence of Section 1(c)(v), the ninth sentence of Section
1(c)(v), Section 1(d)(i) or Section 2 of this Agreement and (C) High River
is not in material breach of its obligations (the "High River Obligations")
under Section 1(a), the fourth sentence of Section 1(c)(v), the ninth
sentence of Section 1(c)(v) or Section 1(d)(i) of this
14
Agreement or Section 1(c)(iii) or Section 8 of the BGL Agreement;
(ii) any termination of this Agreement by New Valley or NV Sub at a
time when (A) no Termination Event has occurred and (B) High River is not
in material breach of the High River Obligations; or
(iii) the consummation of any Business Combination (as defined in the
BGL Agreement), including any Permitted Business Combination (as defined in
the BGL Agreement), with respect to the New Valley Group, if (A) such
Business Combination is consummated prior to the later of (I) the date of
RJRN's annual meeting of stockholders for 1997 and (II) the first
anniversary of the date of termination of this Agreement (the later of such
dates being referred to herein as the "Reference Date"), or (B) a legally
binding agreement to enter into such Business Combination or any other
Business Combination is entered into prior to the Reference Date and such
Business Combination is consummated prior to the second anniversary of the
date of such agreement or (C) the BGL Nominees (as such term is defined in
the BGL Agreement) are elected to constitute a majority of the Board of
Directors of RJRN and such Business Combination is consummated prior to the
fifth anniversary of the date of such election;
provided, however, that (x) High River shall not be entitled to more than one
fee under this Section 5(a), (y) High River shall not be entitled to any fee
under this Section 5(a) if New Valley shall have previously or shall
concurrently become entitled to the fee described in Section 5(b) of this
Agreement or if BGL shall have previously become entitled to the fee described
in Section 4(b) of the BGL Agreement and (z) the amount of any fee to which High
River may be entitled at any time pursuant to this Agreement shall be reduced by
the amount of any fee which High River shall theretofore have been paid pursuant
to Section 4(a) of the BGL Agreement and by the amounts of any percentage
payments which High River shall theretofore have been paid pursuant to Section
5(d) of this Agreement or pursuant to Section 4(c) of the BGL Agreement.
(b) Subject to Section 5(c), High River shall pay or cause to be paid to
New Valley the sum of $50 million promptly upon:
(i) any termination of this Agreement by High River at a time when (A)
no Termination Event has occurred, (B) New Valley and NV Sub are not in
material breach of the New Valley Obligations and (C) BGL and BGLS are not
in
15
material breach of their obligations under Section 1(c)(iii) of the
BGL Agreement (the "BGL Obligations"); or
(ii) any termination of this Agreement by New Valley or NV Sub at a
time when (A) no Termination Event has occurred, (B) High River is in
material breach of its obligations under Section 1(a), the fourth sentence
of Section 1(c)(v), the ninth sentence of Section 1(c)(v) or Section
1(d)(i) of this Agreement, (C) New Valley and NV Sub are not in material
breach of the New Valley Obligations and (D) BGL and BGLS are not in
material breach of the BGL Obligations;
provided, however, that (x) New Valley shall not be entitled to more than one
fee under this Section 5(b), (y) New Valley shall not be entitled to any fee
under this Section 5(b) if High River shall have previously or shall
concurrently become entitled to the fee described in Section 5(a) of this
Agreement or the fee described in Section 4(a) of the BGL Agreement and (z) the
amount of any fee to which New Valley may be entitled at any time pursuant to
this Agreement shall be reduced by the amount of any fee which BGL shall
theretofore have been paid pursuant to Section 4(b) of the BGL Agreement.
(c) Each of New Valley and High River shall give notice to the other
promptly upon becoming aware that any Termination Event has occurred, or that
any event has occurred that would be a Termination Event but for the giving of
notice or the termination of this Agreement. Such notice shall specify in
reasonable detail the facts giving rise to such Termination Event.
(d) Notwithstanding anything in this Agreement or the BGL Agreement to the
contrary,
(i) if the New Valley Group or the BGL Group sells any Shares or any
Other Securities of any class or series prior to the Reference Date, then
New Valley shall pay or cause to be paid to High River promptly upon the
consummation of such sale a percentage payment equal to the product of (A)
the Net Profit Override realized in such sale, multiplied by (B) a fraction
(the "Sale Fraction," which shall be calculated separately for the Shares
and for each class or series of Other Securities), the numerator of which
is the number of Shares or such Other Securities (as the case may be) held
as of the date hereof, or hereafter acquired prior to such sale, by the New
Valley Group and the denominator of which is the number of Shares or such
Other Securities (as the case may be) held as of the date hereof,
16
or hereafter acquired prior to such sale, by the New Valley Group and the
BGL Group; and
(ii) if the New Valley Group or the BGL Group holds any Shares or any
Other Securities of any class or series on the Reference Date, then New
Valley shall pay or cause to be paid to High River promptly upon the
Reference Date a percentage payment equal to the product of (A) the Net
Profit Override existing on the Reference Date in respect of such Shares or
such Other Securities, multiplied by (B) a fraction (the "Holdings
Fraction," which shall be calculated separately for the Shares and for each
class or series of Other Securities), the numerator of which is the number
of Shares or such Other Securities (as the case may be) held as of the date
hereof, or hereafter acquired prior to the Reference Date, by the New
Valley Group and the denominator of which is the number of Shares or such
Other Securities (as the case may be) held as of the date hereof, or
hereafter acquired prior to the Reference Date, by the New Valley Group and
the BGL Group;
provided, however, that (x) the amount of any percentage payment to which High
River is entitled at any time under this Section 5(d) shall be reduced by the
product of (1) the amount of any fee which High River shall have theretofore
been paid by New Valley under Section 5(a) of this Agreement or by BGLS under
Section 4(a) of the BGL Agreement, multiplied by (2) the Sale Fraction or the
Holdings Fraction, as the case may be, (y) in the event that (1) the New Valley
Group or the BGL Group realizes a Net Loss on any sale of Shares or any Other
Securities of any class or series, or a Net Loss exists on the Reference Date in
respect of any Shares or any Other Securities of any class or series held by the
New Valley Group or the BGL Group on the Reference Date, and (2) High River has
theretofore received any percentage payments from New Valley pursuant to this
Section 5(d) or from BGLS pursuant to Section 4(c) of the BGL Agreement, then in
each such event High River shall repay or cause to be repaid to New Valley
promptly upon receipt of notice from New Valley an amount equal to the product
of (1) the excess, if any, of (X) 20% of such Net Loss over (Y) the aggregate
amount of such percentage payments theretofore received by High River,
multiplied by (2) a fraction, the numerator of which is the aggregate amount of
such percentage payments theretofore paid by New Valley and the denominator of
which is the aggregate amount of such percentage payments theretofore paid by
New Valley and BGLS and (z) High River shall not be entitled to any percentage
payment under this Section 5(d) if New Valley shall have previously become
entitled to the fee described in Section 5(b) of this Agreement or if BGL shall
have previously become entitled to the fee described in Section 4(b) of the BGL
Agreement. New Valley and NV Sub shall use their
17
reasonable best efforts to provide to High River (x) once each calendar week,
commencing with the date of this Agreement, a report containing a reasonably
detailed calculation of the number of Shares and the amount of Other Securities
then held by the New Valley Group and the Weighted-Average Cost of such Shares
and Other Securities, as well as a reasonably detailed estimate prepared in good
faith of the New Valley Expenses incurred to that date and (y) promptly after
the close of business on each business day on which any Shares are sold by the
New Valley Group, a report setting forth the number of Shares or Other
Securities sold since the close of business on the previous business day, the
aggregate price realized in such sales and the aggregate commissions paid in
such sales; provided, however, that New Valley and NV Sub shall not incur any
liability or suffer any prejudice as a result of its provision of any such
estimate.
(e) The parties hereto hereby acknowledge and agree that the arrangements
in Section 5(d) with respect to percentage payments constitute a partnership for
Federal income tax purposes and that the parties hereto shall file income tax
returns in a consistent manner.
Section 6. Costs and Expenses. Each party hereto shall be solely
responsible for all of its costs and expenses relating to this Agreement and the
transactions contemplated hereby.
Section 7. Required Filings; Publicity. (a) Each of the parties hereto
shall (and shall cause each of its affiliates to) (i) take all actions necessary
to comply promptly with all legal requirements which may be imposed on such
party (or its affiliates) as a result of this Agreement or any of the
transactions contemplated hereby, and (ii) without limiting the foregoing, make
all required filings pursuant to the Securities Act and the Exchange Act.
(b) To the extent reasonably practicable, the parties hereto shall consult
with each other prior to all public statements or filings to be issued or made
by any of them or their affiliates with respect to this Agreement and the
transactions contemplated hereby.
Section 8. Representations and Warranties. (a) Each of the parties hereto
hereby represents and warrants to the other parties hereto as follows:
(i) Such party is a corporation or partnership duly organized, validly
existing and in good standing under the laws of the state of its
incorporation or organization, has full corporate or partnership power and
authority to
18
execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
(ii) The execution and delivery by such party of this Agreement and
the performance by such party of its obligations hereunder have been duly
and validly authorized by all necessary corporate or partnership action.
This Agreement has been duly and validly executed and delivered by such
party and constitutes a legal, valid and binding obligation of such party
enforceable against such party in accordance with its terms.
(iii) The execution and delivery by such party of this Agreement do
not, and the performance by such party of its obligations under this
Agreement will not, conflict with or result in a violation or breach of any
of the provisions of the certificate of incorporation, bylaws or other
organizational documents of such party, any law or order applicable to such
party or any of such party's contractual obligations to other persons, in
each case, in any manner that would prevent or materially impede such party
from fulfilling its obligations hereunder.
(b) New Valley and NV Sub hereby represent and warrant to High River that
as of the date hereof the New Valley Group owns beneficially and of record
4,278,700 Shares, free and clear of all liens and encumbrances whatsoever, which
Shares were purchased by the New Valley Group at an aggregate cost (exclusive of
all brokerage fees and commissions incurred in the acquisition of such Shares)
of $129,572,796, and in respect of which New Valley and NV Sub received
dividends of $37,500 on July 3, 1995 and dividends of $298,387.50 on October 2,
1995. New Valley and NV Sub further represent that, upon the consummation of the
purchase and sale of Purchased Shares contemplated by Section 1(a), High River
will acquire title to the Purchased Shares, free and clear of all encumbrances
and liens whatsoever.
(c) High River hereby represents and warrants to New Valley and NV Sub that
as of the date hereof the High River Group owns beneficially and of record
1,205,900 Shares, free and clear of all liens and encumbrances whatsoever, which
Shares were purchased by the High River Group at an aggregate cost (including
all brokerage fees and commissions incurred in the acquisition of such Shares)
of $33,173,434.30, and in respect of which High River received dividends of
$452,212.50 on October 2, 1995. High River further represents and warrants that
it has as of the date hereof, and will have on each date prior to the
termination of this Agreement, net stockholders' or partners' equity of at least
$22 million.
19
Section 9. Miscellaneous. (a) For purposes of this Agreement, (i) the terms
"affiliate" and "associate" have the meanings assigned to them in Rule 12b-2
promulgated under the Exchange Act, provided that the BGL Group shall not be
deemed to be "affiliates" or "associates" of the New Valley and NV Sub for any
purpose of this Agreement, (ii) the term "shall" is used herein to refer to
actions which are compulsory and thus to create binding obligations among the
parties hereto, (iii) the terms "will," "expect," "expectation," "intend" and
"intention," and other terms of similar import, are used herein solely to refer
to the aspirations and objectives of the parties hereto and thus are not used
herein to create binding obligations among the parties hereto and (iv) the term
"may" is used herein solely to refer to conduct which is optional and not
compulsory and thus is not used herein to create binding obligations among the
parties hereto.
(b) The parties hereto shall have no rights, powers or duties except as
specified herein, and no such rights, powers or duties shall be implied. Nothing
herein shall give any party hereto the power to bind any other party hereto to
any contract, agreement or obligation to any third party.
(c) All notices and other communications hereunder shall be in writing and
shall be deemed given when received by the parties hereto at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to New Valley or NV Sub:
100 S.E. Second Street
Miami, Florida 33131
Attention: Bennett S. LeBow
Telecopy: (305) 579-8001
With a copy to:
Michael L. Hirschfeld, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005-1413
Telecopy: (212) 530-5219
20
If to High River:
c/o/ Icahn Associates Corp.
114 West 47th Street
19th Floor
New York, New York 10036
Attention: Carl C. Icahn
Telecopy: (212) 921-3359
With a copy to:
Marc Weitzen, Esq.
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
20th Floor
New York, New York 10036
Telecopy: (212) 626-0799
(d) This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement.
(e) This Agreement constitutes the entire agreement among the parties
hereto and supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
(f) This Agreement shall be governed and construed in accordance with the
laws of the state of New York applicable to a contract executed and performed in
such State, without giving effect to the conflicts of laws principles thereof.
(g) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties
hereto; provided, however, that High River may assign any of its rights and
interests hereunder to (i) any corporation incorporated in any state of the
United States or in the District of Columbia if at least 98.5% of the shares of
each class of capital stock of such corporation are owned by Carl C. Icahn (a
"wholly-owned Icahn subsidiary"), either directly or through one or more
wholly-owned Icahn subsidiaries or (ii) any partnership, the partners of which
are all wholly-owned Icahn subsidiaries; and provided further that no such
assignment shall relieve High River of any of its obligations hereunder. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns.
21
(h) This Agreement may be amended, supplemented or modified only by a
written instrument duly executed by or on behalf of each party hereto. No waiver
of any term or condition in this Agreement shall be effective unless set forth
in writing and signed by or on behalf of the waiving party. No waiver by any
party hereto of any term or condition of this Agreement shall be deemed to be or
construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion.
(i) The terms and provisions of this Agreement are intended solely for the
benefit of the parties hereto and their successors and permitted assigns and are
not intended to confer upon any other person any rights or remedies hereunder.
(j) In the event that any party hereto prevails in any action or proceeding
alleging a breach of this Agreement, such party shall be entitled to recover all
reasonable attorney's fees and other costs of prosecuting such action or
proceeding and, in addition, shall be entitled to receive simple interest on any
damages awarded in such action or proceeding at the rate of 10% per annum from
the date of such breach.
22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their representatives thereunto duly authorized, all as of the date
first above written.
NEW VALLEY CORPORATION
By: /s/ BENNETT S. LEBOW
----------------------------------
Name: Bennett S. LeBow
Title: Chairman, President and
Chief Executive Officer
ALKI CORP.
By: /s/ BENNETT S. LEBOW
----------------------------------
Name: Bennett S. LeBow
Title: Chairman, President and
Chief Executive Officer
HIGH RIVER LIMITED PARTNERSHIP
By: RIVERDALE INVESTORS CORP., INC.
General Partner
By: /s/ EDWARD E.MATTNER
---------------------------------
Name: Edward E. Mattner
Title: President
[Signature page to Agreement among New Valley Corporation,
ALKI Corp. and High River Limited Partnership dated
October 17, 1995
23
NEW VALLEY CORPORATION
ALKI CORP.
100 S.E. Second Street
Miami, Florida 33131
October 17, 1995
High River Limited Partnership
100 South Bedford Road
Mount Kisco, New York 10549
Attn: Carl C. Icahn
Dear Carl:
By executing this letter in the space provided below, New Valley
Corporation, a New York corporation ("New Valley"), ALKI Corp., a Delaware
corporation and a direct wholly owned subsidiary of New Valley ("NV Sub") and
High River Limited Partnership, a Delaware limited partnership ("High River"),
each hereby agree as follows:
1. Notwithstanding the terms of Sections 1(c)(ii)- (iv) of the
Agreement by and among New Valley, NV Sub and High River, dated October 17,
1995 (the "New Valley Agreement"), New Valley and NV Sub ("New Valley
Group") and High River and its affiliates ("High River Group") will
calculate the aggregate number and the average price of all shares of
common stock, par value $.01 per share, of RJR Nabisco Holding Corp.
("Shares") owned by New Valley Group and High River Group, respectively, on
a periodic basis, with emphasis on doing so when the parties own a similar
number of Shares, and make payments to one another in immediately available
funds, so that after giving effect to such payments, the New Valley Group
and the High River Group will have invested the same amount in Shares
(exclusive of brokerage fees and commissions incurred in such
acquisitions).
2. Strict compliance with Section 1(c)(ii)-(iv) of the New Valley
Agreement is not required, notwithstanding the terms thereof.
3. Nothing herein contained shall be construed to otherwise abrogate
the rights and obligations of the parties to this letter agreement with
respect to all other provisions of the New Valley Agreement.
Please indicate your agreement with and acceptance of the terms and
provisions of this letter by signing below.
If the foregoing reflects your understanding, please sign this letter
below. Upon your execution hereof, this letter agreement will become a binding
contract between us.
Very truly yours,
By: /s/ BENNETT S. LEBOW
-----------------------------
Bennett S. LeBow
Accepted and Agreed to:
HIGH RIVER LIMITED PARTNERSHIP
By: RIVERDALE INVESTORS CORP., INC.
General Partner
By: /s/ EDWARD E. MATTNER
----------------------------
Edward E. Mattner
President
[Signature page for letter agreement
by and among New Valley Corporation,
ALKI Corp. and High River Limited
Partnership]
High River Limited Partnership
100 South Bedford Road
Mount Kisco, New York 10549
November 5, 1995
New Valley Corporation
ALKI Corp.
100 S.E. Second Street
Miami, Florida 33131
Attn: Bennett S. LeBow
Dear Bennett:
By executing this letter in the space provided below, New Valley
Corporation, a New York corporation ("New Valley"), ALKI Corp., a Delaware
corporation and a direct wholly-owned subsidiary of New Valley ("NV Sub") and
High River Limited Partnership, a Delaware limited partnership ("High River"),
each hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in the Agreement by and among New Valley, NV
Sub and High River, dated October 17, 1995 (the "New Valley Agreement").
2. Section 1(b)(iii) of the New Valley Agreement is hereby amended to add
the following to the end of the subsection:
"; provided, however, that neither High River nor the New Valley Group
shall have any obligation to make a Second Stage Investment unless and
until the New Valley Group gives notice ("Second Stage Notice") to High
River of the New Valley Group's intention to proceed with and make its
Second Stage Investment."
3. Notwithstanding the terms of Sections 1(c)(ii)- (iv) of the New Valley
Agreement and the letter agreement by and among New Valley, NV Sub and High
River, dated October 17, 1995 (the "Letter Agreement"), following the First
Stage Completion Date and prior to the earlier of (i) such time that New Valley,
NV Sub and any assignee of the foregoing ("New Valley Group") beneficially own a
number of shares of common stock, par value $.01 per share, of RJR Nabisco
Holdings Corp. ("Shares") equal to or greater than the number of Shares
beneficially owned by High River and its affiliates ("High River Group") (the
"Catch Up Date") and (ii) both New Valley Group and High River Group have made
investments in Shares equal to at least the Second Stage
Investment (the "Second Stage Completion Date"), neither High River Group nor
New Valley Group shall be obligated to make or cause to be made to the other
party:
(i) such transfer of Shares and such payments as would have been necessary
so that, after giving effect to such transfers and payments, New Valley
Group and High River Group would have acquired the same number of
Qualifying Shares;
(ii) such payments as would have been necessary so that, after giving
effect to such payments, New Valley Group and High River Group would have
invested the same amount in Qualifying Shares (exclusive of brokerage fees
and commissions incurred in such acquisitions); or
(iii) such transfer of Non-Qualifying Shares or payment for Non-Qualifying
Shares in accordance with Section 1(c)(iii) of the New Valley Agreement.
In the event that the Catch Up Date precedes the Second Stage Completion Date
and following the Catch Up Date (but prior to the Second Stage Completion Date)
New Valley Group purchases Shares, then (x) the parties shall calculate the
aggregate number and the average price of all Qualifying Shares acquired after
the Catch Up Date by New Valley Group and High River Group, respectively, on a
periodic basis, with emphasis on doing so when the parties own a similar number
of Shares, and make payments to one another in immediately available funds, so
that after giving effect to such payments, New Valley Group and High River Group
will have invested the same amount in Qualifying Shares acquired after the Catch
Up Date (exclusive of brokerage fees and commissions incurred in such
acquisitions); (y) New Valley Group may, in accordance with Section 1(c)(iii) of
the New Valley Agreement, put to High River Non-Qualifying Shares at the Hurdle
Price; and (z) the parties shall follow the even up procedures set forth in
Section 1(c)(v) of the New Valley Agreement. In the event that following the
Catch Up Date, New Valley does not purchase Shares, then clauses (i)-(iii) of
this Paragraph 3 shall remain in effect.
4. Section 1(d)(i) of the New Valley Agreement is hereby amended to delete
the first two lines in their entirety and to substitute in lieu thereof the
following:
"Except as provided in subpart (ii) of this subparagraph (d) and except as
provided in Section 9(g) of this Agreement, until the termination of this
Agreement,"
5. Notwithstanding Section 1(d) of the New Valley Agreement, if at any time
subsequent to the First Stage Completion Date but prior to the Second Stage
Completion Date, High River Group beneficially owns more Shares than New Valley
Group, then High River Group may sell, transfer or otherwise
2
dispose of ("Transfer") Shares beneficially owned by it, provided that following
such Transfer, the number of Shares beneficially owned by High River Group would
not be less than the number of Shares beneficially owned by New Valley Group, as
reflected in New Valley Group's last written notice to High River Group in
accordance with Section 1(c)(i) of the New Valley Agreement.
