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EXHIBIT 10.4
BROOKE GROUP LTD.
WARRANT
SECTION 1. WARRANT. AIF II, L.P. (the "Holder") may exercise
this Warrant to receive 1,204,000 shares of common stock, $0.10 par value
("Common Stock"), of Brooke Group Ltd., a Delaware corporation (the "Company"),
at any time after October 31, 1999 and up and until October 31, 2004. The
initial exercise price of this Warrant is $0.10 per share. The price and the
number of shares purchasable under this Warrant are subject to adjustment. The
Company shall register this Warrant in a warrant register to be maintained by
the Company.
SECTION 2. SUBSTITUTION OF LIGGETT WARRANT. The Company may,
upon giving the Holder 60 days prior written notice, substitute (the "Warrant
Substitution") a new warrant (the "Liggett Warrant") for this Warrant. The
Warrant Substitution must occur prior to October 31, 1999. The Liggett Warrant
will entitle the Holder to acquire a number of shares of common stock, $0.10 par
value (the "Liggett Common Shares"), of Liggett Group, Inc., a Delaware
corporation ("Liggett"), equal to 9.90% of the total number of Liggett Common
Shares issued and outstanding following the exercise in full of the Liggett
Warrant. The initial exercise price of the Liggett Warrant shall be $0.10 per
Liggett Common Share. The Liggett Warrant will be exercisable at any time, in
whole or in part, on or prior to October 31, 2004, and shall have terms and
conditions identical to this Warrant, except as set forth herein. In the event
of a substitution pursuant to this Section 2, Liggett shall register the Liggett
Warrant in a warrant register to be maintained by Liggett. Upon the Warrant
Substitution, this Warrant shall automatically be cancelled and the Holder shall
immediately return this Warrant to the Company.
The Holder will be obligated to accept the Liggett Warrant in
the Warrant Substitution only if the following conditions shall have been
satisfied:
a. Liggett shall have complied with the terms of all
covenants set forth in the Indenture, dated as of February 14, 1992, by
and among Liggett, Eve Holdings, Inc. and Bankers Trust Company, as
trustee, as amended (the "Liggett Indenture") that govern or prohibit
changes to Liggett's capital structure or transactions with
"Affiliates," whether or not the Liggett Indenture remains in effect at
the time of the Warrant Substitution;
b. The Warrant Substitution shall not be precluded by
the Liggett Indenture or the Indenture, dated as of January 1, 1996, by
and between BGLS Inc. and State Street Bank and Trust Company (as
successor to Fleet National Bank of Massachusetts), as trustee;
c. No Termination Event shall have occurred under the
Standstill Agreement, dated as of February 27, 1997, by and among BGLS
Inc., the Holder, and Artemis America Partnership;
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e. The Company, Liggett and the Holder shall have
entered into mutually satisfactory agreements providing certain
protections to the Holder as a minority shareholder of Liggett,
including preemptive rights, limitations on transactions with
affiliates, covenants similar to those set forth in the Liggett
Indenture and other reasonable rights; and
f. The Company, Liggett and the Holder shall have
entered into a mutually satisfactory agreement that establishes methods
for the Holder to realize the fair market value of the Liggett Warrant
as soon as practicable following the Warrant Substitution and
establishes methods for the Company to cause the Holder to participate
in sales of the Liggett Common Shares.
The Company and the Holder agree to commence discussions regarding the matters
described in subparagraphs d and e above as soon as possible with a view to
entering into definitive agreements on or prior to May 1, 1998.
SECTION 3. PROCEDURE. To exercise this Warrant, the Holder
must (1) complete and sign the exercise notice on the back of the Warrant, (2)
surrender the Warrant to the Company or its designated agent, (3) furnish
appropriate endorsements and transfer documents if required by the Company, and
(4) pay the exercise price and any transfer or similar tax if required. The date
on which the Holder satisfies all those requirements is the exercise date. As
soon as practical, the Company shall deliver a certificate for the number of
full shares of Common Stock issuable upon the exercise and a check for any
fractional share. The person in whose name the certificate is registered shall
be treated as a stockholder of record on and after the exercise date. If the
Holder exercises more than one Warrant, at the same time, the number of full
shares issuable upon the exercise shall be based on the total number of shares
covered by the Warrant exercised. Upon a surrender of a Warrant that is
exercised in part, the Company shall issue for the Holder a new Warrant covering
the exercised portion of the Warrant surrendered.
SECTION 4. FRACTIONAL SHARES. The Company will not issue a
fractional share of Common Stock upon exercise of a Warrant. Instead the Company
will deliver its check for the current market value of the fractional share. The
current market value of a fraction of a share is determined as follows: Multiply
the current market price of a full share by the fraction. Round the result to
the nearest cent. The current market price of a share of Common Stock is the
last reported sale price of the Common Stock on the principal national
securities exchange where it is traded (the "quoted price") on the last trading
day prior to the exercise date. In the absence of such a quotation, the Company
shall determine the current market price on the basis of such quotations as it
considers appropriate.
