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
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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,
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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, ▇▇▇▇▇▇▇ (as defined
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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
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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
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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. ▇▇▇▇▇▇▇. In the event of a merger or consolidation of ▇▇▇▇▇▇▇ Group
Inc., a Delaware corporation ("▇▇▇▇▇▇▇"), with, or the sale of all or
substantially all of the assets or capital stock of ▇▇▇▇▇▇▇ to, or the material
sale of the capital stock of any parent corporation of ▇▇▇▇▇▇▇, 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.
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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
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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: ▇▇▇ ▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to BGL: ▇▇▇ ▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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
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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/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Executive Vice President
BROOKE GROUP LTD.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President, Chief
Financial Officer and
Treasurer