6. Section 3(b)(ii)(B) of the New Valley Agreement is hereby amended to
delete the subsection in its entirety and to substitute in lieu thereof the
following:
"(B) a party hereto which is not a member of such selling or offering Group
thereafter terminates this Agreement prior to or on the tenth day after the
first date that such party becomes aware that such event has occurred,"
7. New Valley Group shall promptly make any payments due under Section 5(d)
of the New Valley Agreement and Section 4(c) of the Agreement among Brooke Group
Ltd., BGLS Inc. and High River dated October 17, 1995 (the "BGL Agreement"). In
the event that High River Group believes that New Valley Group has breached any
of its obligations under Section 5(d) of the New Valley Agreement or Section
4(c) of the BGL Agreement, the parties shall promptly follow the procedures set
forth in Section 1(c)(v) of the New Valley Agreement in order to resolve the
dispute. If the Arbitrator determines that (i) New Valley Group is required to
make a payment pursuant to Section 5(d) of the New Valley Agreement and/or
Section 4(c) of the BGL Agreement, New Valley Group shall make or cause to be
made such payment within twenty (20) days after receiving the Arbitrator's
notice of decision. In the event that New Valley Group fails to make such
payment within twenty (20) days after receipt of the Arbitrator's notice of
decision, New Valley Group shall immediately pay or cause to be paid to High
River Group an additional sum in the amount of $50 million.
8. The first sentence of Section 9(g) of the New Valley Agreement is hereby
amended to add the following to the end of the sentence:
"; and provided, however, that the New Valley Group may assign any of its
rights and interests hereunder to (i) any corporation incorporated in any
state of the United States or in the District of Columbia if 100% of the
shares of each class of capital stock of such corporation are owned by New
Valley (a "wholly-owned New Valley subsidiary"), either directly or through
one or more wholly-owned New Valley subsidiaries or (ii) any partnership,
the partners of which are all wholly-owned New Valley subsidiaries; and
provided, further, that no such assignment shall relieve the New Valley
Group of any of its obligations hereunder."
9. In the event that prior to February 1, 1996 (i) New Valley Group
provides High River Group with notice of
3
termination of the New Valley Agreement or BGL Group provides High River with
notice of termination of the BGL Agreement at a time when a Termination Event
(as defined in the BGL Agreement) set forth in Section 3(c)(vii) or 3(c)(viii)
of the BGL Agreement has occurred or (ii) High River Group provides New Valley
Group with notice of termination of the New Valley Agreement or provides BGL
Group with notice of termination of the BGL Agreement at a time when a
Termination Event set forth in Section 3(c)(ix)(A) of the BGL Agreement has
occurred, New Valley Group shall not transfer any Shares beneficially owned by
New Valley Group until February 1, 1996 in consequence of or in reliance upon
such notice of termination. If the notice of termination specified in clause (i)
of the preceding sentence is provided after January 16, 1996, and the aggregate
number of Shares beneficially owned by High River Group exceeds the aggregate
number of Shares beneficially owned by New Valley Group plus BGL Group
(collectively, the "Aggregate LeBow Shares"), New Valley Group shall not
Transfer any Shares beneficially owned by New Valley Group for fifteen (15) days
following receipt by High River Group of New Valley Group's or BGL Group's
notice of termination; provided, however, that on such date not before February
1, 1996 that the aggregate number of Shares beneficially owned by High River
Group is equal to or less than the Aggregate LeBow Shares, and thereafter, New
Valley Group may Transfer any Shares beneficially owned by New Valley Group.
10. In the event that High River Group provides New Valley Group with
notice of termination of the New Valley Agreement or provides BGL Group with
notice of termination of the BGL Agreement at a time when a Termination Event
under any of Sections 3(c)(ix)(B) through (E) of the New Valley Agreement has
occurred and the aggregate number of shares beneficially owned by High River
Group exceeds the Aggregate LeBow Shares, New Valley Group shall not Transfer
any Shares beneficially owned by New Valley Group in consequence of or in
reliance upon such notice of termination until the earlier of (i) fifteen (15)
days following receipt by New Valley Group or BGL Group of High River Group's
notice of termination specified in the preceding sentence and (ii) the date that
the aggregate number of Shares beneficially owned by High River Group is equal
to or less than the Aggregate LeBow Shares.
11. Nothing herein contained shall be construed to otherwise abrogate the
rights and obligations of the parties to this letter agreement with respect to
all other provisions of the New Valley Agreement, the BGL Agreement and the
Letter Agreement.
4
If the foregoing reflects your understanding, please sign this letter
below. Upon your execution hereof, this letter agreement will become a binding
contract between us.
Very truly yours,
HIGH RIVER LIMITED PARTNERSHIP
By: RIVERDALE INVESTORS CORP., INC.
Its: General Partner
By: /s/ EDWARD E. MATTNER
---------------------------------
Name: Edward E. Mattner
Title: President
Agreed to and Accepted:
NEW VALLEY CORPORATION
By: /s/ BENNETT S. LEBOW
------------------------------
Name: Bennett S. LeBow
Title: Chairman and Chief
Executive Officer
ALKI CORP.
By: /s/ BENNETT S. LEBOW
------------------------------
Name: Bennett S. LeBow
Title: Chairman, President and
Chief Executive Officer
[Signature page for letter agreement by and among New Valley
Corporation, ALKI Corp. and High River Limited Partnership, dated
November 5, 1995]
5
December 28, 1995
Mr. Bennett S. LeBow
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
100 S.E. 2nd Street
32nd Floor
Miami, FL 33131
Dear Mr. LeBow:
1. Retention. This letter agreement (the "Agreement") confirms that New
Valley Corporation ("New Valley"), Brooke Group Ltd. ("Brooke"), and Liggett
Group Inc. ("Liggett", and with New Valley and Brooke, the "Companies") have
engaged Jefferies & Company, Inc. ("Jefferies" or the "Financial Advisor") as
the lead financial advisor to provide advisory services to the Companies in
connection with New Valley's investment (the "Investment") in RJR Nabisco
Holdings Corp. (together with its successors, "RJR") and Brooke's solicitation
of consents from shareholders of RJR, as contemplated by materials on file with
the Securities and Exchange Commission, which seeks, among other things, to have
RJR spin-off or otherwise distribute its food business to RJR shareholders (the
"Solicitation").
As used in this Agreement, (a) the term "affiliate" shall mean, with
respect to any person, any other person that directly or indirectly through one
or more intermediaries controls, is controlled by, or is under common control
with, such person and (b) the term "representative" shall mean, with respect to
any person, any director, officer, employee, agent, advisor or other
representative of such person.
2. Information on the Companies. The Companies will furnish Jefferies with
all material and information regarding the business and financial condition of
the Companies and RJR as Jefferies may request (the "Information"). To the best
of the Companies' knowledge, the Companies represent and warrant to Jefferies
that all of the Information to be furnished by the Companies, when delivered,
will be true and accurate in all material respects and will not contain any
untrue statement of material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading. The Companies shall advise Jefferies
promptly if they learn of the occurrence of any event or any other change that
results in the Information containing any untrue statement of a material fact or
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
December 28, 1995
Page 2
omitting to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. The Companies recognize and confirm that Jefferies (i) will be
relying solely on such Information and other information available from
generally recognized public sources in performing the services contemplated
hereunder without having independently verified the accuracy or completeness of
the same, (ii) does not assume responsibility for the accuracy or completeness
thereof, and (iii) will make appropriate disclaimers consistent with the
foregoing in dealing with third parties.
3. Use of Name. Except to the extent required by law, the Companies agree
that any reference by the Companies or any of their respective affiliates to the
Financial Advisor in any release, communication or material is subject to the
Financial Advisor's prior written approval, which approval shall not be
unreasonably withheld. Except to the extent required by law, if the Financial
Advisor resigns prior to the dissemination of any such release, communication or
material, no reference shall be made therein to the Financial Advisor. If
reference to the Financial Advisor is required by law, the Companies shall
consult with the Financial Advisor prior to such public reference and the form
and timing of such reference shall be reasonably satisfactory to the Financial
Advisor.
4. Use of Advice. No advice rendered by the Financial Advisor in connection
with the services performed pursuant to this Agreement will be quoted by the
Companies or any of their respective affiliates, nor will any such advice be
referred to, in any report, document, release or other communication, whether
written or oral, prepared, issued or transmitted by the Companies or their
affiliates, without the prior written authorization of Jefferies, which approval
shall not be unreasonably withheld, except to the extent required by law. If
reference to the Financial Advisor is required by law, the Companies shall
consult with the Financial Advisor prior to such public reference and the form
and timing of such reference shall be reasonably satisfactory to the Financial
Advisor.
5. Compensation. In payment for services rendered and to be rendered
hereunder by Jefferies, each of the Companies agrees, to the extent provided
below, to pay to Jefferies as follows:
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
December 28, 1995
Page 3
a. Upon acceptance of this Agreement by the Companies (the date of
such acceptance, the "Acceptance Date"), New Valley will pay or cause to be
paid to Jefferies an initial nonrefundable cash fee of $1,500,000.
b. The Companies agree to pay or cause to be paid to Jefferies, on the
Payment Date, as defined in Schedule B attached hereto, a nonrefundable
cash fee equal to 10% of the Companies' Net Profit, as defined in Schedule
B attached hereto, as of the later of (i) the date (the "Termination Date")
that this Agreement is terminated, whether pursuant to Sections 9 or 17
hereof or otherwise, or (ii) the Reference Date, as defined in Schedule B
attached hereto; provided that the amount payable to Jefferies by reason of
this Section 5(b) shall not exceed $15,000,000. In no event will Jefferies
be required to pay or cause to be paid any amount to the Companies under
this Section 5(b), and the obligation of each of the Companies under this
Section 5(b) shall be several and not joint and limited solely to the
portion of the Companies' Net Profit attributable to Shares, as defined in
Schedule B attached hereto, owned by such Company. The Companies will
provide Jefferies with a detailed statement calculating Net Profit within 7
days of the Termination Date or the Reference Date (as applicable) and
provide Jefferies promptly with any back-up reasonably requested by
Jefferies. In the event that Jefferies disputes the calculation of Net
Profit, it will notify the Companies and the Companies and Jefferies will
negotiate in good faith to determine a mutually acceptable calculation of
Net Profit within 15 days of such notification. If Jefferies and the
Companies are unable to agree on the calculation of Net Profit, Net Profit
will be determined by a panel of three arbitrators applying the rules of
the American Arbitration Association, one of which will be chosen by the
Companies, one by Jefferies and the third by the other two arbitrators. The
decision of the panel of arbitrators will be final and binding and the
costs of the arbitration will be borne equally by Jefferies and the
Companies.
c. During the term of this Agreement, New Valley will pay or cause to
be paid to Jefferies a nonrefundable monthly cash fee (the "Monthly Fee")
of $250,000, payable in arrears, with the first payment of $250,000 for
January 1996
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
December 28, 1995
Page 4
due on the first day of February 1996. In addition, for each of the first
five full months following the Acceptance Date, New Valley will pay or
cause to be paid to Jefferies an additional nonrefundable monthly cash fee
of $100,000, payable in arrears, with the first payment due on the first
day of February 1996.
d. In addition to the compensation to be paid to Jefferies as provided
in this Section 5, New Valley shall pay to, or on behalf of, Jefferies,
promptly as billed, all reasonable out-of-pocket expenses incurred by
Jefferies in connection with its services to be rendered hereunder
(including, without limitation, the fees and disbursements of Jefferies'
outside counsel (up to a maximum of $250,000, above which amount shall not
be incurred without the prior approval of New Valley), travel and lodging
expenses, word processing charges, messenger and duplicating services,
facsimile expenses and other customary expenditures).
e. The Companies and Jefferies agree that the sole current
responsibility of Jefferies hereunder is to provide advisory services to
the Companies in connection with the Investment and the Solicitation. The
Companies have advised Jefferies that their only current purpose in
engaging Jefferies and taking action with respect to the Investment is to
seek to have RJR spin-off its food businesses. In light of RJR's publicly
stated opposition to this strategy, the Companies have determined that it
is necessary to preserve their flexibility to act to protect and enhance
the value of the Investment should RJR choose not to spin-off its food
businesses following the completion of the Solicitation. In that regard,
Brooks has given RJR notice of its intention to nominate persons for
election to the Board of Directors of RJR in order to preserve the ability
to solicit proxies to effect a change in the composition of the Board of
Directors of RJR even though the Companies have not determined to take such
action. In the event the Companies determine to pursue the election of
Brooke's nominees, the Companies will be required to engage Jefferies to
provided services as the Companies' lead financial advisor. Any such
engagement shall be pursuant to a separate engagement letter which shall
provide for compensation in amounts and on terms to be mutually agreed
upon.
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
December 28, 1995
Page 5
f. No fee paid or payable to Jefferies or any of its affiliates
hereunder shall be credited against any other fee paid or payable to
Jefferies or any of its affiliates.
6. Representations and Warranties. The Companies represent and warrant to
Jefferies that (a) this Agreement has been duly authorized, executed and
delivered by the Companies; and, assuming the due execution by the Financial
Advisor, constitutes a legal, valid and binding agreement of the Companies,
enforceable against the Companies, in accordance with its terms and (b) any
materials delivered to RJR stockholders by the Companies or any of their
respective affiliates (the "Materials") will not, when delivered, contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading. The Companies agree to advise the
Financial Advisor promptly if they learn of the occurrence of any event or any
other change which results in the Information or the Materials containing any
untrue statement of a material fact or omitting to state any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
7. Indemnity and Proceedings. In partial consideration of the services to
be rendered hereunder, the Companies agrees to indemnify Jefferies and certain
other indemnified persons in accordance with Schedule A attached hereto. In
addition, the Companies shall not, and shall cause its affiliates not to,
initiate any action or proceeding against Jefferies or any other Indemnified
Person (as defined in Schedule A hereto) in connection with this engagement
unless such action or proceeding is based solely upon the willful misconduct or
gross negligence of Jefferies or any such other Indemnified Person.
8. Consent; No Conflict. Each signatory hereto acknowledges and agrees that
Jefferies has rendered and may be requested to render certain services unrelated
to this engagement to other parties who may have or will have an interest in
RJR, and that any such services rendered in the past or to be rendered by
Jefferies hereunder or in the future do not represent any actual or potential
conflicts of interest on the part of Jefferies.
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
December 28, 1995
Page 6
9. Termination; Survival of Certain Provisions. Jefferies may resign at any
time and the Companies may terminate Jefferies' services at any time, each by
giving written notice to the other. If Jefferies resigns or the Companies
terminate Jefferies' services for any reason, Jefferies shall be entitled to
receive all of the amounts due pursuant to Section 5 hereof up to and including
the effective date of such termination or resignation, as the case may be. This
Section 9, the provisions of Sections 3, 4, 5(e), 6, 7 and 8 hereof and
Schedules A and B attached hereto, shall remain operative and in full force and
effect regardless of (a) any investigation made by or on behalf of the Financial
Advisor or any of its affiliates, (b) the resignation of the Financial Advisor
or any termination of the Financial Advisor's services, or (c) the expiration of
the Term or any other termination of this Agreement, and shall be binding upon,
and shall inure to the benefit of, any successors, assigns, heirs and personal
representatives of the Companies, the Financial Advisor and the indemnified
parties identified in Schedule A attached hereto.
10. Notices. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and shall be mailed or delivered (a) if to the
Companies, at the address set forth above, Attention: Richard J. Lampen,
Executive Vice President and General Counsel and (b) if to Jefferies, at the
offices of Jefferies at 11100 Santa Monica Boulevard, Suite 1000, Los Angeles,
California 90025, Attention: Jerry M. Gluck, Executive Vice President and
General Counsel.
11. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
12. Third Party Beneficiaries. This Agreement has been and is made solely
for the benefit of the Companies, the Financial Advisor and the other
indemnified persons referred to in Schedule A hereof and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement.
13. Construction. This Agreement incorporates the entire understanding of
the parties and supersedes all previous agreements relating to the subject
matter hereof, including the
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
December 28, 1995
Page 7
letter agreement dated December 13, 1995 between New Valley and Jefferies, which
shall be of no further force and effect. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York, without
regard to principles of conflicts of law.
14. Headings. The section headings in this Agreement have been inserted as
a matter of convenience of reference and are not part of this Agreement.
15. Press Announcements. At any time, the Financial Advisor may, at its own
expense, place an announcement in such newspapers and publications as it may
choose, stating that the Financial Advisor has acted as lead financial advisor
to the Companies in connection with the Investment and Solicitation as
contemplated by this Agreement.
16. Amendment. This Agreement may not be modified or amended except in a
writing duly executed by the parties hereto.
17. Term. Except as otherwise provided herein, this Agreement shall run
from the date of this letter to a date of two years thereafter, unless extended
by mutual consent of the parties (the "Term").
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
December 28, 1995
Page 8
Please sign and return an original and one copy of this letter
to the undersigned to indicate your acceptance of the terms set forth herein,
whereupon this letter and your acceptance shall constitute a binding agreement
between the Companies and Jefferies as of the date first above written.
Sincerely,
JEFFERIES & COMPANY, INC.
By: /s/ ANDREW R. WHITTAKER
---------------------------
Name: Andrew R. Whittaker
Title: Managing Director
Accepted and Agreed:
BROOKE GROUP LTD.
By /s/ BENNETT S. LEBOW
----------------------------
Bennett S. LeBow
Chairman of the Board,
President and Chief
Executive Officer
NEW VALLEY CORPORATION
By /s/ BENNETT S. LEBOW
----------------------------
Bennett S. LeBow
Chairman of the Board,
President and Chief
Executive Officer
LIGGETT GROUP INC.
By /s/ ROUBEN V. CHAKALIAN
----------------------------
Rouben V. Chakalian
Chairman of the Board,
President and Chief
Executive Officer
SCHEDULE A
December 28, 1995
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard, 10th Floor
Los Angeles, CA 90025
Ladies and Gentlemen:
This letter agreement is entered into pursuant to, and in order to induce
Jefferies & Company, Inc. ("Jefferies" or the "Financial Advisor") to enter
into, the engagement letter dated the date hereof (as amended from time to time,
the "Agreement") between NEW VALLEY CORPORATION ("NEW VALLEY"), BROOKE GROUP
LTD. ("BROOKE"), and LIGGETT GROUP INC. ("LIGGETT", and with New Valley and
Brooke, the "Companies") and Jefferies. Unless otherwise noted, all capitalized
terms used herein shall have the meanings set forth in the Agreement.
Since Jefferies will be acting on behalf of the Companies in connection
with the Investment and the Solicitation as contemplated by the Agreement, and
as part of the consideration for the agreement of Jefferies to furnish its
services pursuant to such Agreement, New Valley and Brooke agree to jointly and
severally indemnify and hold harmless Jefferies and its affiliates and their
respective officers, directors, partners, counsel, employees and agents, and any
other persons controlling Jefferies or any of its affiliates within the meaning
of either Section 15 of the Securities Act of 1933 or Section 20 of the
Securities Exchange Act of 1934, and the agents, employees, officers, directors,
partners, counsel and shareholders of such persons (Jefferies and each such
other person being referred to as an "Indemnified Person"), to the fullest
extent lawful, from and against all claims, liabilities, losses, damages and
expenses (or actions in respect thereof), as incurred, related to or arising out
of or in connection with (i) actions taken or omitted to be taken by the
Companies or any of their respective affiliates or the directors, officers,
employees or agents of any of them, or (ii) actions taken or omitted to be taken
by any Indemnified Person (including acts or omissions constituting ordinary
negligence) pursuant to the terms of, or in connection with services rendered
pursuant to, the Agreement or any transaction or proposed transaction
contemplated thereby or any Indemnified Person's role in connection therewith,
provided, however, that New Valley and Brooke shall not be responsible for any
losses, claims, damages, liabilities or expenses of any Indemnified Person to
the extent that it is finally judicially determined that they result solely from
actions taken or omitted to be taken by such Indemnified Person in bad faith or
to be due solely to such Indemnified Person's gross negligence, and (iii) any
untrue statement or alleged untrue statement of a material fact contained in the
Information
JEFFERIES & COMPANY, INC.
December 28, 1995
Page 2
or the Materials, or in any amendment or supplement thereto, or arising out of
or based upon any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
The Companies shall not, and shall not permit any of their respective
affiliates to, settle, compromise, consent to the entry of any judgment in, or
otherwise seek to terminate any pending or threatened action, claim, suit or
proceeding in which any Indemnified Person is or could be a party and as to
which indemnification or contribution could have been sought by such Indemnified
Person hereunder (whether or not such Indemnified Person is a party thereto)
unless such settlement, compromise, consent or termination includes an express
unconditional release of such Indemnified Person, satisfactory in form and
substance to such Indemnified Person, from all claims, liabilities, losses and
damages arising out of such action, claim, suit or proceeding.