SECTION 5. TAXES ON EXERCISE. If the Holder exercises the
Warrant, the Company shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of shares of
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Common Stock upon the exercise. However, the Holder shall pay any such tax which
is due because the shares are issued in a name other than the Holder's name.
SECTION 6. COMPANY TO PROVIDE STOCK. The Company shall reserve
out of its authorized but unissued Common Stock or its Common Stock held in
treasury enough shares of Common Stock to permit exercise of the Warrant. All
shares of Common Stock which may be issued upon exercise of the Warrant shall be
fully paid and non-assessable. Pursuant and subject to the terms and conditions
of that certain Registration Rights Agreement, dated March 2, 1998, by and among
the Company and the warrant holders listed therein (the "Registration Rights
Agreement"), the Company will use its best efforts to comply with all securities
laws regulating the offer and delivery of shares of Common Stock upon exercise
of the Warrant and will use it best efforts to list such shares on each national
securities exchange on which the Common Stock is listed.
SECTION 7. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the
Company:
(1) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares
of its capital stock,
then the number of shares issuable on exercise and the exercise price in effect
immediately prior to such action shall be adjusted so that the Holder of a
Warrant thereafter exercised may receive the number of shares of capital stock
of the Company which he would have owned immediately following such action if he
had exercised the Warrant immediately prior to such action. The adjustment shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification.
If after an adjustment the Holder upon exercise of a Warrant
may receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted exercise price between
the classes of capital stock. After such allocation, the number of shares
issuable on exercise and the exercise price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section.
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SECTION 8. ADJUSTMENT FOR RIGHTS ISSUE. If the Company
distributes any rights, warrants, convertible securities or other common stock
equivalents (to the extent that any of the foregoing are exercisable,
convertible or otherwise exchangeable for common stock for less than the current
market price) to all holders of its Common Stock entitling them for a period
expiring within 60 days after the record date mentioned below to purchase shares
of Common Stock at a price per share less than the current market price per
share on the record date, the exercise price shall be adjusted in accordance
with the formula:
NxP
---
C'=C x O + M
-----
O + N
where:
C' = the adjusted exercise price.
C = the current exercise price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the
record date.
The adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive the rights or warrants.
SECTION 9. ADJUSTMENT FOR OTHER DISTRIBUTIONS. If the Company
distributes to all holders of its Common Stock any of its assets or debt
securities or any rights, warrants, convertible securities or other common stock
equivalents to purchase securities of the Company, the exercise price shall be
adjusted in accordance with the formula:
C'= C x M -F
----
M
where:
C' = the adjusted exercise price.
C = the current exercise price.
M = the current market price per share of Common Stock on the
record date.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of
Common Stock. The Company shall determine the fair
market value.
The adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution. This Section
does not apply to normal cash
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dividends or cash distributions. Also, this Section does not apply to rights or
warrants referred to in Section 8.
SECTION 10. CURRENT MARKET PRICE, ETC. In Sections 8 and 9 the
current market price per share of Common Stock on any date is the average of the
quoted prices of the Common Stock for 30 consecutive trading days commencing 45
trading days before the date in question. In the absence of one or more such
quotations, the Company shall determine the current market price on the basis of
such quotations as it considers appropriate. If the exercise price is adjusted
pursuant to Sections 8 or 9, the number of shares issuable on exercise of this
warrant thereafter shall be adjusted by multiplying such number by a fraction
the numerator of which is the previous exercise price and the denominator of
which is the adjusted exercise price.
SECTION 11. WHEN ADJUSTMENT MAY BE DEFERRED. No adjustment in
the exercise price need be made unless the adjustment would require an increase
or decrease of at least 1% in the exercise price. Any adjustments that are not
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be.
SECTION 12. WHEN NO ADJUSTMENT REQUIRED. No adjustment need be
made for a transaction referred to in Sections 7, 8 or 9 if the Holder is to
participate in the transaction on the basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction. No adjustment
need be made for rights to purchase Common Stock pursuant to a Company plan for
reinvestment of dividends or interest. No adjustment need be made for a change
in the par value or no par value of the Common Stock. To the extent the Warrant
becomes exercisable for cash, no adjustment need be made thereafter as to the
cash. Interest will not accrue on the cash.
SECTION 13. NOTICE OF ADJUSTMENT. Whenever the exercise price
is adjusted, the Company shall promptly mail to the Holder a notice of the
adjustment. The Company shall obtain a certificate from the Company's
independent public accountants briefly stating the facts requiring the
adjustment and the manner of computing it. The certificate shall be conclusive
evidence that the adjustment is correct.
