December 28, 1995
Xx. Xxxxxxx S. XxXxx
XXXXXX GROUP LTD.
NEW VALLEY CORPORATION
XXXXXXX GROUP INC.
000 X.X. 0xx Xxxxxx
00xx Xxxxx
Xxxxx, XX 00000
Dear Xx. XxXxx:
1. Retention. This letter agreement (the "Agreement") confirms that New
Valley Corporation ("New Valley"), Brooke Group Ltd. ("Brooke"), and Xxxxxxx
Group Inc. ("Xxxxxxx", 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
XXXXXXX 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
XXXXXXX 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
XXXXXXX 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,
Xxxxxx 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
XXXXXXX 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
XXXXXXX 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: Xxxxxxx X. Xxxxxx,
Executive Vice President and General Counsel and (b) if to Jefferies, at the
offices of Jefferies at 00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000, Xxx Xxxxxxx,
Xxxxxxxxxx 00000, Attention: Xxxxx X. Xxxxx, 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
XXXXXXX 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
XXXXXXX 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/ XXXXXX X. XXXXXXXXX
---------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Managing Director
Accepted and Agreed:
BROOKE GROUP LTD.
By /s/ XXXXXXX X. XXXXX
----------------------------
Xxxxxxx X. XxXxx
Chairman of the Board,
President and Chief
Executive Officer
NEW VALLEY CORPORATION
By /s/ XXXXXXX X. XXXXX
----------------------------
Xxxxxxx X. XxXxx
Chairman of the Board,
President and Chief
Executive Officer
XXXXXXX GROUP INC.
By /s/ XXXXXX X. XXXXXXXXX
----------------------------
Xxxxxx X. Xxxxxxxxx
Chairman of the Board,
President and Chief
Executive Officer
SCHEDULE A
December 28, 1995
JEFFERIES & COMPANY, INC.
00000 Xxxxx Xxxxxx Xxxxxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
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 XXXXXXX GROUP INC. ("XXXXXXX", 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___________________________
Xxxxxxx X. XxXxx
Chairman of the Board,
President and Chief
Executive Officer
NEW VALLEY CORPORATION
By___________________________
Xxxxxxx X. XxXxx
Chairman of the Board,
President and Chief
Executive Officer
JEFFERIES & COMPANY, INC.
December 28, 1995
Page 5
XXXXXXX GROUP INC.
By /s/ XXXXXX X. XXXXXXXXX
-------------------------------
Xxxxxx X. Xxxxxxxxx
Chairman of the Board,
President and Chief
Executive Officer
Accepted and Agreed:
JEFFERIES & COMPANY, INC.
By: /s/ XXXXXX X. XXXXXXXXX
---------------------------
Name: Xxxxxx X. Xxxxxxxxx
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
XXXXXXXXX & 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
Xx. Xxxxxxx S. XxXxx
XXXXXX GROUP LTD.
NEW VALLEY CORPORATION
XXXXXXX GROUP INC.
000 X.X. 0xx Xxxxxx
00xx Xxxxx
Xxxxx, XX 00000
Dear Xx. XxXxx:
This letter amends and supplements the engagement letter (the "Agreement")
dated December 28, 1995 by and between Xxxxxxxxx & Company, Inc. ("Jefferies")
and New Valley Corporation ("New Valley"), Brooke Group Ltd. ("Brooke") and
Xxxxxxx Group Inc. ("Xxxxxxx", 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 Xx. Xxxxxxx X. XxXxx 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/ XXXXXX X. XXXXXXXXX
---------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Managing Director
Accepted and Agreed:
BROOKE GROUP LTD.
By /s/ XXXXXXX X. XXXXX
----------------------------
Xxxxxxx X. XxXxx
Chairman of the Board,
President and Chief
Executive Officer
NEW VALLEY CORPORATION
By /s/ XXXXXXX X. XXXXX
----------------------------
Xxxxxxx X. XxXxx
Chairman of the Board and
Chief Executive Officer
XXXXXXX GROUP INC.
By /s/ XXXXXX X. XXXXXXXXX
----------------------------
Xxxxxx X. Xxxxxxxxx
Chairman of the Board,
President and Chief
Executive Officer