If for any reason (other than the bad faith or gross negligence of an
Indemnified Person as provided above) the foregoing indemnity is unavailable to
an Indemnified Person or insufficient to hold an Indemnified Person harmless,
then New Valley and Brooke, to the fullest extent permitted by law, shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such claims, liabilities, losses, damages or expenses in such proportion as
is appropriate to reflect the relative benefits received by the Companies and
any of their respective affiliates on the one hand and by Jefferies on the
other, from the transaction or proposed transaction under the Agreement or, if
allocation on that basis is not permitted under applicable law, in such
proportion as is appropriate to reflect not only the relative benefits received
by the Companies and any of their respective affiliates on the one hand and
Jefferies on the other, but also the relative fault of the Companies and any of
their respective affiliates and Jefferies, as well as any relevant equitable
considerations. Notwithstanding the provisions hereof, the aggregate
contribution of all Indemnified Persons to all claims, liabilities, losses,
damages and expenses shall not exceed the amount of fees actually received by
Jefferies pursuant to the Agreement and New Valley and Brooke hereby agree to
contribute such amount as is necessary to give effect to this limitation. It is
hereby further agreed that the relative benefits to the Companies and any of
their respective affiliates on the one hand and Jefferies on the other with
respect to any transaction or proposed transaction contemplated
JEFFERIES & COMPANY, INC.
December 28, 1995
Page 3
by the Agreement shall be deemed to be in the same proportion as (i) the total
value of the transaction bears to (ii) the fees paid to Jefferies with respect
to such transaction. The relative fault of the Companies and any of their
respective affiliates on the one hand and Jefferies on the other with respect to
the transaction shall be determined by reference to, among other things, whether
any untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Companies and any of their affiliates or by Jefferies and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Companies and Jefferies agree that it would not
be just and equitable if contribution were determined by pro rata allocation or
by any other method of allocation which does not take account of the equitable
considerations referred to herein. No Indemnified Person shall have any
liability to the Companies or any officer, director, employee or affiliate of
the Companies in connection with the services rendered pursuant to the Agreement
except for any liability for claims, liabilities, losses or damages finally
judicially determined to have resulted solely from actions taken or omitted to
be taken by such Indemnified Person in bad faith or as a result of gross
negligence.
The indemnity, contribution and expense reimbursement obligations set forth
herein (i) shall be in addition to any liability the Companies may have to any
Indemnified Person at common law or otherwise, (ii) shall survive the expiration
of the Term, (iii) shall apply to any modification of Jefferies' engagement and
shall remain in full force and effect following the completion or termination of
the Agreement, (iv) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of Jefferies or any other
Indemnified Person and (v) shall be binding on any successor or assign of the
Companies and successors or assigns to all or substantially all of the
Companies' business and assets.
In addition, New Valley agrees to reimburse the Indemnified Persons for all
expenses (including fees and expenses of counsel) as they are incurred in
connection with investigating, preparing or defending any such action or claim,
whether or not in connection with litigation in which any Indemnified Person is
a named party. If any of Jefferies' personnel appears as witnesses, are deposed
or are otherwise involved in the defense of any action against Jefferies, the
Companies or the directors of the Companies, New Valley will pay
JEFFERIES & COMPANY, INC.
December 28, 1995
Page 4
Jefferies (i) with respect to each day after the Termination Date that one of
Jefferies' professional personnel appears as a witness or is deposed and/or (ii)
with respect to each day after the Termination Date that one of Jefferies'
professional personnel is involved in the preparation therefor, (a) a fee of
$2,500 per day for each such person with respect to each appearance as a witness
or for a deposition and (b) at a rate of $250 per hour with respect to each hour
of preparation for any such appearance and New Valley will reimburse Jefferies
for all reasonable out-of-pocket expenses incurred by Jefferies by reason of any
of its personnel being involved in any such action.
Please sign and return an original and one copy of this letter to the
undersigned to indicate your acceptance of the terms set forth herein, whereupon
this letter and your acceptance shall constitute a binding agreement between the
Companies and Jefferies as of the date of the Agreement.
Sincerely,
BROOKE GROUP LTD.
By___________________________
Bennett S. LeBow
Chairman of the Board,
President and Chief
Executive Officer
NEW VALLEY CORPORATION
By___________________________
Bennett S. LeBow
Chairman of the Board,
President and Chief
Executive Officer
JEFFERIES & COMPANY, INC.
December 28, 1995
Page 5
LIGGETT GROUP INC.
By /s/ ROUBEN V. CHAKALIAN
-------------------------------
Rouben V. Chakalian
Chairman of the Board,
President and Chief
Executive Officer
Accepted and Agreed:
JEFFERIES & COMPANY, INC.
By: /s/ ANDREW R. WHITTAKER
---------------------------
Name: Andrew R. Whittaker
Title: Managing Director
SCHEDULE B
December 28, 1995
Certain Definitions. For purposes of Section 5(b) of this Agreement, the
following terms shall have the meanings indicated below:
(a) "Shares" means all shares of capital stock of RJR owned by any of the
Companies and any of their respective affiliates as of the date hereof or
acquired by any such person thereafter but on or prior to the Termination Date,
as part of the "First Stage Investment" or "Second Stage Investment" as defined
in Section 1(b) of the High River Agreement (as defined below).
(b) "Other Securities" means any securities or assets (other than cash)
received by the Companies or any of their respective affiliates in respect of
the Shares, whether by way of a dividend or other distribution in respect of
such Shares, in exchange for such Shares, pursuant to a reclassification of such
Shares, or otherwise.
(c) The "Trading Profit" realized in any sale of any Shares or any Other
Securities means the amount, if any, by which the actual price realized in such
sale, net of all brokerage fees and commissions incurred in such sale, exceeds
or is less than the Weighted-Average Cost (as defined below) of the Shares or
the Other Securities. The "Trading Profit" existing on the Termination Date or
the Reference Date (as applicable) in respect of any Shares or Other Securities
held by the Companies as of such date means the amount, if any, by which the
Market Value (as defined below) as of the Termination Date or the Reference Date
(as applicable) exceeds or is less than the Weighted-Average Cost of such Shares
or such Other Securities.
(d) The "Expenses" means the "New Valley Expenses" as defined in Section
4(d) of the High River Agreement, excluding the fees due to Jefferies under
Section 5(b) of this Agreement.
(e) The "Net Profit" as of the Termination Date or Reference Date (as
applicable) means the sum of (A) (i) the aggregate Trading Profit realized on
all sales of Shares or Other Securities by the Companies prior to the
Termination Date or Reference Date (as applicable) or existing on the
Termination Date or Reference Date (as applicable) with respect to such Shares
or Other Securities held by the Companies as of such date, less (ii) the
aggregate Expenses incurred on or prior to the Termination Date or Reference
Date (as applicable), plus, without duplication, (B) any cash, property or
securities (other than Other Securities included in clause (A) or cash dividends
or distributions received in respect of the Shares or Other Securities or the
Market Value (as of the date received) of any
JEFFERIES & COMPANY, INC.
December 28, 1995
Page 2
securities or assets (other than cash) received by the Companies in respect of
Other Securities by way of any dividend or distribution), received by the
Companies or any of their respective affiliates from RJR for any reason on or
before the Termination Date or within one year after the Termination Date. (If
the cash, property or securities referred to in clause (B) is received after the
Termination Date, the Companies agree to pay Jefferies the amount required
thereby promptly after it receives such amount.)
(f) The "Weighted-Average Cost" of any Shares means (i) the
weighted-average cost of all Shares (including all brokerage fees and
commissions incurred in the acquisition of such Shares and including an amount
equivalent to simple interest on the cost of any Shares at the rate of 8 1/2%
per annum from the date of payment for such Shares, but excluding any other
interest, fees, premiums and other costs of any loans or borrowings incurred or
maintained to acquire or carry such Shares), calculated in accordance with
generally accepted accounting principles, reduced by (ii) the sum of (A) the
amount of any cash dividends or distributions received in respect of such Shares
and the Market Value (as of the date received) of any Other Securities received
in respect of such Shares by way of any dividend or distribution, plus (B) an
amount equivalent to simple interest on such amount and such Market Value at the
rate of 8 1/2% per annum from such date received; provided, however, that any
exchange of Shares into Other Securities shall be treated for purposes of
calculating the Weighted-Average Cost of the remaining Shares as a sale of the
Shares so exchanged or reclassified at a price equal to their Weighted-Average
Cost.
(g) The "Weighted-Average Cost" of any Other Securities means (i) in the
case of any Other Securities received by way of any dividend or distribution,
the Market Value of such Other Securities as of the date received, plus an
amount equivalent to simple interest on such Market Value at the rate of 8 1/2%
per annum from the date of receipt of such Other Securities, but excluding any
other interest, fees, premiums and other costs of any loans or borrowings
incurred or maintained to carry such Other Securities and (ii) in the case of
any Other Securities received by the Companies by way of any exchange of Shares
for Other Securities or reclassification of Shares into Other Securities, an
amount equal to the Weighted-Average Cost of the Shares so exchanged or
reclassified, plus an amount equivalent to simple interest on such amount at the
rate of 8 1/2% per annum from the date of receipt of such Other Securities, but
excluding any
JEFFERIES & COMPANY, INC.
December 28, 1995
Page 3
other interest, fees, premiums and other costs of any loans or borrowings
incurred or maintained to carry such Other Securities; provided, however, that
the Weighted-Average Cost of any Other Securities shall be reduced by the sum of
(A) the amount of any cash dividends or distributions received by the Companies
in respect of such Other Securities and the Market Value (as of the date
received) of any securities or assets (other than cash) received by the
Companies in respect of such Other Securities by way of any dividend or
distribution plus (B) an amount equivalent to simple interest on the amount of
such cash or the Market Value of such securities or other assets at the rate of
8 1/2% per annum from the date received.
(h) The "Market Value" of any securities as of any date means the product
obtained by multiplying (i) the number or amount of such securities by (ii) the
average of the daily closing prices per share or other unit of such securities
for the ten consecutive trading days (or, if such securities have not traded for
ten consecutive trading days, such lesser number of trading days as they have
traded) on or prior to such date. For this purpose, the "closing price" of any
securities as of any date means, the closing sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices per share or other unit for such securities, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if such securities are not then listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such securities are listed or admitted to
trading or, if such securities are not then listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices, per share or other unit for such
securities in the over-the-counter market, as reported by the NASDAQ system or,
if such system is not in use, any other similar system then in use, or, if on
any such date such securities are not then quoted by any such system, the
average of the closing bid and asked prices per share or other unit for such
securities as furnished by a professional market maker making a market in such
securities selected by mutual agreement of the Companies and Jefferies or, if no
such person then makes a market in such securities, the fair market value of
such securities, as determined by an independent, nationally recognized
investment banking or
JEFFERIES & COMPANY, INC.
December 28, 1995
Page 4
appraisal firm selected by mutual agreement of the Companies and Jefferies;
provided, however, that if any dividend or distribution shall have been declared
but not paid in respect of such securities as of the date in question, and the
ex-dividend date for the determination of the holders of securities entitled to
receive such dividend or distribution shall occur prior to the date of
valuation, the "Market Value" of such securities shall be appropriately
increased by the value of such dividend or distribution (as determined by mutual
agreement of the Companies and Jefferies, or if they cannot agree, by an
independent, nationally recognized investment banking or appraisal firm selected
by mutual agreement of the Companies and Jefferies, or if they cannot agree,
selected by the American Arbitration Association).
(i) The "Market Value" of any assets other than securities means the fair
market value of such assets, as determined by an independent, nationally
recognized investment banking or appraisal firm selected by mutual agreement of
the Companies and Jefferies, or if they cannot agree, selected by the American
Arbitration Association.
(j) The "Payment Date" means the later of (i) 30 days after the Termination
Date or (ii) 30 days after the "Reference Date" as that term is defined in
Section 5(a) of the High River Agreement.
(k) The "High River Agreement" means the Agreement dated October 17, 1995,
as amended, among New Valley and High River Limited Partnership.
February 28, 1996
Mr. Bennett S. LeBow
BROOKE GROUP LTD.
NEW VALLEY CORPORATION
LIGGETT GROUP INC.
100 S.E. 2nd Street
32nd Floor
Miami, FL 33131
Dear Mr. LeBow:
This letter amends and supplements the engagement letter (the "Agreement")
dated December 28, 1995 by and between Jefferies & Company, Inc. ("Jefferies")
and New Valley Corporation ("New Valley"), Brooke Group Ltd. ("Brooke") and
Liggett Group Inc. ("Liggett", and with New Valley and Brooke, the "Companies").
Except as expressly set forth herein, all provisions of the Agreement remain in
full force effect. Without limiting the foregoing, the indemnity and
contribution provisions of the Agreement, including Schedule A thereto, remain
in full force effect and shall now apply to the additional services contemplated
by Section 1 of this amendment. All capitalized terms not defined herein shall
have the meanings set forth in the Agreement.
1. Retention. Section 1 of the Agreement is amended by adding the following
to the end of such Section:
This letter agreement confirms that the Companies have engaged Jefferies as
the lead financial advisor to provide advisory services to the Companies in
connection with Brooke's solicitation of proxies for the Board of Directors from
the shareholders of RJR, as contemplated by materials on file with the
Securities and Exchange Commission (the "Proxy Solicitation") in addition to
Jefferies responsibilities as lead financial advisor to the Companies as set
forth in this Section.
February 28, 1996
Page 2
5. Compensation. Section 5(c) of the Agreement is amended by replacing it
in its entirety with the following:
(c) During the period ending April 30, 1996, New Valley will pay or cause
to be paid to Jefferies a nonrefundable monthly cash fee (the "Monthly Fee") of
$250,000, payable in arrears, with the first payment of $250,000 for January
1996 due on the first day of February 1996. From the first day on which the
Proxy Solicitation materials were filed with the SEC, February 20, 1996, the
Monthly Fee will increase to $500,000, which amount will be pro-rated for
February. In addition, for each of the four months ending April 30, 1996, New
Valley will pay or cause to be paid to Jefferies an additional nonrefundable
monthly cash fee of $100,000, payable in arrears, with the first payment due on
the first day of February 1996. Section 5(e) of the Agreement is amended by
replacing it in its entirety with the following:
(e) Following (i) the appointment during the Term as Chairman, President or
Chief Executive Officer of RJR of either Mr. Bennett S. LeBow or any other
designee or representative of Brooke, Liggett, New Valley or any of their
respective affiliates (or any "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) in
which any of them is a member), or (ii) the election or appointment during the
Term of representatives or designees of Brooke, Liggett, New Valley or any of
their respective affiliates (or any "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) in
which any of them is a member), including each member of the proposed slate of
directors of RJR named in the press release issued by Brooke on November 21,
1995, to represent 50% or more of the membership of the RJR Board of Directors
then in office, the Companies agree to pay or cause to be paid to Jefferies a
nonrefundable cash fee of $7,500,000 payable only if and at the time RJR either
reimburses the Companies for or pays directly this fee, provided, that such fee
shall not be payable if it is finally judicially determined by a court of
competent jurisdiction that the reimbursement of such fees by RJR following the
successful solicitation of consents or proxies for the election of the Board of
Directors of RJR will violate Delaware law. The Companies undertake to use their
best efforts to cause RJR to pay such fee to Jefferies or to reimburse the
Companies therefor.
Section 5 is further amended by adding the following after Section 5(f):
(g) The Companies and Jefferies agree that the sole current
responsibility of Jefferies hereunder is to provide
February 28, 1996
Page 3
advisory services to the Companies in connection with the Investment and the
Proxy Solicitation. In the event the Companies determine to pursue any other
investment banking activity with respect to the Investment during the Term, the
Companies will be required to engage Jefferies to provide services as the
Companies' lead financial advisor. Any such engagement shall be pursuant to a
separate engagement letter which shall provide for compensation in amounts and
on terms to be mutually agreed upon.
9. Termination; Survival of Certain Provisions. Section 9 of the Agreement
is amended by replacing it in its entirety with the following:
Jefferies may resign at any time and the Companies may terminate
Jefferies' services at any time, each by giving written notice to the
other. If Jefferies resigns or the Companies terminate Jefferies' services
for any reason, Jefferies shall be entitled to receive all of the amounts
due pursuant to Section 5 hereof up to and including the effective date of
such termination or resignation, as the case may be. This Section 9, the
provisions of Sections 3, 4, 5(b), 5(e), 5(g), 6, 7 and 8 hereof and
Schedules A and B attached hereto, shall remain operative and in full force
and effect regardless of (a) any investigation made by or on behalf of the
Financial Advisor or any of its affiliates, (b) the resignation of the
Financial Advisor or any termination of the Financial Advisor's services,
or (c) the expiration of the Term or any other termination of this
Agreement, and shall be binding upon, and shall inure to the benefit of,
any successors, assigns, heirs and personal representatives of the
Companies, the Financial Advisor and the indemnified parties identified in
Schedule A attached hereto.
(a) Jefferies agrees not to take any action in furtherance of any of
the matters set forth in this paragraph (e) without the prior consent of
the Companies, which consent shall not be granted until after the Companies
evaluate the results of the consent solicitation. Jefferies will have the
right of first refusal in connection with any future investment banking
activities for Alpha and its subsidiaries, including but not limited to
financings and refinancings, asset purchases or sales, advisories and
consents, for a period of two years from the Termination Date. The
compensation and other terms and conditions of any such engagement shall be
covered by customary documentation reasonably acceptable to the parties
thereto.
Please sign and return an original and one copy of this letter to the
undersigned to indicate your acceptance of the terms set forth herein,
whereupon this letter and your acceptance
February 28, 1996
Page 4
shall constitute a binding agreement between the Companies and Jefferies as
of the date first above written.
Sincerely,
JEFFERIES & COMPANY, INC.
By: /s/ ANDREW R. WHITTAKER
---------------------------
Name: Andrew R. Whittaker
Title: Managing Director
Accepted and Agreed:
BROOKE GROUP LTD.
By /s/ BENNETT S. LEBOW
----------------------------
Bennett S. LeBow
Chairman of the Board,
President and Chief
Executive Officer
NEW VALLEY CORPORATION
By /s/ BENNETT S. LEBOW
----------------------------
Bennett S. LeBow
Chairman of the Board and
Chief Executive Officer
LIGGETT GROUP INC.
By /s/ ROUBEN V. CHAKALIAN
----------------------------
Rouben V. Chakalian
Chairman of the Board,
President and Chief
Executive Officer
AGREEMENT
BETWEEN
NEW VALLEY CORPORATION
AND
BROOKE GROUP LTD.
This Agreement, dated as of December 27, 1995, by and between New Valley
Corporation, a New York corporation ("New Valley"), and Brooke Group Ltd., a
Delaware corporation ("BGL").
WHEREAS, New Valley, directly or indirectly, currently holds 4,892,550
shares of common stock of RJR Nabisco Holdings Corp., a Delaware corporation
("RJRN"); and
WHEREAS, New Valley believes that the value of its investment in RJRN can
be substantially increased through a spinoff (the "Spinoff") of all or
substantially all of RJRN's remaining investment in Nabisco Holdings Corp., a
Delaware corporation ("Nabisco"); and
WHEREAS, BGL directly and indirectly holds 400 shares of common stock of
RJRN and has announced its desire to seek written consents to effect the Spinoff
and has filed preliminary solicitation material with the Securities and Exchange
Commission; and
WHEREAS, New Valley desires to have BGL continue to pursue measures
designed to effectuate the Spinoff at the earliest possible date and to have BGL
undertake the duties and responsibilities set forth in this Agreement upon the
terms and conditions contained herein; and
WHEREAS, BGL is willing to undertake those duties and responsibilities upon
such terms and conditions;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, New Valley and BGL agree as follows:
1. Proposals. (a) BGL currently intends to seek RJRN stockholder approval,
either at RJRN's 1996 annual meeting of stockholders (the "1996 Annual Meeting")
or at a special meeting of RJRN stockholders (a "Special Meeting") or through
action by written consent of the RJRN stockholders without a meeting, of any or
all of the following proposals: (i) a proposal to recommend that the Board of
Directors of RJRN (the "RJRN Board") cause RJRN to effectuate the Spinoff (the
"Spinoff Proposal") and (ii) a proposal to amend the by-laws of RJRN in any
manner that may be necessary in order to ensure that RJRN stockholders are
permitted to call a Special Meeting and to vote freely at such Special Meeting
or at the 1996 Annual Meeting on any or all of
2
the Proposals, or in any other way necessary to facilitate the Proposals (the
"By-Law Amendment Proposal"). In connection with the foregoing, BGL may seek
written demands or requests from RJRN stockholders ("Stockholder Demands") that
a Special Meeting be held for the purpose of voting on any or all of the
Proposals. BGL may also seek written consents from RJRN stockholders ("Written
Consents") to adopt any or all of the Proposals.
(b) Prior to the 1996 Annual Meeting, BGL shall solicit Written Consents in
favor of the Spinoff Proposal and the By-Law Amendment Proposal. BGL may also,
in its sole discretion, conduct solicitations, in addition to the solicitation
described in the preceding sentence, of Stockholder Demands or Written Consents
in favor of the other Proposals, or of proxies to be voted in favor of one or
more of the Proposals at the 1996 Annual Meeting, the Special Meeting or any
subsequent meeting ("Proxies").
(c) BGL has acted to preserve its right to nominate a slate of directors
(the "Nominees") at the 1996 Annual Meeting who will pledge to carry out the
Spinoff as promptly as practicable following their election in the event RJRN
does not irrevocably commit to effectuate the Spinoff.