SECTION 14. NOTICE OF CERTAIN TRANSACTIONS. If:
(1) the Company takes any action that would require an
adjustment in the exercise price to Sections 7, 8 or 9 and if the
Company does not let the Holder participate pursuant to Section 12;
(2) the Company takes any action that would require an
instrument of assumption pursuant to Section 15; or
(3) there is a liquidation or dissolution of the Company,
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the Company shall mail to the Holder a notice stating the proposed record date
for a dividend or distribution or the proposed effective date of a subdivision,
combination, reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. The Company shall mail the notice at least 15 days
before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
SECTION 15. REORGANIZATION OF COMPANY. If the Company is a
party to a recapitalization or a merger or consolidation which reclassifies or
changes its outstanding Common Stock, the person obligated to deliver
securities, cash or other assets upon exercise of the Warrant shall assume the
Company's obligations under this Warrant. The instrument of assumption shall
provide that the Holder may exercise it into the kind and amount of securities,
cash or other assets which he would have owned immediately after the
recapitalization, consolidation or merger if he had exercised the Warrant
immediately before the effective date of the transaction. The instrument of
assumption shall provide for adjustments which shall be as nearly equivalent as
may be practical to the adjustments provided for in this Warrant. The successor
Company shall mail to the Holder a notice briefly describing the instrument of
assumption.
SECTION 16. COMPANY DETERMINATION FINAL. Any determination
that the Company or the Board of Directors must make pursuant to Sections 4, 7,
10 or 12 is conclusive, if made in good faith, absent manifest error.
SECTION 17. TRANSFER AND EXCHANGE. The Holder may transfer
this Warrant to any of its partners or any affiliated investment account entity.
Except as permitted by the immediately preceding sentence, the Warrant is not
transferable (a) prior to October 31, 1999 or (b) so long as an effective
Registration Statement (as defined in the Registration Rights Agreement) for the
shares of Common Stock is on file with the Securities and Exchange Commission.
Subject to the preceding sentence, the Warrant may be presented for transfer or
exchange at the principal office of the Company. When the Warrant is presented
to the Company with a request to register transfer or to exchange it for
Warrants covering an equal number of shares of Common Stock, the Company shall
register the transfer or make the exchange. The Company may charge a reasonable
fee for any registration of transfer or exchange. Notwithstanding the foregoing,
neither this Warrant nor the underlying Common Stock has been registered, and
transfer thereof is subject to applicable securities law restrictions. A legend
in substantially the following form shall be placed on each such security:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
REQUIRED REGISTRATION OR QUALIFICATION UNDER ANY STATE SECURITIES LAWS, OR THE
PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER
FEDERAL OR STATE SECURITIES LAWS."
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SECTION 18. REPLACEMENT SECURITIES. If the Holder of a Warrant
claims that the Holder's Warrant has been lost, destroyed or wrongfully taken,
the Company shall issue a replacement. If required by the Company, an indemnity
bond must be sufficient in its judgment to protect the Company from any loss
which any Holder of a Warrant may suffer if a Warrant is replaced. The Company
may charge for its expenses in replacing a Warrant.
SECTION 19. NOTICES. Any notice or communication to the
Company is duly given if in writing and delivered in person or mailed by
first-class mail to its principal executive offices at 100 S.E. Second Street,
32nd Floor, Miami, Florida, 33131, Attn: Chairman of the Board. The Company by
notice may designate additional or different addresses for subsequent notices or
communications. Any notice or communication to the Holder shall be mailed by
first-class mail to the Holder's address shown on the register kept by the
Company. Failure to mail a notice or communication to the Holder or any defect
in it shall not affect its sufficiency with respect to any other holders of
warrants relating to the Company's Common Stock. If a notice or communication is
mailed in the manner provided above within the time prescribed, it is duly
given, whether or not the addressee receives it.
SECTION 20. LIABILITY. No Holder as such shall have any
liability as a stockholder of the Company.
SECTION 22. GOVERNING LAW. This Warrant shall be governed by
the internal law of New York.
BROOKE GROUP LTD.
By: /s/ Richard J. Lampen
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Name: Richard J. Lampen
Title: Executive Vice President
Date: March 2, 1998
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[Form of Election to Purchase]
(To be Executed upon Exercise of the Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases _____________ shares of Common Stock and tenders
payment for such shares to the order of Brooke Group Ltd. in the amount of
$_____________ in accordance with the terms of this Warrant. The undersigned
requests that certificate(s) for such shares be issued and registered in the
name of _______________________________________________, whose address is
______________________________________________________________ and that such
shares be delivered to ____________________________________________ whose
address is _______________________________________________________________. If
said number of shares is less than all of the shares of Common Stock purchasable
under this Warrant, the undersigned requests that a new Warrant representing the
remaining balance of such shares be registered in the name of
________________________________________, whose address is
_______________________________________________________________, and that such
Warrant be delivered to ___________________________________________, whose
address is __________________________________________________________________.
Date: By:
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Name:
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Its:
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