(d) BGL may, or may seek to have others, pursue a tender or exchange offer,
proposal for a recapitalization, distribution, merger, consolidation,
liquidation, sale of assets or other business combination (including any joint
venture relationship) or extraordinary transaction involving any of RJRN,
Nabisco or any of their affiliates, or a proposal to amend the certificate of
incorporation, bylaws or other constituent documents, or acquire in any manner,
directly or indirectly, a substantial equity interest in or a substantial
portion of the assets of, any of RJRN, Nabisco or any of their affiliates.
(e) The foregoing activities described in Section 1(a-d) shall be herein
referred to as the "Proposals". Notwithstanding anything in this Agreement to
the contrary, BGL shall have no obligation to pursue or go forward with any
Proposal if BGL determines in good faith not to pursue or go forward with such
Proposal.
2. Actions. In connection with the Proposals New Valley expects that BGL
may take such actions as BGL reasonably believes are necessary to effectuate the
Proposals, including, but not limited to the following:
(a) arrange for, and engage, the services of third parties with
respect to the Proposals, including, without limitation, legal counsel,
investment bankers, accountants,
3
proxy solicitors and public relations firms, each upon terms and
conditions that are reasonable and customary under the circumstances;
(b) consult and work with such third parties in connection with the
Proposals;
(c) monitor and supervise the performance of all third parties engaged
in connection with the Proposals;
(d) administer the day to day legal, public relations and practical
requirements necessary to effectuate the Proposals;
(e) take public positions with respect to the Proposals;
(f) represent the interests of New Valley as a stockholder of RJRN in
dealings with third parties in connection with the Proposals;
(g) arrange, schedule and coordinate any discussions, communications,
negotiations or arrangements with RJRN and any third parties with respect
to the Proposals;
(h) arrange, schedule and coordinate on behalf of New Valley any
meetings or informational discussions among stockholders of RJRN;
(i) maintain communications with the Board of Directors and management
of RJRN;
(j) maintain communications and relations with the other stockholders
of RJRN, including responding to inquiries of such stockholders or the
media;
(k) consult and work with legal counsel in effectuating the Proposals
consistent with all pertinent Federal, state and local laws and rules and
regulations of governmental or quasi-governmental agencies;
(l) maintain familiarity with the business, condition (financial or
otherwise), results of operations, assets and properties and prospects of
RJRN and its subsidiaries;
(m) provide advice to New Valley with respect to its investment in
RJRN;
(n) provide advice to New Valley based on BGL's ownership of, and
experience with, Liggett (as defined
4
herein) with respect to the tobacco industry as a whole, including its
prospects (domestically and internationally), the status of products and
tobacco litigation and regulatory developments;
(o) locate, arrange for and maintain relationships with the Nominees;
and
(p) as reasonably requested by New Valley, make reports to New Valley
of the status of the Proposals and furnish advice and recommendations with
respect thereto.
3. New Valley Agreements. New Valley shall enter into and become a party to
any engagement or retention agreement between BGL and/or its subsidiaries, and
any third party engaged in connection with the Proposals, to the extent required
by such third party; provided, however, that any such agreement shall be on such
terms and conditions, including provisions for indemnification of such third
parties, as are reasonable and customary under the circumstances.
4. Costs and Expenses. (a) New Valley will pay directly or will reimburse
BGL or any subsidiary of BGL, within 10 days of a written request by BGL or such
subsidiary, for all reasonable out-of-pocket costs and expenses of BGL or such
subsidiary paid to a third party that is not an affiliate of BGL or such
subsidiary (whether incurred prior to or after the date hereof) incurred in
connection with pursuing the Proposals, including soliciting Stockholder
Demands, Written Consents and Proxies from the stockholders of RJRN, including
without limitation, to the extent related thereto, (i) all registration and
filing fees under the Securities Exchange Act of 1934, as amended, or the
Securities Act of 1933, as amended, or any other applicable laws, rules or
regulations, (ii) all printing, messenger, telephone, duplicating and delivery
expenses, (iii) all fees and disbursements of counsel, (iv) all fees and
expenses of the Nominees, including fees and expenses relating to
indemnification obligations to the Nominees, and (v) all fees and disbursements
of public relations firms, proxy solicitation firms, inspectors of election,
investment bankers, accountants and other advisors. The amount payable by New
Valley pursuant to this Section 4(a) for expenses incurred prior to the date
hereof shall not exceed $2,000,000.
(b) Notwithstanding the provisions of Section 4(a), BGL shall be solely
responsible for (i) its overhead and other internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
duties relating to the transactions contemplated by this Agreement), (ii) any
fees and disbursements of counsel to BGL incurred in
5
connection with, and any damages or settlement amounts paid pursuant to, any
litigation against BGL for which indemnification is not available under Section
7 and (iii) all other expenses incurred by it, other than expenses described in
Section 4(a).
5. Compensation. (a) New Valley shall, from time to time promptly after
receipt thereof (whether prior to or after the Termination Date (as defined
herein)), pay to BGLS Inc. ("BGLS"), a wholly-owned subsidiary of BGL, 20% of
any New Valley Profits (as defined herein) not theretofore paid to BGLS. The
aggregate amount payable to BGLS under this Section 5(a) shall not exceed (i)
$15,000,000 if the RJRN Investment (as defined herein) is equal to or less than
$150,000,000; (ii) $20,000,000 if the RJRN Investment is greater than
$150,000,000 and less than $200,000,000; and (iii) $25,000,000 if the RJRN
Investment is equal to or greater than $200,000,000.
(b) For purposes of this Agreement, the following terms shall have the
meanings indicated below:
(i) "New Valley Profit" at any time means the amount, if any, by which
(A) the aggregate of all cash proceeds received upon the sale of any shares
of capital stock of RJRN owned by New Valley or its subsidiaries, provided
that such shares were owned on the date hereof or acquired prior to the
Termination Date (the "RJRN Shares"), or the sale or payment of or with
respect to any non-cash assets distributed, acquired or received, including
by way of reclassification or otherwise, in respect of the RJRN Shares, by
New Valley its subsidiaries or any of their successors and assigns (net of
any reasonable brokerage fees, commissions and other expenses incurred in
the disposition thereof) or as a result of any extraordinary cash
distributions in respect of the RJRN Shares exceeds (B) the RJRN Costs (as
defined herein).
(ii) "RJRN Costs" means the sum of (A) the cost to acquire the RJRN
Shares owned, directly or indirectly, by New Valley at the time New Valley
Profit is determined, (B) all brokerage fees and commissions incurred in
the acquisition of such RJRN Shares, (C) any principal amount ("Margin
Loans"), and any interest, fees, premiums and other costs, of any loans or
borrowings incurred or maintained to acquire or carry such RJRN Shares
(such amount to be determined net of any regular cash dividends received by
New Valley in respect of the RJRN Shares), (D) (1) any expenses of New
Valley incurred in connection with pursuing the Proposals or otherwise with
respect to RJRN; (2) any expenses paid directly by New Valley, or
reimbursed to BGL or a subsidiary of BGL, pursuant to Section 4(a); or (3)
any
6
indemnity payments made pursuant to Section 7, (E) any "Net Profit
Override" or other fees and percentage payments paid by New Valley to High
River Limited Partnership pursuant to that certain Agreement among New
Valley, ALKI Corp. and High River Limited Partnership, dated October 17,
1995, as amended, and (F) such amount, that when added to any amounts that
are Cash Inflows (as herein defined), as would provide New Valley with an
IRR (as herein defined) of 20%.
(iii) "IRR" means the annual interest rate (compounded annually)
which, when used to calculate the net present value as of March 3, 1995 of
all Cash Inflows and all Cash Outflows (each as defined herein), causes the
difference between such net present value amounts to equal zero. "Cash
Inflows" as used herein shall include all cash payments received by New
Valley or its subsidiaries described in clause (A) of the definition of New
Valley Profit and any regular cash dividends thereon (less any amounts
necessary to repay Margin Loans). "Cash Outflows" as used herein shall mean
the aggregate purchase price of the RJRN Shares (less any amounts
consisting of Margin Loans).
(iv) "RJRN Investment" means the sum of all cash payments made by New
Valley to acquire the RJRN Shares.
(c) If at any time New Valley shall have paid any amounts to BGLS pursuant
to Section 5(a) and thereafter it is determined that such percentage of New
Valley Profit was not so payable (whether, because of subsequent losses or
otherwise, there is no New Valley Profit or such New Valley Profit is less than
as previously determined), BGL shall cause BGLS to repay such amount promptly
upon receipt of notice from New Valley.
6. Liggett. In the event of a merger or consolidation of Liggett Group
Inc., a Delaware corporation ("Liggett"), with, or the sale of all or
substantially all of the assets or capital stock of Liggett to, or the material
sale of the capital stock of any parent corporation of Liggett, in each case to
RJRN, or any affiliate of RJRN, then BGL shall cause BGLS to pay to New Valley
on the closing date of such transaction an amount, if any, in cash equal to the
sum of (a) the RJRN Costs and (b) such amount that is necessary so that New
Valley would have achieved an IRR of 20% if all of the RJRN Shares were sold at
the average of the daily closing sale prices per share for the ten consecutive
trading days immediately preceding such closing. Notwithstanding the provisions
of this Section 6, BGLS shall be eligible to receive compensation pursuant to
Section 5 to the extent provided for therein.
7
7. Indemnity. New Valley shall indemnify and hold harmless BGL and its
affiliates and their respective directors, officers and employees and
controlling persons ("Indemnified Persons") from and against any claim, loss,
expense, damage or injury ("Loss") suffered or sustained by them, by reason of
any acts, omissions or alleged acts or omissions arising out of any transactions
contemplated by this Agreement and the performance by BGL of the services
contemplated by, this Agreement, including, without limitation, any judgment,
award, settlement, reasonable attorneys' fees and other costs or expenses, as
the same are incurred, incurred in connection with the defense of any actual or
threatened action, proceeding or claim, except that New Valley shall not be
responsible under this Section 7 to an Indemnified Party for any Loss to the
extent it is finally determined by a court of competent jurisdiction to have
resulted from BGL's or any other Indemnified Party's bad faith, wilful
misconduct or gross negligence; provided, however, that New Valley shall not be
obligated to make any payments hereunder if and to the extent that the aggregate
of all amounts paid by New Valley hereunder exceeds the RJRN Investment. If for
any reason the foregoing indemnification is unavailable to the Indemnified
Parties or insufficient to hold them harmless, then New Valley shall contribute
to the amount paid or payable by the Indemnified Parties as a result of any Loss
in such proportion as is appropriate to reflect the relative economic interests
of New Valley and its stockholders on the one hand and the Indemnified Parties
on the other hand in the matters contemplated by this Agreement and any other
relevant equitable considerations.
8. Duration. The term of this Agreement shall begin on the date hereof and
shall continue until the second anniversary of the date hereof (the "Termination
Date"); provided, however, that the parties hereto may terminate this Agreement
upon mutual written consent specifying an earlier Termination Date; provided
further, however, that New Valley may terminate this Agreement upon 30 days
prior written notice to BGL specifying an earlier Termination Date.
Notwithstanding the foregoing, Section 4 (with respect to expenses incurred
prior to the Termination Date) and Sections 5(a-b), 7, 13 and 16 shall survive
the Termination Date.
9. Entire Agreement; Severability. This Agreement constitutes the entire
understanding and agreement between New Valley and BGL. This Agreement
supersedes all other prior agreements and understandings, whether written or
oral, between New Valley and BGL concerning the subject matter hereof. If any
term or provision of this Agreement shall be held to be invalid or
unenforceable, it shall not render invalid or unenforceable the remaining terms
or provisions of this Agreement or affect the
8
validity or enforceability of any of the terms or provisions of this Agreement.
10. Notices. Either party shall furnish any direction, notice, report or
other communication that this Agreement requires or permits in writing to the
following address:
If to New Valley: 100 S.E. Second Street
Miami, Florida 33131
Attention: Richard J. Lampen
Telecopy: (305) 579-8016
If to BGL: 100 S.E. Second Street
Miami, Florida 33131
Attention: Gerald E. Sauter
Telecopy: (305) 579-8022
Any party may change its address by written notice to the other.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
12. Amendments; Waiver. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto. No waiver of any term or condition in this Agreement shall be
effective unless set forth in writing and signed by or on behalf of the waiving
party. No waiver by any party hereto of any term or condition of this Agreement
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion.
13. Third Party Beneficiaries. The terms and provisions of this Agreement
are intended solely for the benefit of the parties hereto and their successors
and permitted assigns and are not intended to confer upon any other person any
rights or remedies hereunder other than persons entitled to indemnity under
Section 7.
14. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their legal representatives, successors
and permitted assigns. This Agreement may not be assigned by either party hereto
(whether by
9
operation of law or otherwise) without the prior written consent
of the other party.
15. Captions. Captions contained in this Agreement are inserted only as a
matter of convenience and in no way define, limit or extend the scope or intent
of this Agreement or any provision hereof.
16. Governing Law. This Agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the substantive laws of
the State of New York as may be applicable to contracts made and to be performed
entirely in the State of New York, without regard to choice of law provisions.
IN WITNESS WHEREOF, BGL and New Valley have caused this Agreement to be
executed as of the date first above written.
NEW VALLEY CORPORATION
By /s/ RICHARD LAMPEN
---------------------------------
Name: Richard Lampen
Title: Executive Vice President
BROOKE GROUP LTD.
By /s/ GERALD E. SAUTER
--------------------------------
Name: Gerald E. Sauter
Title: Vice President, Chief
Financial Officer and
Treasurer
SERVICES AGREEMENT
AGREEMENT made as of February 20, 1996, between BROOKE GROUP LTD., a
Delaware corporation (the "Company"), and DALE HANSON ("Nominee").
WHEREAS, the Company has asked and Nominee has agreed to be a nominee for
election to the Board of Directors of RJR Nabisco Holdings Corp. ("RJR Nabisco")
at the 1996 annual meeting of stockholders of RJR Nabisco (the "Annual
Meeting"); and
WHEREAS, the Company desires to retain the services of Nominee in
connection with providing advice and consultation to the Company as described
below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
SERVICES
1.01. Services. Nominee agrees (a) to be a Nominee for election to the
Board of Directors of RJR Nabisco at the Annual Meeting and (b) to advise and
consult with the Company and its affiliates on various matters, including but
not limited to (i) matters generally relating to issues of corporate governance
and shareholder democracy in publicly traded corporations, (ii) matters relating
to or arising out of the solicitation (the "Spinoff Solicitation") by the
Company of consents from the stockholders of RJR Nabisco for the adoption of a
non-binding resolution requesting and recommending that the Board of Directors
of RJR Nabisco immediately spin off the remaining 80.5% of Nabisco Holdings
Corp. held by RJR Nabisco to the stockholders of RJR Nabisco, (iii) matters
relating to or arising out of any solicitation (the "Director Solicitation"; and
together with the Spinoff Solicitation, the "Solicitations") which the Company
may make of proxies from the stockholders of RJR Nabisco in support of Nominee's
election as a director of RJR Nabisco at the Annual Meeting and (iv) such other
matters as the Company and Nominee shall agree on from time to time
(collectively, the "Services"). Nothing contained in this Agreement shall
prevent Nominee from engaging in any business, charitable or personal activities
that do not interfere with his ability to perform the Services.
1.02. Responsibility of Nominee. The responsibility of Nominee under this
Agreement is to use Nominee's reasonable best efforts to provide Services
hereunder competently and in
accordance with acceptable business standards; provided that Nominee shall have
no liability to the Company arising out of the performance of the Nominee's
duties hereunder except to the extent that Nominee's acts constitute willful
misconduct or gross negligence.
1.03. Term. This Agreement shall become effective on the date hereof and
shall terminate on May 31, 1997, unless earlier terminated by the mutual written
consent of the parties hereto (the "Term"). The provisions of Section 1.04 and
Article II shall survive the termination of this Agreement.
1.04 Confidential Information. During the Term and thereafter, Nominee
shall not disclose to any person (except with the authority of the Company or
unless ordered to do so by a court of competent jurisdiction or government
agency) any information relating to the Solicitations or the business,
investments, finances or other matters of a confidential nature of the Company
of which Nominee may in the course of Nominee's duties hereunder or otherwise
become possessed, and Nominee shall use his reasonable best efforts to prevent
any such disclosure as aforesaid. The foregoing shall not apply to matters or
information which has become publicly available other than as result of
Nominee's breach of this Section 1.04.
ARTICLE II
REMUNERATION OF NOMINEE
2.01 Compensation. (a) The Company shall pay Nominee a one time cash
payment of $150,000, payable on the date hereof.
(b) The Company hereby grants to Nominee a stock appreciation right (the
"SAR") with respect to 50,000 shares ("SAR Shares") of common stock, par value
$.01 per share, of RJR Nabisco ("Common Stock"). Nominee may exercise such right
in whole or in part at any time and from time to time from and after June 30,
1996. The SAR shall expire at the close of business on the tenth business day
after the end of the Term. Upon exercise, the Company shall pay to Nominee an
amount, if any, equal to the excess of the Fair Market Value of a share of
Common Stock on the date of exercise over $31.50 per share, multiplied by the
number of shares of Common Stock with respect to which the SAR shall have been
exercised. For purposes of this Agreement, "Fair Market Value", as of any date
shall mean the average of the daily closing prices of the Common Stock for the
ten consecutive trading days on or prior to such date, as reported on the
consolidated transaction reporting system for the New York Stock Exchange for
such dates. In the event of any change in capitalization affecting the Common
Stock, including, without limitation, a stock dividend or other distribution,
split, reverse certificate split, recapitalization, merger, consolidation,
subdivision, split-up, spin-off, combination or
-2-
exchange of Common Stock or other form of reorganization, or any other change
affecting the Common Stock, the Company shall automatically make such
mathematically proportionate adjustments in the number of SAR Shares covered by
the SAR and the exercise price in respect thereof, as are reasonably appropriate
under the circumstances.
2.02. Expenses. The Company shall reimburse Nominee for all ordinary,
necessary and reasonable business expenses incurred by Nominee in connection
with the Services. Nominee shall furnish the Company with reasonably detailed
documentation for any such reimbursable expenses.
2.03. Indemnification. In the event Nominee is or becomes a party to or
other participant in, or is threatened to be made a party to or other
participant in, a threatened, pending or completed action, suit or proceeding by
reason of (or arising in part out of) the performance of the Services, the
Company to the fullest extent permitted by applicable law shall indemnify and
hold harmless Nominee from and against any and all damages, judgments, fines,
penalties, amounts paid in settlement, deficiencies, losses and expenses,
including reasonable attorneys' fees ("Losses") suffered, incurred or sustained
by Nominee or to which Nominee becomes subject, resulting from, arising out of
or relating to such action, suit or proceeding. Notwithstanding anything to the
contrary contained herein, the Company shall not be required to indemnify
Nominee in respect of Losses arising from Nominee's willful misconduct or gross
negligence.
ARTICLE III
GENERAL PROVISIONS
3.01. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without reference to the
principles of conflicts of laws.
3.02. Assignment. This Agreement shall bind and inure to the benefit of the
successors and assigns of the parties hereto. Neither of the parties hereto may
assign this Agreement or any rights hereunder without the written consent of the
other party hereto.
3.03. Waiver or Amendment. No waiver, change or amendment of any provision
of this Agreement shall be valid or of force or effect unless made in writing
and signed by the party against which the enforcement of such change or waiver
is sought. The signing of such waiver or change in any instance shall in no
event be construed to be a general waiver, abandonment or change of any of the
provisions hereof, but shall be strictly limited to
-3-
the specific instance and for the specific purpose stated therein.
3.04. No Agency, Etc. This Agreement is not intended to create an
employment relationship between the Company and Nominee. For all purposes,
Nominee shall be deemed an independent contractor and not the Company's agent or
employee, and Nominee shall have no authority to act for, represent, bind or
obligate the Company, and nothing contained herein shall be deemed to create a
partnership or a joint venture between the Company and Nominee. Neither party
shall be liable for any act of or failure to act by the other party except as
herein specifically provided.
3.05. No Breach, Etc. Nominee hereby represents and warrants that neither
the execution and delivery nor the performance by Nominee of this Agreement will
violate, or be in conflict with, or constitute a default under, any agreement or
contract to which Nominee is a party.
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized representatives as of the
day and year first above written.
BROOKE GROUP LTD.
By: /s/ BENNETT S. LEBOW
-------------------------------
Name: Bennett S. LeBow
Title: Chairman, President and
Chief Executive Officer
/s/ DALE M. HANSON
-------------------------------
Dale M. Hanson
-5-
ISDA
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of February 28, 1996
Internationale Nederlandea (U.S.) Capital Markets, Inc. and New Valley
Corporation have entered and/or anticipate entering into one or more
transactions (each a "Transaction") that are or will be governed by this Master
Agreement, which includes the schedule (the "Schedule"), and the documents and
other confirming evidence (each a "Confirmation") exchanged between the parties
confirming those Transactions.
Accordingly, the parties agree as follows:
1. INTERPRETATION
(a) Definitions. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency.
- 2 -
Where settlement is by delivery (that is, other than by payment), such
delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in
the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject
to (1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is continuing,
(2) the condition precedent that no Early Termination Date in respect of
the relevant Transaction has occurred or been effectively designated and
(3) each other applicable condition precedent specified in this Agreement.
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same date in
the same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices
- 3 -
through which the parties make and receive payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified by
the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that party
("X") will:
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to
be deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such
deduction or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y, evidencing
such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to
the payment to which Y is otherwise entitled under this Agreement,
such additional amount as is necessary to ensure that the net amount
actually received by Y (free and clear of Indemnifiable Taxes, whether
assessed against X or Y) will equal the full amount Y would have
received had no such deduction or withholding been required. However,
X will not be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for:
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure would
not have occurred but for (I) any action taken by a taxing
authority, or brought in a court of competent jurisdiction, on
- 4 -
or after the date on which a Transaction is entered into
(regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (II) a Change in Tax
Law.
(ii) Liability. If:
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to make any
deduction or withholding in respect of which X would not be required
to pay an additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax, Y will promptly pay to X the
amount of such liability (including any related liability for
interest, but including any related liability for penalties only
if Y has failed to comply with or perform any agreement contained
in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or
effective designation of an Early Termination Date in respect of the
relevant Transaction, a party that defaults in the performance of any
payment obligation will, to the extent permitted by law and subject to
Section 6(c), be required to pay interest (before as well as after
judgment) on the overdue amount to the other party on demand in the
same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the
date of actual payment, at the Default Rate. Such interest will be
calculated on the basis of daily compounding and the actual number of
days elapsed. If, prior to the occurrence or effective designation of
an Early Termination Date in respect of the relevant Transaction, a
party defaults in the performance of any obligation required to be
settled by delivery, it will compensate the other party on demand if
and to the extent provided for in the relevant Confirmation or
elsewhere in this Agreement.
- 5 -
3. REPRESENTATIONS
Each party represents to the other party (which representations will be
deemed to be repeated by each party on each date on which a Transaction is
entered into and, in the case of the representations in Section 3(f), at all
times until the termination of this Agreement) that:
(a) Basic Representations.
(i) Status. It is duly organised and validly existing under the laws
of the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and
performance do not violate or conflict with any law applicable to it, any
provision of its constitutional documents, any order or judgment of any
court or other agency of government applicable to it or any of its assets
or any contractual restriction binding on or affecting it or any of its
assets;
(iv) Consents. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
- 6 -
(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) Payer Tax Representations. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(e) is accurate
and true.
(f) Payee Tax Representations. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is accurate
and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may
have any obligation under this Agreement or under any Credit Support Document to
which it is a party:
(a) Furnish Specified Information. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to allow
such other party or
- 7 -
its Credit Support Provider to make a payment under this Agreement or any
applicable Credit Support Document without any deduction or withholding for
or on account of any Tax or with such deduction or withholding at a reduced
rate (so long as the completion, execution or submission of such form or
document would not materially prejudice the legal or commercial position of
the party in receipt of such demand), with any such form or document to be
accurate and completed in a manner reasonably satisfactory to such other
party and to be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) Maintain Authorisations. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated, organised, managed and
controlled, or considered to have its seat, or in which a branch or office
through which it is acting for the purpose of this Agreement is located ("Stamp
Tax Jurisdiction") and will indemnify the other party against any Stamp Tax
levied or imposed upon the other party or in respect of the other party's
execution or performance of this Agreement by any such Stamp Tax Jurisdiction
which is not also a Stamp Tax Jurisdiction with respect to the other party.
- 8 -
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) Events of Default. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:
(i) Failure to Pay or Deliver. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) Breach of Agreement. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make any
payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or
to give notice of a Termination Event or any agreement or obligation under
Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the
party in accordance with this Agreement if such failure is not remedied on
or before the thirtieth day after notice of such failure is given to the
party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit Support
Document if such failure is continuing after any applicable grace
period has elapsed;
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each Transaction
to which such Credit Support Document relates without the written
consent of the other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or challenges
the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation (other than a representation
under Section 3(e) or (f)) made or repeated
- 9 -
or deemed to have been made or repeated by the party or any Credit Support
Provider of such party in this Agreement or any Credit Support Document
proves to have been incorrect or misleading in any material respect when
made or repeated or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition or event (however described) in
respect of such party, any Credit Support Provider of such party or any
applicable Specified Entity of such party under one or more agreements or
instruments relating to Specified Indebtedness of any of them (individually
or collectively) in an aggregate amount of not less than the applicable
Threshold Amount (as specified in the Schedule) which has resulted in such
Specified Indebtedness becoming, or becoming capable at such time of being
declared, due and payable under such agreements or instruments, before it
would otherwise have been due and payable or (2) a default by such party,
such Credit Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in an
aggregate amount of not less than the applicable Threshold Amount under
such agreements or instruments (after giving effect to any applicable
notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party:
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes
- 10 -
insolvent or is unable to pay its debts or fails or admits in writing
its inability generally to pay its debts as they become due; (3) makes
a general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted against it
a proceeding seeking a judgment of insolvency or bankruptcy or any
other relief under any bankruptcy or insolvency law or other similar
law affecting creditors' rights, or a petition is presented for its
winding-up or liquidation, and, in the case of any such proceeding or
petition instituted or presented against it, such proceeding or
petition (A) results in a judgment of insolvency or bankruptcy or the
entry of an order for relief or the making of an order for its
winding-up or liquidation or (B) is not dismissed, discharged, stayed
or restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its winding-up,
official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes subject
to the appointment of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official
for it or for all or substantially all its assets; (7) has a secured
party take possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal process
levied, enforced or sued on or against all or substantially all its
assets and such secured party maintains possession, or any such
process is not dismissed, discharged, stayed or restrained, in each
case within 30 days thereafter; (8) causes or is subject to any event
with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events specified
in clauses (1) to (7) (inclusive); or (9) takes any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with or
into, or transfers all or substantially all its assets to, another entity
and, at the time of such consolidation, amalgamation, merger or transfer:
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it or its
- 11 -
predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by such
resulting, surviving or transferee entity of its obligations under
this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an Illegality if
the event is specified in (i) below, a Tax Event if the event is specified in
(ii) below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event Upon Merger if the event is
specified pursuant to (iv) below or an Additional Termination Event if the event
is specified pursuant to (v) below:
(i) Illegality. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into, or
due to the promulgation of, or any change in, the interpretation by any
court, tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a result
of a breach by the party of Section 4(b)) for such party (which will be the
Affected Party):
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect of
such Transaction or to comply with any other material provision of
this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party (or
such Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on which
a Transaction is entered into (regardless of whether such action is taken
or brought with respect to a party to this Agreement) or (y) a Change in
Tax Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled
Payment Date (1) be required to pay to the other party an additional amount
in
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respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect
of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment
from which an amount is required to be deducted or withheld for or on
account of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid in
respect of such Tax under Section 2(d)(i)(4) (other than by reason of
Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to pay
an additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which the
other party is not required to pay an additional amount (other than by
reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a
party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity (which
will be the Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"), any
Credit Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or merges with or into, or transfers all
or substantially all its assets to, another entity and such action does not
constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate, will
be the Affected Party); or
(v) Additional Termination Event. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also constitutes
an Illegality, it will be treated as an Illegality and will not constitute an
Event of Default.
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6. EARLY TERMINATION
(a) Right to Terminate Following Event of Default. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying the
nature of that Termination Event and each Affected Transaction and will
also give such other information about that Termination Event as the other
party may reasonably require.
(ii) Transfer to Avoid Termination Event. If either an Illegality
under Section 5(b)(i)(1) or a Tax Event occurs and there is only one
Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party
is the Affected Party, the Affected Party will, as a condition to its right
to designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
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Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's policies in
effect at such time would permit it to enter into transactions with the
transferee on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1)
or a Tax Event occurs and there are two Affected Parties, each party will
use all reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that Termination
Event.
(iv) Right to Terminate. If:
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an Affected
Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event Upon
Merger occurs and the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected Party in the case of a
Tax Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then continuing, designate a day not earlier than the day
such notice is effective as an Early Termination Date in respect of
all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given
under Section 6(a) or (b), the Early Termination Date will occur on
the date so designated, whether or not the relevant Event of Default
or Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated
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Transactions will be required to be made, but without prejudice to the
other provisions of this Agreement. The amount, if any, payable in
respect of an Early Termination Date shall be determined pursuant to
Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following
the occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and
will provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is
to be paid. In the absence of written confirmation from the source of
a quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect
of any Early Termination Date under Section 6(e) will be payable on
the day that notice of the amount payable is effective (in the case of
an Early Termination Date which is designated or occurs as a result of
an Event of Default) and on the day which is two Local Business Days
after the day on which notice of the amount payable is effective (in
the case of an Early Termination Date which is designated as a result
of a Termination Event). Such amount will be paid together with (to
the extent permitted under applicable law) interest thereon (before as
well as after judgment) in the Termination Currency, from (and
including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will
be calculated on the basis of daily compounding and the actual number
of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Setoff.
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(i) Events of Default. If the Early Termination Date results from an
Event of Default:
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the sum
of the Settlement Amount (determined by the Non-defaulting Party) in
respect of the Terminated Transactions and the Termination Currency
Equivalent of the Unpaid Amounts owing to the Non-defaulting Party
over (B) the Termination Currency Equivalent of the Unpaid Amounts
owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of this
Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the sum
of the Settlement Amount (determined by the Non-defaulting Party) in
respect of the Terminated Transactions and the Termination Currency
Equivalent of the Unpaid Amounts owing to the Non-defaulting Party
less (B) the Termination Currency Equivalent of the Unpaid Amounts
owing to the Defaulting Party. If that amount is a positive number,
the Defaulting Party will pay it to the Non-defaulting Party; if it is
a negative number, the Non-defaulting Party will pay the absolute
value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:
(1) One Affected Party. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if
Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed to
- 17 -
be references to the Affected Party and the party which is not the
Affected Party, respectively, and, if Loss applies and fewer than all
the Transactions are being terminated, Loss shall be calculated in
respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of the party with
the higher Settlement Amount ("X") and the Settlement Amount of
the party with the lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the Transactions
are being terminated, in respect of all Terminated Transactions)
and an amount will be payable equal to one-half of the difference
between the Loss of the party with the higher Loss ("X") and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies
in respect of a party, the amount determined under this Section 6(e)
will be subject to such adjustments as are appropriate and permitted
by law to reflect any payments or deliveries made by one party to the
other under this Agreement (and retained by such other party) during
the period from the relevant Early Termination Date to the date for
payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation
applies an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as
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otherwise provided in this Agreement neither party will be entitled to
recover any additional damages as a consequence of such losses.
7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be
void.
8. CONTRACTUAL CURRENCY
(a) Payment in the Contractual Currency. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable law,
any obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
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(b) Judgments. To the extent permitted by applicable law, if any judgment
or order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.
9. MISCELLANEOUS
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing
- 20 -
(including a writing evidenced by a facsimile transmission) and executed by each
of the parties or confirmed by an exchange of telexes or electronic messages on
an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether orally
or otherwise). A Confirmation shall be entered into as soon as practicable
and may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
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10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organisation of such party, the
obligations of such party are the same as if it had entered into the Transaction
through its head or home office. This representation will be deemed to be
repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other
party for and against all reasonable out-of-pocket expenses, including legal
fees and Stamp Tax, incurred by such other party by reason of the enforcement
and protection of its rights under this Agreement or any Credit Support Document
to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
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(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating
to this Agreement ("Proceedings"), each party irrevocably:
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the Borough of Manhattan in New
York City, if this Agreement is expressed to be governed by the laws of the
State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and
further waives the
- 23 -
right to object, with respect to such Proceedings, that such court does not
have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any reason any party's
Process Agent is unable to act as such, such party will promptly notify the
other party and within 30 days appoint a substitute process agent acceptable to
the other party. The parties irrevocably consent to service of process given in
the manner provided for notices in Section 12. Nothing in this Agreement will
affect the right of either party to serve process in any other manner permitted
by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of
- 24 -
such Termination Event and (b) with respect to any other Termination Event, all
Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after the
date on which the relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is
specified as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
- 25 -
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with
Section 6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be
imposed in respect of a payment under this Agreement but for a present or former
connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such
recipient (including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or resident of such
jurisdiction, or being or having been organised, present or engaged in a trade
or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding a
connection arising solely from such recipient or related person having executed,
delivered, performed its obligations or received a payment under, or enforced,
this Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the
case of tax matters, by the practice of any relevant governmental revenue
authority) and "lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which
commercial banks are open for business (including dealings in foreign exchange
and foreign currency deposits) (a) in relation to any obligation under Section
2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so
specified, as otherwise agreed by the parties in writing or determined pursuant
to provisions contained, or incorporated by reference, in this Agreement, (b) in
relation to any other payment, in the place where the relevant account is
located and, if different, in the principal financial centre, if any, of the
currency of payment, (c) in relation to any notice or other communication,
including notice contemplated under Section 5(a)(i), in the city specified in
the address for notice provided by the recipient and, in the case of a notice
- 26 -
contemplated by Section 2(b), in the place where the relevant new account is to
be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations
for performance with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or (6)(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"Market Quotation" means, with respect to one or more Terminated
Transactions and a party making the determination, an amount determined on the
basis of quotations from Reference Market-makers. Each quotation will be for an
amount, if any, that would be paid to such party (expressed as a negative
number) or by such party (expressed as a positive number) in consideration of an
agreement between such party (taking into account any existing Credit Support
Document with respect to the obligations of such party) and the quoting
Reference Market-maker to enter into a transaction (the "Replacement
Transaction") that would have the effect of preserving for such party the
economic equivalent of any payment or delivery (whether the underlying
obligation was absolute or contingent and assuming the satisfaction of each
applicable condition precedent) by the parties under Section 2(a)(i) in respect
of such Terminated Transaction or group of Terminated Transactions that would,
but for the occurrence of the relevant Early Termination Date, have been
required after that date. For this purpose, Unpaid Amounts in respect of the
Terminated Transaction or group of Terminated Transactions are to be excluded
but, without limitation, any payment or delivery that would, but for the
relevant Early
- 27 -
Termination Date, have been required (assuming satisfaction of each applicable
condition precedent) after that Early Termination Date is to be included. The
Replacement Transaction would be subject to such documentation as such party and
the Reference Market-maker may, in good faith, agree. The party making the
determination (or its agent) will request each Reference Marketmaker to provide
its quotation to the extent reasonably practicable as of the same day and time
(without regard to different time zones) on or as soon as reasonably practicable
after the relevant Early Termination Date. The day and time as of which those
quotations are to be obtained will be selected in good faith by the party
obliged to make a determination under Section 6(e), and, if each party is so
obliged, after consultation with the other. If more than three quotations are
provided, the Market Quotation will be the arithmetic mean of the quotations,
without regard to the quotations having the highest and lowest values. If
exactly three such quotations are provided, the Market Quotation will be the
quotation remaining after disregarding the highest and lowest quotations. For
this purpose, if more than one quotation has the same highest value or lowest
value, then one of such quotations shall be disregarded. If fewer than three
quotations are provided, it will be deemed that the Market Quotation in respect
of such Terminated Transaction or group of Terminated Transactions cannot be
determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof
or evidence of any actual cost) to the Nondefaulting Party (as certified by it)
if it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's
head or home office.
"Potential Event of Default" means any event which, with the giving of
notice or the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions
(a) in which the party is incorporated,
- 28 -
organised, managed and controlled or considered to have its seat, (b) where an
Office through which the party is acting for purposes of this Agreement is
located, (c) in which the party executes this Agreement and (d) in relation to
any payment, from or through which such payment is made.
"Scheduled Payment Date" means a date on which a payment or delivery is to
be made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of
retention or withholding or similar right or requirement to which the payer of
an amount under Section 6 is entitled or subject (whether arising under this
Agreement, another contract, applicable law or otherwise) that is exercised by,
or imposed on, such payer.
"Settlement Amount" means, with respect to a party and any Early
Termination Date, the sum of:
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety or
otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
- 29 -
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge,
assessment or fee of any nature (including interest, penalties and additions
thereto) that is imposed by any government or other taxing authority in respect
of any payment under this Agreement other than a stamp, registration,
documentation or similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date
(a) if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount
denominated in the Termination Currency, such Termination Currency amount and,
in respect of any amount denominated in a currency other than the Termination
Currency (the "Other Currency"), the amount in the Termination Currency
determined by the party making the relevant determination as being required to
purchase such amount of such Other Currency as at the relevant Early Termination
Date, or, if the relevant Market Quotation or Loss (as the case may be), is
determined as of a later date, that later date, with the Termination Currency at
the rate equal to the spot exchange rate of the foreign exchange agent (selected
as provided below) for the purchase of such Other Currency with the Termination
Currency at or about 11:00 a.m. (in the city in which such foreign exchange
agent is located) on such date as would be customary for the determination of
such a rate for the purchase of such Other Currency for value on the relevant
Early Termination Date or that later date. The
- 30 -
foreign exchange agent will, if only one party is obliged to make a
determination under Section 6(e), be selected in good faith by that party and
otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon
Merger or, if specified to be applicable, a Credit Event Upon Merger or an
Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of
the cost (without proof or evidence of any actual cost) to each party (as
certified by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that became payable (or that would have become payable
but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to
such Early Termination Date and which remain unpaid as at such Early Termination
Date and (b) in respect of each Terminated Transaction, for each obligation
under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii))
required to be settled by delivery to such party on or prior to such Early
Termination Date and which has not been so settled as at such Early Termination
Date, an amount equal to the fair market value of that which was (or would have
been) required to be delivered as of the originally scheduled date for delivery,
in each case together with (to the extent permitted under applicable law)
interest, in the currency of such amounts, from (and including) the date such
amounts or obligations were or would have been required to have been paid or
performed to (but excluding) such Early Termination Date, at the Applicable
Rate. Such amounts of interest will be calculated on the basis of daily
compounding and the actual number of days elapsed. The fair market value of any
obligation referred to in clause (b) above shall be reasonably determined by the
party obliged to make the determination under Section 6(e) or, if each party is
so obliged, it shall be the average of the Termination Currency Equivalents of
the fair market values reasonably determined by both parties.
- 31 -
IN WITNESS WHEREOF the parties have executed this document on the
respective dates specified below with effect from the date specified on the
first page of this document.
Internationale Nederlanden
(U.S.) Capital Markets, Inc. New Valley Corporation
- --------------------------- ------------------------
(Name of Party) (Name of Party)
By:/s/ JOHN H. CLEMENT By: /s/ RICHARD LAMPEN
----------------------- ---------------------
Name: John H. Clement Name: Richard Lampen
Title: Vice President Title: Executive Vice
President
Date: March 4, 1996 Date:
[EXECUTION COPY]
SCHEDULE
TO THE
MASTER AGREEMENT
DATED AS OF FEBRUARY 28, 1996
BETWEEN
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL MARKETS, INC.
a corporation organized under the
laws of Delaware ("Party A")
and
NEW VALLEY CORPORATION,
a corporation organized under the laws
of New York ("Party B")
Part 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:
Section 5(a)(v), Not Applicable
Section 5(a)(vi), Not Applicable
Section 5(a)(vii), Not Applicable
Section 5(b)(iv), Not Applicable
and in relation to Party B for the purpose of:
Section 5(a)(v), Affiliates of Party B
Section 5(a)(vi), Not Applicable
Section 5(a)(vii), Not Applicable
Section 5(b)(iv), Not Applicable
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14.
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to Party
A and any Credit Support Provider of Party A and to Party B.
1
To the extent such provisions apply:
"SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14
except that such meaning will exclude obligations in respect of
deposits received.
"THRESHOLD AMOUNT" means: (a) with respect to Party A and Party A's
Credit Support Provider, 2% of ING Bank's shareholders' equity, as
indicated on its most recent annual audited financial statements, or
the equivalent thereof in any currency; and (b) with respect to Party
B, USD 500,000 or its equivalent in any currency.
(d) Subsection (iv) of Section 5(b) is hereby deleted in its entirety and
replaced by the following:
(iv) CREDIT EVENT UPON MERGER, which will apply to Party A and to Party
B and will mean that any such party ("X"), any applicable Specified
Entity of X consolidates or amalgamates with, or merges with or into,
or transfers all or substantially all its assets to, or reorganizes,
incorporates, reincorporates, or reconstitutes into or as, another
entity, or X, X or any applicable Specified Entity of X otherwise
reorganizes or effects a recapitalization, or another entity
consolidates or amalgamates with, or merges with or into, or transfers
all or substantially all its assets to, or reorganizes, incorporates,
reincorporates, or reconstitutes into or as, X, or any applicable
Specified Entity of X and such action does not constitute an event
described in Section 5(a)(viii) but the creditworthiness of X, or any
applicable Specified Entity of X or the resulting, surviving, or
transferee entity, as the case may be, is materially weaker than that
of X, such Specified Entity, as the case may be, immediately prior to
such action (and in such event X or such resulting, surviving or
transferee entity will be the Affected Party).
(e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will apply
to Party A and Party B.
(f) PAYMENTS ON EARLY TERMINATION. For the purposes of Section 6(e) of
this Agreement:
(a) Market Quotation will apply.
(b) The Second Method will apply.
(g) "TERMINATION CURRENCY" means United States Dollars.
(h) Subsection (vii) of Section 5(a) is hereby amended by adding in clauses
(1) and (5) thereof after the word "amalgamation" the words
", transfer, reorganization, incorporation, reincorporation,
reconstitution,".
(i) The introductory paragraph of Subsection (viii) of Section 5(a) is
hereby deleted in its entirety and replaced by the following:
The party or any Credit Support Provider of such party
consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, or
reorganizes, incorporates, reincorporates, or reconstitutes
into or as, another entity and, at the time of such
consolidation, amalgamation, merger, transfer, reorganization,
incorporation, reincorporation, or reconstitution: -
2
PART 2. TAX REPRESENTATIONS.
(a) PAYER REPRESENTATIONS. For the purpose of Section 3(e), Party A and
Party B make the following representation:
It is not required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, of any Relevant
Jurisdiction to make any deduction or withholding for or on account of
any Tax from any payment (other than interest under Section 2(e),
6(d)(ii), or 6(e)) to be made by it to the other party under this
Agreement. In making this representation, it may rely on (i) the
accuracy of any representations made by the other party pursuant to
Section 3(f), (ii) the satisfaction of the agreement contained in
Section 4(a)(i) or 4(a)(iii) and the accuracy and effectiveness of any
document provided by the other party pursuant to Section 4(a)(i) or
4(a)(iii), and (iii) the satisfaction of the agreement of the other
party contained in Section 4(d), provided that it shall not be a breach
of this representation where reliance is placed on clause (ii) and the
other party does not deliver a form or document under Section 4(a)(iii)
by reason of material prejudice to its legal or commercial position.
(b) PAYEE REPRESENTATIONS. For the purpose of Section 3(f), Party A and
Party B make the following representations:
(i) The following representation applies to Party A:
Party A is a corporation organized under the law of the State of
Delaware.
(ii) The following representation applies to party B:
Party B is a corporation organized under the law of the State of
New York.
PART 3. AGREEMENT TO DELIVER DOCUMENTS
Documents to be delivered are:
PARTY REQUIRED COVERED BY
TO DELIVER FORM/DOCUMENT/ DATE BY WHICH TO SECTION 3(D)
DOCUMENT CERTIFICATE BE DELIVERED REPRESENTATION
- -------------- -------------- ------------------ --------------
Party A Guarantee Within 10 Local No
Business Days after
the date hereof
Party B Audited annual financial Promptly following Yes
statements of Party B demand by Party A
Party B Secretary's Certificate Upon execution of Yes
certifying the authority and this Agreement
signatures of persons signing
the Agreement, the Credit
Support Document and related
documentation
3
Part 4. MISCELLANEOUS.
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of this
Agreement:
Address for notices or communications to Party A:
Address: 135 East 57th Street
New York, New York 10022-2101
Attention: Global Documentation Unit
Telephone No.: (212) 446-1500
Facsimile No.: (212) 371-9295
Address for notices or communications to Party B:
Address: 100 S.E. Second Street
Miami, Florida 33131
Attention: Richard Lampen
Telephone No.: (305) 579-8000
Facsimile No.: (305) 579-8009
(b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement,
neither Party A nor Party B appoints a Process Agent.
(c) OFFICES. The provisions of Section 10(a) will apply to this Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c):
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) CALCULATION AGENT. The Calculation Agent is Party A unless otherwise
specified in a Confirmation in relation to the Relevant Transaction.
All calculations, adjustments and determinations by the Calculation
Agent shall be final, conclusive and binding on all parties, in the
absence of manifest error.
(f) CREDIT SUPPORT DOCUMENTS. With respect to Party A, the Guarantee, dated
February 29, 1996 (the "Guarantee"), of ING Bank N.V. (and its
successors and permitted assigns, "ING Bank"), in favor of Party A.
With respect to Party B, the Security Agreement, substantially in the
form attached hereto as Annex A, as amended from time to time (the
"Security Agreement").
(g) CREDIT SUPPORT PROVIDER. With respect to Party A, ING Bank.
(h) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
CHOICE OF LAW DOCTRINE.
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to the following Transactions or groups of Transactions
(in each case starting from the date of this Agreement): None.
4
(j) JURISDICTION. Section 13(b) is hereby deleted in its entirety and
replaced by the following:
(b) Jurisdiction. With respect to any claim, suit, action, or
proceedings relating to this Agreement ("Proceedings"), each party
irrevocably:
(i) submits to the exclusive jurisdiction of the courts of the State of
New York and the United States District Court located in the Borough of
Manhattan in New York City; and
(ii) waives all right to trial by jury, waives any objection which it
may have at any time to the laying of venue of any Proceedings brought
in any such court, waives any claim that such Proceedings have been
brought in an inconvenient forum, and further waives the right to
object, with respect to such Proceedings, that such court does not have
jurisdiction over such party.
(k) "AFFILIATE" will have the meaning specified in Section 14.
Part 5. OTHER PROVISIONS.
(a) DEFINITIONS. This Agreement, each Confirmation and each Transaction are
subject to the 1991 ISDA Definitions (the "Definitions") as published by
the International Swap Dealers Association, Inc. ("ISDA"), and will be
governed in all respects by the provisions set forth in the Definitions.
The provisions of the Definitions are incorporated by reference in, and
made part of, this Agreement and each Confirmation as if set forth in
full in this Agreement and each Confirmation. In the event of any
inconsistency between the provisions of this Agreement and the
Definitions, this Agreement will prevail. In the event of any
inconsistency between the provisions of any Confirmation and the
Agreement or the Definitions, such Confirmation will prevail for the
purpose of the relevant Transaction.
(b) PROCEDURES FOR ENTERING INTO TRANSACTIONS.
(1) With respect to each Transaction entered into pursuant to this
Agreement, Party A will, on or promptly after the Trade Date
thereof, send Party B a Confirmation substantially in the form
of Confirmation utilized by Party A or in such other form as
mutually agreed upon by the parties. Party B will promptly
thereafter confirm in writing the accuracy of or request the
correction of such Confirmation (in the latter case,
indicating how it believes the terms of such Confirmation
should be correctly stated and such other terms which should
be added to or deleted from such Confirmation to make it
correct).
(2) Each party hereto consents to the monitoring or recording, at
any time and from time to time, by the other party of any and
all communications between officers or employees of the
parties, waives any further notice of such monitoring or
recording, and agrees to notify (and, if required by law,
obtain the consent of) its officers and employees with respect
to such monitoring or recording.
(c) [INTENTIONALLY DELETED.]
(d) ADDITIONAL REPRESENTATIONS. Section 3 is hereby amended by adding the
following Subsections (g), (h) and (I) at the end of such Section:
(g) ELIGIBLE SWAP PARTICIPANT. Each party is and was at the time of
entering into this Agreement and the first Transaction hereunder, an
eligible swap participant as defined in Part 35 of the regulations of
the Commodity Futures Trading Commission.
5
(h) LINE OF BUSINESS. It has entered into this Agreement (including each
Transaction evidenced hereby) in conjunction with its line of business
(including financial intermediation services) or the financing of its
business.
(i) NON RELIANCE. In connection with the negotiation of, the entering
into, and the confirming of the execution of, this Agreement, any Credit
Support Document, each Transaction and any other documentation relating
to this Agreement to which it is a party or that it is required by this
Agreement to deliver: (i) each party is relying upon its own independent
judgment; (ii) the other party hereto or thereto is not acting as a
fiduciary or financial or investment advisor for it; (iii) it is not
relying (for purposes of making any investment decision or otherwise)
upon any advice, counsel or representations (whether written or oral) of
the other party hereto or thereto other than the representations
expressly set forth in this Agreement, in such Credit Support Document
and in any Confirmation; (iv) the other party hereto or thereto has not
given to it (directly or indirectly through any other person) any
assurance, guaranty, or representation whatsoever as to the expected or
projected success, profitability, return, performance, result, effect,
consequence, or benefit (either legal, regulatory, tax, financial,
accounting, or otherwise) of this Agreement, such Credit Support
Document, such Transaction or other documentation; (v) it has consulted
with its own legal, regulatory, tax, business, investment, financial,
and accounting advisors to the extent it has deemed necessary, and it
has made its own investment, hedging and trading decisions (including
decisions regarding the suitability of any Transaction pursuant to this
Agreement) based upon its own judgment and upon any advice from such
advisors as it has deemed necessary and not upon any view expressed by
the other party hereto or thereto; (vi) it has determined that the
rates, prices or amounts and other terms of each Transaction and the
indicative quotations (if any) provided by the other party hereto or
thereto reflect those in the relevant market for similar transactions,
and all trading decisions have been the result of arm's length
negotiations between the parties; (vii) it is entering into this
Agreement, such Credit Support Document, each Transaction and any other
documentation relating to this Agreement with a full understanding of
all of the terms, conditions and risks hereof and thereof (economic and
otherwise), and it is capable of assuming and willing to assume
(financially and otherwise) those risks; and (viii) it is a
sophisticated investor.
(e) Section 6 is amended by the addition of the following Section 6(f):
"(F) SET-OFF. Any amount (the 'Early Termination Amount') payable to one
party (the Payee) by the other party (the Payer) under Section 6(e), in
circumstances where there is a Defaulting Party or one Affected Party in
the case where a Termination Event under Section 5 (b) (iv) has
occurred, will, at the option of the party ('X') other than the
Defaulting Party or the Affected Party (and without prior notice to the
Defaulting Party or the Affected Party), be reduced by its set-off
against any amount(s) (the 'Other Agreement Amount') payable (whether at
such time or in the future or upon the occurrence of a contingency) by
the Payee to the Payer (irrespective of the currency, place of payment
or booking office of the obligation) under any other agreement(s)
between the Payee and the Payer or instrument(s) or undertaking(s)
issued or executed by one party to, or in favor of, the other party (and
the Other Agreement Amount shall be discharged promptly and in all
respects to the extent it is so set-off). X will give notice to the
other party of any set-off effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other
Agreement Amount (or the relevant portion of such amounts) may be
converted by X into the currency in which the other is denominated at
the rate of exchange at which such party would be able, acting in a
reasonable manner and in good faith, to purchase the relevant amount of
such currency.
6
If an obligation is unascertained, X may in good faith estimate that
obligation and set-off in respect of the estimate, subject to the
relevant party accounting to the other when the obligation is
ascertained.
Nothing in this Section 6(f) shall be effective to create a charge or
other security interest. This Section 6(f) shall be without prejudice
and in addition to any right of set-off, combination of accounts, lien
or other right to which any party is at any time otherwise entitled
(whether by operation of law, contract or otherwise).
(f) ESCROW PAYMENTS. If by reason of the time difference between the cities
in which the payments are to be made, it is not possible for
simultaneous payments to be made on any date on which both parties are
required to make payments hereunder , either party may at its option and
in its sole discretion notify the other party that payments on that date
are in escrow. In this case deposit of the payments due earlier on that
date shall be made by 2.00 p.m. (local time at the place for the earlier
payment) on that date with an escrow agent selected by the party giving
the notice, accompanied by irrevocable payment instructions (i) to
release the deposited payment to the intended recipient upon receipt by
the escrow agent of the required deposit of the corresponding payment
from the other party on the same date accompanied by irrevocable payment
instructions to the same effect or (ii) if the required deposit of the
corresponding payment is not made on the same date, to return the
payment deposited to the party that paid it into escrow. The party that
elects to have payments made in escrow shall pay the costs of the escrow
arrangements and shall cause those arrangements to provide that the
intended recipient of the payment due to be deposited first shall be
entitled to interest on that deposited payment for each day in the
period of its deposit at the rate offered by the escrow agent for that
day for overnight deposits in the relevant currency in the office where
it holds that deposited payment (at 11:00 a.m. local time on that day)
if that payment is not released by 5:00 p.m. local time on the date it
is deposited for any reason other than the intended recipient's failure
to make the escrow deposit it is intended to make hereunder in timely
fashion.
(g) ADDITIONAL REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
(i) Party B represents to Party A (on the date hereof, on each date on
which a Transaction is entered into and at all times until the
termination of this Agreement) that Party B is not and has never been an
"investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment Company Act").
(ii) Party B shall take all actions as are necessary to avoid being an
"investment company" within the meaning of the Investment Company Act.
(iii) The following shall constitute an additional Event of Default with
respect to Party B: Party B shall be an "investment company" within the
meaning of the Investment Company Act.
Part 6. EQUITY SWAP ADJUSTMENT EVENTS.
The provisions of this Part 6 shall apply to a particular Transaction
(the "Relevant Transaction"), if indicated in the applicable Confirmation for
such Transaction.
(a) Potential Adjustment Events. Following the declaration by the Issuer
(as defined in the applicable Confirmation) of the terms of any Potential
Adjustment Event, the Calculation Agent will determine whether such Potential
Adjustment Event would have a diluting or concentrative effect on the
theoretical value of the Shares (as defined in the applicable Confirmation) and,
if so, will (i) calculate the corresponding adjustment, if any, to be made to
any one or more of the Number of
7
Shares (as defined in the applicable Confirmation), the Notional Amount (as
defined in the applicable Confirmation), the applicable Floating Amount (as
defined in the applicable Confirmation), any component thereof and any other
variable or factor relevant to the settlement terms of the Relevant Transaction
or the calculation of the applicable Floating Amount as the Calculation Agent
determines appropriate to account for that diluting or concentrative effect and
(ii) determine the effective date of that adjustment.
"Potential Adjustment Event" means any of the following:
(i) a subdivision, consolidation or reclassification of Shares
(unless a Merger Event), or a free distribution or dividend of any
shares to existing holders by way of bonus, capitalization or similar
issue;
(ii) a distribution or dividend to existing holders of the
Shares of (A) Shares or (B) other share capital or securities granting
the right to payment of dividends and/or the proceeds of liquidation of
the Issuer equally or proportionately with such payments to holders of
Shares or (C) any other type of securities, rights or warrants or other
assets, in any case for payment (cash or other) at less than the
prevailing market price as determined by the Calculation Agent;
(iii) an extraordinary dividend;
(iv) a call in respect of Shares that are not fully paid;
(v) a repurchase by it of Shares whether out of profits or
capital and whether the consideration for such repurchase is cash,
securities or otherwise; or
(vi) any other similar event that in the determination of the
Calculation Agent may have a diluting or concentrative effect on the
theoretical value of the Shares.
(b) Merger Events.
"Merger Date" means the date, in respect of a Merger Event, upon which all
holders of Shares (other than, in the case of a takeover offer, Shares owned or
controlled by the offeror) have agreed or have irrevocably become obliged to
transfer their Shares.
"Merger Event" means any (i) reclassification or change of the Shares that
results in a transfer of or an irrevocable commitment to transfer all
outstanding Shares, (ii) consolidation, amalgamation or merger of the Issuer
with or into another entity (other than a consolidation, amalgamation or merger
in which the Issuer is the continuing entity and which does not result in any
such reclassification or change of all outstanding Shares) or (iii) other
takeover offer for the Shares that results in a transfer of or an irrevocable
commitment to transfer all the Shares (other than the Shares owned or controlled
by the offeror), in each case if the Merger Date is on or before the last
valuation date with respect to such Relevant Transaction.
In respect of each Merger Event occurring during the Term of the Relevant
Transaction:
(i) if the consideration for the Shares in the Merger Event
consists (or, at the option of the holder of the Shares, may consist)
solely of shares (whether of the offeror or a third party) ("New
Shares"), then on or after the Merger Date; the "Number of Shares" (as
defined in the applicable Confirmation) shall be the number of such New
Shares to which a holder of the number of Shares equal to the "Number
of Shares" would be entitled upon consummation of the Merger Event (and
such number of New Shares will be deemed the "Number of Shares" and the
New Shares and their issuer will be deemed the "Shares" and the
"Issuer", respectively) and, if necessary, the Calculation Agent will
adjust the calculation or
8
determination of the applicable Floating Amount, any component thereof
and any other affected or relevant amounts under the Relevant
Transaction accordingly and will determine the effective date of any
such adjustment;
(ii) if the consideration for the Shares in the Merger Event
consists solely of cash and/or any securities (other than New Shares)
or assets (whether of the offeror or a third party) other than shares
("Other Consideration"), then on or after the Merger Date, the
Calculation Agent will determine the amount of Other Consideration (as
subsequently modified in accordance with any relevant terms and
including the proceeds of any redemption, if applicable) to which a
holder of the number of Shares equal to the "Number of Shares" would be
entitled upon consummation of the Merger Event and the Calculation
Agent will adjust the calculation or determination of the applicable
Floating Amount, any component thereof and any other affected or
relevant amounts under the Relevant Transaction and will determine the
effective date of any such adjustment; and
(iii) if the consideration for the Shares in the Merger Event
consists of New Shares in combination with Other Consideration, then on
or after the Merger Date, the Calculation Agent will determine the
number of New Shares and the amount of Other Consideration (together,
the "Merger Consideration", as subsequently modified in accordance with
any relevant terms and including the proceeds of any redemption, if
applicable) to which a holder of the number of Shares equal to the
"Number of Shares" would be entitled upon consummation of the Merger
Event (and such number of New Shares will be deemed the "Number of
Shares" and such New Shares and their issuer will be deemed the
"Shares" and the "Issuer", respectively) and, the Calculation Agent
will adjust the calculation or determination of the applicable Floating
Amount, any component thereof and any other affected or relevant
amounts under the Relevant Transaction and will determine the effective
date of any such adjustment.
(c) Nationalization or Insolvency. If (i) all the Shares or all the assets
or substantially all the assets of the Issuer are nationalized, expropriated or
are otherwise required to be transferred to any governmental agency, authority
or entity or (ii) by reason of the voluntary or involuntary liquidation,
bankruptcy or insolvency of or any analogous proceeding affecting the Issuer (A)
all the Shares are required to be transferred to a trustee, liquidator or other
similar official or (B) holders of the Shares become legally prohibited from
transferring them, then, in the case of clause (i) or (ii), each party will,
upon becoming aware of such event, notify the other party of such event and the
Calculation Agent will adjust the calculation or determination of the applicable
Floating Amount, any component thereof and any other affected or relevant
amounts under the Relevant Transaction and will determine the effective date of
any such adjustment and may select an early termination date for the Transaction
and the amounts due and payable in respect thereof.
[Rest of page intentionally left blank.]
9
IN WITNESS WHEREOF, the parties have executed and delivered this document
as of the date specified on the first page of this document.
INTERNATIONALENEDERLANDEN (U.S.)
CAPITAL MARKETS, INC.
By /s/ JOHN H. CLEMENT
------------------------------
Name: John H. Clement
Title: Vice President
NEW VALLEY CORPORATION
By /s/ RICHARD LAMEPEN
------------------------------
Name: Richard Lampen
Title: Executive Vice President
10
ANNEX A
SECURITY AGREEMENT
Security Agreement (the "Agreement") dated as of February 28, 1996 between
NEW VALLEY CORPORATION, a corporation organized and existing under the laws of
the State of New York (the "Pledgor"), and INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL MARKETS, INC. (the "Secured Party").
WITNESSETH:
WHEREAS, the Pledgor and Secured Party have entered into a ISDA Master
Agreement dated as of the date hereof (the "Master Agreement");
WHEREAS, this Agreement supplements, forms part of, and is subject to, the
Master Agreement, is part of its Schedule and is a Credit Support Document under
the Master Agreement with respect to Party B (the "Pledgor");
WHEREAS, Secured Party may require that the obligations of the Pledgor
under one or more Transactions ("Transactions") entered into pursuant to the
Master Agreement be secured pursuant to the terms hereof; and
WHEREAS, in consideration of the agreements contained in the Master
Agreement and the Transactions, the Pledgor is willing to secure the performance
of its obligations thereunder pursuant to the terms of this Agreement;
NOW, THEREFORE, the Pledgor and Secured Party agree as follows:
1. DEFINITIONS.
(a) Unless otherwise defined in this Agreement, capitalized terms used but
not defined herein shall have the meanings specified in the Master Agreement,
the Confirmation confirming the relevant Transaction, or the 1991 ISDA
Definitions (the "Definitions), as published by the International Swaps and
Derivatives Association, Inc., as the case may be.
(b) The following terms have the meanings indicated when used herein or in
a Confirmation relating to a Transaction, unless defined otherwise in such
Confirmation:
"Business Day" means a day on which the Secured Party and commercial banks
and foreign exchange markets are open for business in the Borough of Manhattan
in the City, County, and State of New York;
"Cash Collateral" means (i) the amount of cash, if any, from time to time
Paid to the Secured Party pursuant to Sections 2(b), 3, or 7(b) of this
Agreement, plus (ii) the amount of any cash Proceeds of any Collateral;
"Clearing Organization" means a Federal Reserve Bank or, if agreed to by
the Secured Party, such other clearing agency at which the parties hereto or
their respective agents maintain accounts;
"Collateral" refers individually and collectively to all Cash Collateral
and Non-Cash Collateral together with all Proceeds of, substitutions for, and
additions to, the foregoing. For purposes of this Agreement, the value of all
Collateral shall be determined pursuant to the definition of "Value" herein;
11
"Deliver", "Delivery", or "Delivered" to a person means delivery of
Collateral to such person (the "Receiving Party"), (i) with respect to any
Collateral the ownership of which is recorded in book-entry form by a Clearing
Organization, by (A) delivery to the Receiving Party (or, if the Receiving Party
is an agent for safekeeping designated by the Pledgor or the Secured Party, to
the Secured Party) of a listing of such Collateral by title (and, if applicable,
series and pool number), original unpaid principal amount, and maturity date,
(B) book-entry transfer of such Collateral to an account with a Clearing
Organization in the name of a member bank designated by or on behalf of the
Receiving Party or in the name of another financial institution designated by or
on behalf of the Receiving Party that maintains an account with such Clearing
Organization, and (C) delivery to the Receiving Party of a written notification
from such member bank or other financial institution that it holds such
Collateral for the account of the Receiving Party, or (ii) with respect to any
other Collateral other than Cash Collateral, by (A) delivery to the Receiving
Party of such Collateral in suitable form for delivery and transfer, accompanied
by duly executed instruments of transfer or assignment in blank or other
documentation as the Receiving Party (or, if the Receiving Party is an agent for
safekeeping designated by the Pledgor or the Secured Party, as the Secured
Party) may reasonably request, or (B) delivery through another clearing
mechanism acceptable to the Secured Party, in each case free and clear of all
liens, mortgages, pledges, charges, security interests, or other encumbrances,
except the Security Interest; any Delivery required to be made on a day on which
the Federal Reserve Bank, member bank, or other financial institution or
clearing mechanism through which such Delivery is to be effected is not open for
business shall instead be required to be made on the first following day that
such institution or mechanism is open for business; and any Delivery required to
be made to the Pledgor or the Secured Party shall, if the Pledgor or the Secured
Party so designates, be made instead to the agent for safekeeping designated by
the Pledgor or the Secured Party;
"Government Obligations" means securities of a type satisfactory to the
Secured Party which are direct obligations of the United States of America;
"Initial Amount" on any day means, with respect to the Pledgor and any
Transaction, such amount if any required to be provided by the Pledgor to the
Secured Party on such day in connection with such Transaction, as specified in
the Confirmation confirming such Transaction. The Initial Amount with respect to
any Transaction shall be calculated by the Secured Party;
"Non-Cash Collateral" means Government Obligations. In lieu of returning to
the Pledgor pursuant hereto particular "securities" (as defined in the Uniform
Commercial Code in force in the State of New York (the "UCC")) constituting
Collateral, the Secured Party may return "securities" that are "fungible" (as
defined in the UCC) therewith. All Government Obligations are or shall be
Collateral of a type customarily sold on a recognized market within the meaning
of UCC Section 9-504(3), and an over-the-counter market shall constitute such a
recognized market;
"Pay," "Payment," or "Paid" to the Pledgor or the Secured Party means
payment in same day funds in the same manner provided for payments to be made to
it under the Master Agreement;
"Potential Event of Default" means any condition or event which with the
giving of notice or lapse of time or both would, unless cured or waived, become
an Event of Default;
"Principal Market Maker" means a dealer in Government Obligations or other
securities Collateral of recognized national standing;
"Proceeds" has the meaning specified in Section 7(c) of this Agreement;
"Security Interest" has the meaning specified in Section 4 of this
Agreement;
12
"Transaction Collateral Requirement" on any day means with respect to the
Pledgor and any Transaction, the amount of Collateral required to be provided by
the Pledgor to the Secured Party on such day in connection with such
Transaction, as determined in accordance with the terms set forth in the
Confirmation confirming such Transaction.
"Value" on any date means:
(i) with respect to any Government Obligations, the sum of (A) (1) the
last sale price on such date of such Government Obligations on the
principal national securities exchange on which such Government Obligations
are listed, or (2) where any Government Obligations are not listed on a
national securities exchange, the mean of the high bid and low asked prices
quoted on such date by any Principal Market Maker for such Government
Obligations selected by the Secured Party, or (3) if there is no sale or if
no quotations are available from a Principal Market Maker (in the case of
unlisted Government Obligations) for such date, the last such sale price or
the mean of such high bid and low asked prices, as the case may be, as of
the day immediately preceding such date on which such a sale took place or
such quotations were available, plus (B) the accrued interest on such
Government Obligations (except to the extent Paid to the Pledgor pursuant
to Section 7(c) or included in the applicable price referred to in clause
(A) above) as of such date. The term "Value" as used herein refers to the
Value of individual Government Obligations or the aggregate Value of
Government Obligations, as the case may be, in the context in which such
term is used;
(ii) with respect to any Cash Collateral, the amount of such cash.
"Variation Amount" on any day means, with respect to any Transaction,
such amount if any required to be provided by the Pledgor to the Secured
Party on such day in connection with such Transaction, as specified in the
Confirmation confirming such Transaction. The Variation Amount and the
mark-to-market exposure relating to the Variation Amount with respect to
any Transaction shall be determined by the Secured Party at any time during
such day.
2. COLLATERAL REQUIREMENTS; RETURN OF COLLATERAL.
(a) Unless provided otherwise in the Confirmation confirming a Transaction,
by written notice to the Pledgor, the Secured Party may at any time and from
time to time when a Transaction Collateral Requirement exceeds the Value of
Collateral then issued in favor of and/or held by or for the Secured Party and
any agent for safekeeping of the Secured Party with respect to such Transaction,
require the Pledgor to comply with the provisions of Section 2(b) of this
Agreement. Such notice may be in writing (including facsimile transmission) or
given orally and shall specify the Transaction Collateral Requirement, shall
provide details of the manner in which the Transaction Collateral Requirement
was determined, and shall (unless previously notified to the Pledgor) specify
any account or other information necessary for the issuance of, Delivery, or
Payment of Collateral.
(b) With respect to each Transaction, unless provided otherwise in the
Confirmation confirming such Transaction, the Pledgor shall, by 3:00 p.m., New
York City time, on the first Business Day immediately following the date a
notice shall be given pursuant to Section 2(a) of this Agreement, Pay or Deliver
other Collateral to the Secured Party having an aggregate Value of not less than
an amount equal to (i) the Transaction Collateral Requirement on the date of and
as specified in such notice, minus (ii) the aggregate Value of Collateral then
issued in favor of and/or held by or for the Secured Party or any agent for
safekeeping designated by the Secured Party.
(c) For purposes of Section 2(b) of this Agreement, the Value of any
Collateral shall be determined as of the Business Day immediately preceding the
relevant date for issuance or Payment and/or Delivery.
13
(d) If provided for in the Confirmation confirming a Transaction, by
written notice to the Secured Party on any Business Day, between 9:00 a.m. and
3:00 p.m., New York City time, when a Transaction Collateral Requirement is less
than the Value of Collateral then issued in favor of and/or held by or for the
Secured Party and any agent for safekeeping of the Secured Party with respect to
such Transaction, the Pledgor may require the Secured Party to release
Collateral to the Pledgor in accordance with the provisions of this Section
2(d). Such notice shall be in writing (including facsimile transmission) and
shall specify the Transaction Collateral Requirement, and shall (unless
previously notified to the Secured Party) specify any account or other
information necessary for the release of Collateral to the Pledgor. The Secured
Party shall, by 3:00 p.m., New York City time, on the first Business Day
immediately following the date a notice shall be given in accordance with this
Section 2(d), release collateral to the Pledgor having an aggregate Value not
exceeding an amount equal to the excess of (i) the aggregate Value of Collateral
then issued in favor of and/or held by or for the Secured Party or any agent for
safekeeping designated by the Secured Party over (ii) the Transaction Collateral
Requirement on the date of and as specified in such notice. Notwithstanding the
foregoing, in no event shall the Secured Party be required to release to the
Pledgor Collateral if any Event of Default or Potential Event of Default with
respect to the Pledgor shall exist or would occur.
3. INITIAL AMOUNT OF COLLATERAL.
If a Confirmation in respect of a Transaction specifies an Initial Amount,
the Pledgor shall Pay or Deliver to the Secured Party on the date so specified
in the Confirmation, Collateral with a Value on such date of such Payment or
Delivery equal to such Initial Amount.
4. GRANT OF SECURITY INTEREST.
The Pledgor hereby grants to the Secured Party a continuing security
interest (the "Security Interest") in all Collateral from time to time Paid or
Delivered to the Secured Party and/or to any agent for safekeeping of the
Secured Party to secure all obligations of the Pledgor to the Secured Party from
time to time under the Master Agreement and each Transaction, including without
limitation the obligations of the Pledgor from time to time with respect to each
Transaction under Sections 2 and 6 of the Master Agreement and under this
Agreement, including without limitation, the obligations of the Pledgor from
time to time under Sections 11 and 12 hereof. Unless provided otherwise in the
Confirmation confirming a Transaction, the rights of the Secured Party with
respect to any Collateral so Paid or Delivered shall include, without
limitation, any other rights provided for in this Agreement, the right on any
terms to sell pursuant to a repurchase transaction, pledge, repledge,
hypothecate, or further assign such Collateral; provided, however, that no such
transaction shall relieve the Secured Party of its obligations to return such
Collateral or Proceeds therefrom pursuant to Sections 7(c) and 8 of this
Agreement.
5. REPRESENTATIONS AND WARRANTIES.
The Pledgor represents and warrants to the Secured Party that on each
occasion that the Pledgor Pays or Delivers Collateral to the Secured Party
and/or to any agent for safekeeping of the Secured Party that: (a) the Secured
Party will have a valid, first prior perfected and enforceable security interest
in, and lien on, any and all Collateral Paid or Delivered to the Secured Party
or to any agent for safekeeping of the Secured Party; (b) the Pledgor is the
sole owner of the Collateral (or, in the case of after-acquired Collateral, at
the time the Pledgor acquires rights in the Collateral, will be the sole owner
thereof); and (c) except for security interests in favor of the Secured Party,
no person has (or, in the case of after-acquired Collateral, at the time the
Pledgor acquires rights therein, will have) any right, title, claim or interest
(by way of lien, mortgage, pledge, charge, security interest or other
encumbrance, or otherwise) in, against, or to the Collateral. The Pledgor
further represents and warrants to the Secured Party that: (a) the
representations set forth in Section 3 of the Master Agreement are accurate and
complete as of the date hereof and shall continue to be accurate and complete
during the term of this Agreement; and (b) at all times during the term of this
Agreement,
14
Pledgor will continuously include and maintain as part of its official written
books and records this Agreement, all exhibits, supplements, and attachments
hereto and documents incorporated by reference herein, and evidence of all
necessary authorizations.
6. COVENANTS OF THE PLEDGOR.
So long as this Agreement is in effect, the Pledgor covenants that it: (a)
shall defend the Collateral against the claims and demands of all other parties
except the Security Interest of the Secured Party, shall keep such Collateral
free from all security interests or other encumbrances except the Security
Interest and any security interests or other encumbrances created by the Secured
Party, and shall not sell, transfer, assign, deliver, or otherwise dispose, of
any such Collateral or any interest therein without the prior written consent of
the Secured Party; (b) shall notify the Secured Party promptly in writing of any
change in the Pledgor's address specified in the Schedule to the Master
Agreement; (c) shall execute and deliver to the Secured Party such financing
statements, assignments, and other documents and do such other things relating
to the Collateral and the Security Interest as the Secured Party may reasonably
request, and pay all reasonable costs of title searches and filing financing
statements, assignments, and other documents in all public offices reasonably
requested by the Secured Party; and (d) shall pay all taxes, assessments, and
other charges of every nature which may be imposed, levied, or assessed against
or with respect to the Collateral.
7. ADMINISTRATION OF COLLATERAL.
The Collateral shall be administered in accordance with the following
provisions:
(a) Investment of Cash Collateral. The Secured Party shall invest and
reinvest or procure the investment and reinvestment of any Cash Collateral
in accordance with written instructions from time to time from the Pledgor,
subject to the approval of such instructions by the Secured Party and
subject to any limitations in the Confirmation confirming a Transaction;
provided, however, that the Secured Party shall not be required to so
invest or reinvest or procure such investment and reinvestment if a
Potential Event of Default or an Event of Default with respect to the
Pledgor shall have occurred and be continuing.
(b) Substitution of Collateral. Except when a Potential Event of
Default or an Event of Default with respect to the Pledgor shall have
occurred and be continuing and subject to any limitations in the
Confirmation confirming a Transaction, the Pledgor may substitute for any
Collateral, Cash Collateral or Non-Cash Collateral of equal Value (as
certified by the Pledgor and agreed by the Secured Party) upon five
Business Days' notice to the Secured Party.
In connection with each substitution of Collateral hereunder, the
Pledgor shall, upon request of the Secured Party, execute a receipt showing
the Collateral surrendered, Paid, or Delivered to it.
Each substitution of a Collateral shall constitute a reaffirmation by
the Pledgor that the substituted Collateral shall be subject to, and
governed by, the terms of this Agreement.
(c) Proceeds of Collateral. All Collateral and all principal,
interest, and other payments and distributions of cash or other property
with respect thereto, and all rights, privileges, and other securities of
every kind distributed with respect thereto or in exchange therefor
("Proceeds") shall be and remain the property of the Pledgor. The Secured
Party shall Pay to the Pledgor on the date payable to the Secured Party (or
shall procure the Payment of) any cash Proceeds attributable to payments of
principal or interest on Collateral consisting of Government Obligations to
the extent the aggregate Value of Collateral then issued in favor of and/or
held by or for the Secured Party and/or any agent for safekeeping
designated by the Secured Party (including such cash Proceeds) with respect
to a Transaction, exceeds the Transaction Collateral Requirement on the
Business Day immediately preceding the date of such Payment; provided,
however, that the Secured Party shall not
15
be required to Pay or procure the Payment of any such cash Proceeds to the
Pledgor if a Potential Event of Default or an Event of Default with respect
to the Pledgor shall have occurred and be continuing. With respect to
Collateral consisting of Government Obligations the ownership of which is
registered to the Pledgor or any person designated by or on behalf of the
Pledgor, the Secured Party shall be deemed to have procured the Payment to
the Pledgor of all cash Proceeds from such Collateral not retained by or on
account of the Secured Party. All cash Proceeds not so Paid and all other
Proceeds shall become additional Collateral subject to the Security
Interest and lien created by this Agreement in favor of the Secured Party.
Upon request of the Pledgor, the Secured Party shall advise the Pledgor of
the Value of any Proceeds then held by the Secured Party.
8. RETURN OF COLLATERAL FOLLOWING EARLY TERMINATION.
Promptly following the later of (a) the earlier of the last Termination
Date of all Transactions and the Early Termination Date if any in respect of all
Transactions and the Master Agreement and (b) the date upon which the Pledgor
has paid all amounts if any due from it under the Master Agreement and all
Transactions, the Secured Party shall Pay or Deliver or procure the Payment or
Delivery to the Pledgor of all the other Collateral then held by or for the
Secured Party and/or any agent for safekeeping of the Secured Party (except for
such of the Collateral as may be required to satisfy the rights of the Secured
Party against such Collateral arising pursuant to Section 9 of this Agreement).
In connection with each such surrender, Payment, or Delivery, the Pledgor, upon
request of the Secured Party, shall execute a receipt showing the Collateral
surrendered, Paid, or Delivered to it.
9. EXERCISE OF RIGHTS AGAINST COLLATERAL.
If the Pledgor shall fail to pay any amounts to the Secured Party under a
Transaction or the Master Agreement when due (whether as a result of an early
termination of the Master Agreement and all Transactions or otherwise) and such
failure shall be continuing after any applicable grace period, the Secured
Party: (i) may exercise, as to all other Collateral then held by or for the
Secured Party and any agent for safekeeping of the Secured Party and as to all
other obligations of the Pledgor to the Secured Party under the Master Agreement
and all Transactions, the rights and remedies of a secured party under the UCC
and as otherwise provided by law; and (ii) to the extent permitted by applicable
law, may at its sole option and upon written notice and without demand upon the
Pledgor exercise either or both of the following remedies:
(i) liquidate in a commercially reasonable manner all or any part of
the Collateral in any manner deemed reasonable by the Secured Party, with
the proceeds of such liquidation constituting additional Collateral
hereunder, or
(ii) set-off the Value of such Collateral against amounts due to the
Secured Party and not yet paid under the Master Agreement and any
Transaction and against amounts paid thereunder but recovered by or on
behalf of the Pledgor.
10. NO COUNTERCLAIM.
The Secured Party's rights against the Collateral as provided hereunder
shall be absolute and subject to no counterclaim, set-off, deduction, or defense
in favor of the Pledgor except as contemplated in Sections 2 and 6 of the Master
Agreement.
11. COSTS OF TRANSFER.
The Pledgor shall be responsible for, and shall reimburse the Secured Party
for, all transfer taxes and other costs involved in the transfer of other
Collateral from the Pledgor to the Secured Party and/or any agent for
safekeeping of the Secured Party. If the Secured Party shall incur any loss by
reason of the Pledgor's failure to pay all such taxes and costs, the Secured
Party shall have the right
16
to apply and liquidate Collateral having a Value sufficient to satisfy its claim
against the Pledgor for such taxes and costs.
12. EXPENSES.
The Pledgor agrees to pay the Secured Party, and agrees that the Secured
Party may apply the proceeds of any liquidation of any Collateral, and/or
set-off the Value of any Collateral against, the reasonable costs and expenses
(including without limitation attorneys' fees and disbursements) incurred by the
Secured Party in collecting or liquidating any other Collateral, or in otherwise
enforcing any of the Secured Party's rights hereunder or under any other Credit
Support Document provided by the Pledgor; provided, however, that the Pledgor's
obligations under this Section 12 shall not extend to the costs and expenses of
the Secured Party incurred in the ordinary administration of the provisions of
this Agreement.
13. CUMULATIVE RIGHTS.
The rights, powers, and remedies of the Secured Party under this Agreement
shall be in addition to all rights, powers, and remedies given to the Secured
Party under the Master Agreement or by virtue of any statute or rule of law, all
of which rights, powers, and remedies shall be cumulative and may be exercised
successively or concurrently without impairing the Secured Party's rights or the
Security Interest of the Secured Party in the other Collateral.
14. CREDIT SUPPORT DEFAULT UNDER MASTER AGREEMENT.
With respect to an Event of Default described under Section 5(a)(iii) of
the Master Agreement and a failure by the Pledgor to provide Collateral to the
Secured Party in accordance with Section 2 of this Agreement, the grace period
relating to such failure shall be three Business Days after written notice from
the Secured Party of such failure.
15. MISCELLANEOUS.
(a) Amendments, Etc. Any amendment, modification, or waiver of any
provision of this Agreement shall be in writing and signed by both parties
hereto, and any such waiver shall be effective only for the specific purpose for
which given and for the specific time period if any contemplated therein.
(b) Notices. Except as otherwise indicated herein or in any Confirmation,
all notices and other communications required or permitted under this Agreement
shall be delivered in the manner and shall become effective at the times set
forth in the Master Agreement.
(c) Waivers. No failure or delay by either party hereto in exercising any
right, power, or privilege hereunder shall operate as a waiver thereof.
(d) Transfer. Any transfer or delegation by either party to this Agreement
of its rights, obligations, or interests hereunder shall be effected, if at all,
to the extent permitted, and in accordance with the procedures specified in, the
transfer provisions of the Master Agreement.
(e) JURISDICTION. WITH RESPECT TO ANY SUIT, ACTION, CLAIM, OR PROCEEDINGS
RELATING TO THIS AGREEMENT ("PROCEEDINGS"), EACH PARTY IRREVOCABLY:
(i) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF
MANHATTAN IN NEW YORK CITY; AND
17
(ii) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING
OF VENUE OF ANY PROCEEDINGS BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM
THAT SUCH PROCEEDINGS HAVE BEEN BROUGHT IN AN INCONVENIENT FORUM, AND
FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDINGS, THAT
SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REFERENCE
TO CHOICE OF LAW DOCTRINE.
(g) Headings. The headings of this Agreement are for convenience of
reference only and shall not affect the meaning or construction of any provision
hereof.
(h) Entire Agreement. This Agreement supplements, forms part of, and is
subject to the Master Agreement. This Agreement together with the Master
Agreement and the Confirmation contain the entire agreement between the parties
hereto relating to the subject matter hereof and supersedes all oral statements
and prior writings with respect thereto; provided, however, that each
Confirmation confirming a Transaction shall survive and be deemed a part hereof
as if set forth herein; and provided, further, that in the case of any conflict
between the provisions of this Agreement, the Definitions, and/or any
Confirmation confirming a Transaction, the provisions of such Confirmation shall
control.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
(j) Partial Invalidity. In the event that any provision of this Agreement
is declared to be illegal, invalid, or otherwise unenforceable by a court of
competent jurisdiction or regulatory authority, the remainder of this Agreement
shall not be affected except to the extent necessary to delete such illegal,
invalid or unenforceable provision unless the deletion of such provision would
substantially impair the respective benefits of the remaining portions of this
Agreement.
(k) Appointment. The Pledgor hereby appoints the Secured Party its
attorney-in-fact, with full power of substitution, for the purpose of taking
such action and executing agreements, instruments and other documents, in the
name of the Pledgor, as the Secured Party may deem necessary or advisable to
accomplish the purpose hereof, which appointment is coupled with an interest and
is irrevocable.
[Rest of page intentionally left blank.]
18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers or representatives thereunto
duly authorized as of the date first above written.
NEW VALLEY CORPORATION
By: /s/ RICHARD LAMPEN
-------------------------------
Name: Richard Lampen
Title: Executive Vice President
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL MARKETS, INC.
By: /s/ JOHN H. CLEMENT
-------------------------------
Name: John H. Clement
Title: Vice President
19
[EXECUTION COPY]
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL MARKETS, INC.
Date: February 28, 1996
To: New Valley Corporation
Telephone No.: 305-579-8000
Facsimile No.: 305-579-8009
Attention: Howard Lorber / Richard Lampen
From: Internationale Nederlanden (U.S.) Capital Markets, Inc.
Telephone No.: (212) 446-1795
Facsimile No.: (212) 371-9295
Carolyn Nevias
Re: Total Return Equity Swap Transaction based on RJR
Nabisco Holdings Corp. Common Stock
Our Ref. No.: SAG N-0056-022896-S
CONFIRMATION
The purpose of this communication is to set forth the terms and conditions
of the above-referenced transaction entered into on the Trade Date specified
below (the "Transaction") between Internationale Nederlanden (U.S.) Capital
Markets, Inc. ("ING") and New Valley Corporation ("New Valley"). This letter
agreement constitutes a "Confirmation" as referred to in the Agreement specified
below.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
the 1991 ISDA Definitions and provisions and this Confirmation, this
Confirmation will govern.
This Confirmation supplements, forms part of, and is subject to, the ISDA
Master Agreement dated as of February 28, 1996, as amended and supplemented from
time to time (the "Agreement"), between you and us. All provisions contained in
the Agreement govern this Confirmation except as expressly modified below.
1. The terms of the particular Transaction to which this Confirmation relates
are as follows:
Type of Transaction: Total Return Equity Swap
Trade Date: February 28, 1996
Effective Date: February 29, 1996
Termination Date: The earlier of (a) the Scheduled Termination Date or
(b) the Optional Termination Date as to the entire
Transaction.
Scheduled Termination Date: August 30, 1996, or, if such day is not an Exchange
Business Day, the immediately succeeding Exchange
Business Day.
Issuer: RJR Nabisco Holdings Corp. (the "Issuer").
Shares: Common Shares of the Issuer, CUSIP No. 74960K876.
Initial Notional Amount: U.S. $34,250,000.
Notional Amount: Aggregate Initial Valuation Price.
Number of Shares: 1,000,000.
FIXED AMOUNTS:
Initial Fixed Amount:
Initial Fixed Amount Payer: New Valley
Initial Fixed Amount: U.S. $1,271,839.05.
Initial Fixed Amount Payment
Date: The Effective Date.
Second Fixed Amount:
Second Fixed Amount Payer: New Valley.
Second Fixed Amount: If the Notional Amount shall be greater than the Initial
Notional Amount, the Second Fixed Amount shall be
the present value on the Second Fixed Amount Payment
Date of the Additional Interest Amount, as calculated by
the Calculation Agent. If the Notional Amount shall
equal or be less than the Initial Notional Amount, the
Second Fixed Amount shall be zero.
"Additional Interest Amount" means an amount equal to the
product of (i) the excess (if any) of the Notional Amount
over the Initial Notional Amount, (ii) a rate equal to
USD-LIBOR-BBA (with a Designated Maturity of 6 months and
a Reset Date that is the Second Fixed Amount Payment Date)
plus 2.25% per annum, (iii) the number of days from (and
including) the Effective Date to (but excluding) the
Scheduled Termination Date, and (iv) 1/360.
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Second Fixed Amount Payment
Date: March 14, 1996.
Third Fixed Amount:
Third Fixed Amount Payer: New Valley.
Third Fixed Amount: U.S. $250,000.
Third Fixed Amount Payment
Date: The Effective Date.
Fourth Fixed Amount:
Fourth Fixed Amount Payer: ING.
Fourth Fixed Amount: If the Notional Amount shall be less than the Initial
Notional Amount, the Fourth Fixed Amount shall be an
amount equal to the product of (i) the Initial Fixed
Amount and (ii) an amount equal to (A) 1.00 minus (B)
the Notional Amount divided by the Initial Notional
Amount. If the Notional Amount shall equal or be
greater than the Initial Notional Amount, the Fourth
Fixed Amount shall be zero.
Fourth Fixed Amount Payment
Date: March 14, 1996.
FLOATING AMOUNT
Floating Amount Payer: The Floating Amount Payer shall be ING, if the
Aggregate Final Valuation Price shall exceed the
Notional Amount. The Floating Amount Payer shall be
New Valley, if the Aggregate Final Valuation Price
shall be less than the Notional Amount.
Floating Amount: An amount equal to the absolute value of the following:
A + B - C
where
A = Aggregate Final Valuation Price
B = Aggregate Dividends
C = Notional Amount
In no case shall New Valley be required to pay a Floating
Amount that is greater than the excess of the Notional
Amount over the Put Protection Amount.
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Floating Amount Payment Date: Three Business Days after the final Final Valuation
Date.
Optional Termination: (a) New Valley may after the Effective Date designate
any Exchange Business Day prior to the Scheduled
Termination Date as the "Optional Termination Date"
by giving ING written notice on a Business Day before
12:00 noon, New York time, at least 16 Exchange
Business Days prior to such designated day.
(b) If New Valley designates an Optional Termination
Date in accordance with paragraph (a), the following
amounts shall be due and payable in addition to the
Floating Amount on the Floating Amount Payment Date:
(i) ING shall pay to New Valley the Early Termination
Interest Amount and (ii) New Valley shall pay to ING
an amount equal to all reasonable costs and losses
(including, but not limited to, breakage costs)
incurred by ING as a result of such designation and
the early termination of this Transaction, but
excluding all costs associated with the termination of
any put or similar equity hedge position by ING with
respect to this Transaction.
(c) In the event that New Valley shall fail to comply
with any of its obligations under the Security
Agreement or Section 2(b) of this Confirmation, (in
addition to any other rights ING may have), the
following shall apply:
(i) ING may provide to New Valley notice (verbal
(promptly followed in writing) or written
(including facsimile)) of such failure and if New
Valley fails to cure any such failure by 3:00
p.m., New York City time, on the Business Day
immediately following the date of such notice
(such Business Day, "Day X"), ING may designate
without prior notice to New Valley the second
Business Day following the date of such notice as
the "Optional Termination Date" in respect of all
or a portion of this Transaction. Verbal notices
to New Valley under this paragraph (i) shall be
given to the President (currently Howard Lorber)
or the Executive Vice President (currently
Richard Lampen) of New Valley.
(ii) In the event that ING designates an Optional
Termination Date in accordance with this
paragraph (c), notwithstanding anything herein to
the contrary, (A) the Floating Amount and the
amounts described in paragraph (b)
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shall be due and payable on the first Business
Day after such Optional Early Termination Date
but such amounts shall be calculated by the
Calculation Agent with respect to the portion of
the Transaction as to which the Optional Early
Termination Date applies, and (B) with respect to
such amounts and any other future amounts due and
payable under this Transaction, the Calculation
Agent will adjust the calculation or
determination of the Floating Amount, the Early
Termination Interest Amount, the Number of
Shares, any component of any of the foregoing and
any other affected or relevant terms or amounts
and determine the effective date of any such
adjustment. Such adjustments shall include
(without limitation) for the purpose of
calculating the Floating Amount due in respect of
such Optional Early Termination Date, an
adjustment of the Final Valuation Period to be
the period from (and including) Day X (or the
immediately succeeding Exchange Business Day) to
(and including) such Optional Early Termination
Date.
(d) ING will determine the amounts described above in
good faith, in its sole discretion and in a
commercially reasonable manner, such determination in
this regard will (absent manifest error) be final,
conclusive and binding.
Calculation Agent: ING
Business Days: New York
Governing Law: New York
2. Other Provisions: (a) Definitions:
"Aggregate Dividends" means an amount equal to all
dividends declared by the Issuer on the Number of
Shares (net of any withholding taxes) in respect of
which the applicable record date is fixed to be a date
occurring during the Term of the Transaction, subject
to the following:
(i) any amounts due in respect of such dividends
not paid to U.S. holders of Shares as of the
Termination Date shall be due and payable to New
Valley only upon their receipt
-5-
by such holders (or if ING shall be a holder of
Shares, upon their receipt by ING);
(ii) any amounts due in respect of such dividends
paid in a form other than USD cash shall be paid
in USD cash in an amount equal to the USD Value
of such dividends determined on or about the
Termination Date;
(iii) any amounts due in respect of such
dividends declared with respect to a record date
during the Term of this Transaction shall be
calculated and determined with respect to a
number of Shares equal to either: (A) the Number
of Shares minus the number of Shares relating to
this Transaction previously sold by ING or (B)
the product of the Number of Shares and the
Remaining Percentage, in each case subject to
adjustment by the Calculation Agent for days on
which the Shares trade ex-dividend; and
(iv) Aggregate Dividends shall include interest
accrued on USD cash dividends (net of any
withholding taxes) received by ING prior to the
Termination Date in respect of the Shares. Such
interest shall accrue from the date of ING's
receipt of the cash dividend to (but excluding)
the Termination Date at the Dividend Interest
Rate.
"Aggregate Final Valuation Price" means an amount
equal to (i) the product of the Final Share Price and
the Number of Shares minus (ii) the product of $0.013
per Share and the Number of Shares.
"Aggregate Initial Valuation Price" means an amount
equal to the sum of (i) the product of the Initial
Share Price and the Number of Shares, and (ii) the
product of $0.013 per Share and the Number of Shares.
"Dividend Interest Rate" means with respect to any USD
cash dividends on the Shares received by ING, a rate
determined by the Calculation Agent as the bond
equivalent yield on U.S. Treasury bills with a
remaining maturity equal to (or approximately equal
to) the then remaining Term.
"Early Termination Interest Amount" means the present
value of the product of: (i) the sum of (A) the
product of (1) the lesser of the Notional Amount or
the Initial
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Notional Amount and (2) 5.25%, and (B) the product of
(1) the excess (if any) of the Notional Amount over
the Initial Notional Amount, and (2) the rate equal to
the USD-LIBOR-BBA described in clause (ii) of the
definition of "Additional Interest Amount", (ii) the
number of days from (and including) the Floating
Amount Payment Date to (but excluding) the Scheduled
Termination Date and (iii) 1/360.
"Exchange" means the New York Stock Exchange.
"Exchange Business Day" means a trading day on the
Exchange other than a day on which trading on the
Exchange is scheduled to close prior to its regular
weekday closing time.
"Exchange Price" means with respect to any day, the
official closing price on the Exchange of one Share on
such day, subject to clause (b) of the penultimate
sentence in the definition of "Final Valuation Date."
"Extraordinary Price Decrease" means with respect to
any day, a decrease of five percent or more in the
Exchange Price from the Exchange Price on the
immediately preceding Exchange Business Day.
"Final Share Price" means:
(a) in the event that at any time on the first day of
the Final Valuation Period, ING shall hold Shares in
respect of the Transaction in a number no less than
75% of the Number of Shares, the "Final Share Price"
shall be the average weighted sale price per Share of
such Shares sold by ING during the Final Valuation
Period, or
(b) in all other cases, the "Final Share Price" shall
be the average weighted Exchange Price for each Final
Valuation Date (such weighting to be based on the
Fractional Components).
"Final Valuation Date" means any Scheduled Final
Valuation Date unless there is a Market Disruption
Event on such Scheduled Final Valuation Date. If there
is a Market Disruption Event on such Scheduled Final
Valuation Date, then the relevant Final Valuation Date
shall be the first succeeding Exchange Business Day on
which there is no Market Disruption Event, unless
there is a Market Disruption Event on each of the two
Exchange Business Days immediately following the
original date that, but for the Market Disruption
Event, would have been the Final Valuation Date. In
that case,
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(a) that second Exchange Business Day shall be deemed
to be the relevant Final Valuation Date,
notwithstanding the Market Disruption Event, and (b)
the Calculation Agent shall determine the Exchange
Price in accordance with its good faith estimate of
the Exchange traded price for a Share that would have
prevailed but for the Market Disruption Event as of
3:00 p.m., New York time, on that second Exchange
Business Day. In no event shall the final Final
Valuation Date be later than the second Exchange
Business Day after the Termination Date.
"Final Valuation Period" means the period from (and
including) the initial Scheduled Final Valuation Date
to (and including) the final Final Valuation Date.
"Fractional Component" means with respect to each
Final Valuation Date, 1/15, except that if any Market
Disruption Event shall occur during the Final
Valuation Period, the "Fractional Component" with
respect to any Final Valuation Date occurring on or
after the date on which such Market Disruption Event
shall occur shall be such other percentage as shall be
determined by the Calculation Agent, provided that the
sum of the Fractional Components shall equal one.
"Initial Share Price" means:
(a) in the event that during the Initial Valuation
Period ING shall have entered into trades to purchase
any Shares in respect of this Transaction, the average
weighted purchase price per Share for such Shares, or
(b) in all other cases, the "Initial Share Price"
shall be the average unweighted Exchange Price for
each Exchange Business Day during the Initial
Valuation Period.
"Initial Valuation Period" means the period from (and
including) the Effective Date to (but excluding) the
Second Fixed Amount Payment Date.
"Market Disruption Event" means the occurrence or
existence on any Exchange Business Day of any
suspension or limitation imposed on trading on the
Exchange in the Shares, if in the determination of the
Calculation Agent such suspension or limitation is
material.
"Put Protection Amount" means the aggregate USD value
of the Puts purchased by ING during the Initial
-8-
Valuation Period in connection with the Transaction
if, on the exercise date thereof, the price of the
Shares were $0.00. ING shall use the proceeds of the
Third Fixed Amount to purchase Puts on Shares as
follows: initially, ING shall attempt to purchase Puts
on approximately 400,000 Shares; however, the final
number of Shares on which ING shall be able to
purchase Puts shall be based on the market price of
the Shares on the date that the Puts are purchased.
For purposes of this definition, "Puts" shall mean put
options on Shares, with an exercise price struck as
close to 25% out-of-the-money as possible at the time
purchased. ING shall only purchase Puts "onexchange"
or in the form of over-the-counter contracts with
recognized option dealers.
"Remaining Percentage" means with respect to any day
in the Final Valuation Period, an amount equal to the
excess of (i) 100% over (ii) the sum (expressed as a
percentage) of the Fractional Components for such day
and each Final Valuation Date prior to such day.
"Scheduled Final Valuation Dates" mean the 14 Exchange
Business Days prior to the Termination Date and the
Termination Date.
"USD Value" means with respect to any dividend not in
the form of USD cash: (i) if there is a customary
interdealer market for such dividend, the market bid
price of such dividend as determined by the
Calculation Agent or (ii) if no such market or price
exists then the fair market value of such dividend as
determined in good faith by the Calculation Agent, in
each case, net of all withholding taxes and customary
brokerage and other fees in respect of such dividends
or the sale of such dividends.
(b) Collateral Requirement:
(i) New Valley will deliver to ING pursuant to the
Security Agreement on the Effective Date collateral in
the form of zero coupon U.S. Treasury Bills with a
value on the Effective Date equal to USD 8,562,500.
(ii) New Valley will deliver to ING pursuant to the
Security Agreement on the Second Fixed Amount Payment
Date collateral such that the Value of all Collateral
held by ING shall not be less than the Transaction
Collateral Requirement.
-9-
(iii) For the purposes of Sections 2 and 3 of the
Security Agreement, and solely with respect to this
Transaction:
(A) the "Initial Amount" shall be
USD 8,562,500;
(B) the "Transaction Collateral Requirement"
under the Security Agreement for this Transaction
shall be an amount determined by ING to be equal
to the sum of (i) 25% of the Notional Amount,
plus (ii) the then mark-to-market exposure of ING
to New Valley under this Transaction (expressed
as a positive number) plus (iii) all unpaid
amounts due and payable by New Valley to ING
under this Transaction;
(C) the only permissible types of Collateral
permitted to be substituted pursuant to Section
2(b) of the Security Agreement shall be USD cash
and U.S. Treasury bills with original maturities
of one year or less;
(D) for purposes of Section 2(a) of the Security
Agreement, (1) except as provided in paragraphs
(i) and (ii) above, ING shall demand additional
Collateral only if it shall have determined that
the Transaction Collateral Requirement exceeds
the Value of Collateral referred to therein (and
assuming the term "20%" were substituted for
"25%") in the definition of "Transaction
Collateral Requirement", and (2) such a demand
shall be deemed to automatically be given at 3:00
p.m., New York City time, on any day on which an
Extraordinary Price Decrease shall occur;
(E) without limiting ING's rights under Section 9
of the Security Agreement, the last sentence of
Section 4 of the Security Agreement shall not
apply to the Government Securities pledged by New
Valley to ING thereunder with respect to this
Transaction; and
(F) for purposes of Section 2(d) of the Security
Agreement, New Valley may request (in accordance
with such Section) ING to release collateral to
New Valley.
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(C) NON RELIANCE:
EACH PARTY REPRESENTS TO THE OTHER PARTY THAT IT IS
ENTERING INTO THIS TRANSACTION IN RELIANCE UPON ITS
OWN INDEPENDENT JUDGMENT AND THAT:
(I) IT IS A SOPHISTICATED INVESTOR AND THIS
TRANSACTION IS SUITABLE FOR ITS INVESTMENT CRITERIA;
(II) THE OTHER PARTY HERETO OR THERETO IS NOT ACTING
AS A FIDUCIARY OR FINANCIAL OR INVESTMENT ADVISOR FOR
IT;
(III) IT IS NOT RELYING (FOR PURPOSES OF MAKING ANY
INVESTMENT DECISION OR OTHERWISE) UPON ANY ADVICE,
COUNSEL OR REPRESENTATIONS (WHETHER WRITTEN OR ORAL)
OF THE OTHER PARTY HERETO OR THERETO OTHER THAN THE
REPRESENTATIONS EXPRESSLY SET FORTH IN THIS
CONFIRMATION, AND THE AGREEMENT;
(IV) THE OTHER PARTY HERETO OR THERETO HAS NOT GIVEN
TO IT (DIRECTLY OR INDIRECTLY THROUGH ANY OTHER
PERSON) ANY ASSURANCE, GUARANTY, OR REPRESENTATION
WHATSOEVER AS TO THE EXPECTED OR PROJECTED SUCCESS,
PROFITABILITY, RETURN, PERFORMANCE, RESULT, EFFECT,
CONSEQUENCE, OR BENEFIT (EITHER LEGAL, REGULATORY,
TAX, FINANCIAL, ACCOUNTING, OR OTHERWISE) OF THIS
TRANSACTION OR OTHER DOCUMENTATION RELATING TO THIS
TRANSACTION;
(V) IT HAS CONSULTED WITH ITS OWN LEGAL, REGULATORY,
TAX, BUSINESS, INVESTMENT, FINANCIAL, AND ACCOUNTING
ADVISORS TO THE EXTENT IT HAS DEEMED NECESSARY, AND IT
HAS MADE ITS OWN INVESTMENT, HEDGING AND TRADING
DECISIONS BASED UPON ITS OWN JUDGMENT AND UPON ANY
ADVICE FROM SUCH ADVISORS AS IT HAS DEEMED NECESSARY
AND NOT UPON ANY VIEW EXPRESSED BY THE OTHER PARTY
HERETO OR THERETO;
(VI) IT HAS DETERMINED THAT THE RATES, PRICES OR
AMOUNTS AND OTHER TERMS OF THIS TRANSACTION AND THE
INDICATIVE QUOTATIONS (IF ANY) PROVIDED BY THE OTHER
PARTY HERETO OR THERETO REFLECT THOSE IN THE RELEVANT
MARKET FOR SIMILAR TRANSACTIONS, AND ALL TRADING
DECISIONS HAVE BEEN THE RESULT OF ARM'S LENGTH
NEGOTIATIONS BETWEEN THE PARTIES;
(VII) IT IS ENTERING INTO THIS CONFIRMATION AND ANY
OTHER DOCUMENTATION RELATING TO THIS TRANSACTION WITH
A FULL UNDERSTANDING OF ALL OF THE TERMS, CONDITIONS
AND RISKS HEREOF AND THEREOF (ECONOMIC AND OTHERWISE),
AND IT IS CAPABLE OF ASSUMING AND WILLING TO ASSUME
(FINANCIALLY AND OTHERWISE) THOSE RISKS; AND
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(VIII) THE INDIVIDUAL(S) EXECUTING THIS CONFIRMATION
AND ANY OTHER RELATED DOCUMENTATION (INCLUDING THE
AGREEMENT) ARE DULY EMPOWERED AND AUTHORIZED TO DO SO.
3. Adjustment Provisions: Notwithstanding anything herein to the contrary, the
provisions of Part 6 "Equity Swap Adjustment Events"
of the Schedule to the Agreement applies to this
Transaction.
4. Account Details:
Payments to ING: Morgan Guaranty Trust Company New York
ABA No.: 0210-0023-8
Account No.: 600-07-116
Account: ING (U.S.) Capital Corporation
Favor: Internationale Nederlanden (U.S.)
Capital Markets, Inc.
Reference: SAG20
Attention: Ruth Troche
Payments to New Valley: Barnett Bank of South Florida, N.A.
Miami Florida
ABA No.: 067003985
Account: New Valley Corporation
Account No.: 1596321083
Attention: Ivonne Gomez
Phone No.: 305-789-3099
[Rest of page intentionally left blank.]
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Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to the fax number
listed above.
Yours Sincerely, Accepted and Confirmed:
INTERNATIONALE NEDERLANDEN (U.S.) NEW VALLEY CORPORATION
CAPITAL MARKETS, INC.
By:/s/ JOHN H. CLEMENT By:/s/ RICHARD LAMPEN
---------------------- ----------------------
Name: John H. Clement Name: Richard Lampen
Title: Vice President Title: Executive Vice President
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