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Business") which included the capital stock of its subsidiary, Western Union Financial Services, Inc. ("FSI"}, and certain related assets, to First Financial Management Corporation ("FFMC"} and, on January 13, 1995, it sold to FFMC all of the trademarks and tradenames used in the Money Transfer Business and constituting the Western Union name and trademark, for an aggregate purchase price of approximately $1,193 million, including $893 million in cash and $300 million representing the assumption by FFMC of substantially all of New Valley's obligations under its pension plan. New Valley plans to acquire operating businesses through merger, purchase of assets, stock acquisition or other means, or to acquire control of operating companies through one of such means, with the purpose of being primarily engaged in a business or businesses other than that of investing, reinvesting, owning, holding or trading in securities. New Valley is also engaged, subject to the Option (as defined below), in the business of operating its messaging services business, which includes the Mailgram~, Telegram, Priority LettersM, HotlineTM, Automated Voice TelegramTM, Commercial Teleservices, Customer LetterTM, Cablegram, OpiniongramsM, and Datagram® messaging businesses (the "Messaging Services Business"). New Valley conducts its messaging operations through its wholly-owned subsidiary, Western Union Data Services Company, Inc., a Delaware corporation ("DSI"), which provides such messaging services to individual consumers and high-volume commercial users. New Valley has a put option to sell DSI to FFMC, and FFMC has a call option to purchase DSl from New Valley, in either case at a price of $20 million, exercisable from January 1, 1996 to March 31, 1996 (together, the "Option"). New Valley currently intends to exercise the Option, and therefore, currently reports its Messaging Services Business as a discontinued operation. On February 1, 1995, New Valley acquired, for $12.8 million , a 28.2% equity interest in a holding company that owns a 16.5% voting interest in Empresa Brasileira de Aeronautica, S.A., a Brazilian airplane manufacturer. New Valley is exploring a further investment in this venture. In addition, New Valley recently executed a definitive purchase agreement to acquire all of the outstanding shares of common stock and other equity interests of Ladenburg, Thalmann & Co. Inc., a registered broker-dealer and an investment bank, for $26.75 million in cash, subject to adjustment. The acquisition is subject to satisfaction of certain conditions, including regulatory approvals. See Note 3 to the Consolidated Financial Statements for a discussion of the Company's investment in New Valley. The information describing the business of New Valley set forth in Item 1 of New Valley's Annual Report on Form 10-K for the year ended December 31, 1994 is incorporated herein by reference. Other Businesses In addition to the above, the Company is involved in the sale of computer output microfiche products through a wholly-owned subsidiary. The Company is also involved in cigarette manufacturing and real estate development businesses in the Commonwealth of Independent States (the "CIS", formerly known as the Soviet Union). The Company's interests in the CIS have not, to date, generated a material amount of net income and has not been consolidated. The Company is contemplating further investment in the ClSo Recent Developments Through 1994, the Company conducted its information processing systems business through its majority owned subsidiary, MAI Systems Corporation, a Delaware corporation ("MAI"). MAI is engaged in the development, sale and service of a variety of computer and software products. On January 25, 1995, the Company declared a pro rata distribution of its entire 65.2% equity interest in MAI (the "MAI Distribution"), in the form of a special dividend payable on February 13, 1995 to holders of record of the Company's common stock as of February 6, 1995 (the "Eligible Shareholders"). Pursuant to the MAI Distribution, the Eligible Shareholders received: (1) one share of

MAI Common Stock for each six shares of the Company's common stock outstanding on said record date; ana (2) through an independent agent, a pro rata cash distribution for fractional shares of the MAI Shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Recent Events". As a result of the distribution, certain information previously reflected in consolidation in the Company's financial statements for the years ended 1992 and 1993 has been reclassified to reflect MAI's operations as discontinued operations. See Note 2 to the Consolidated Financial Statements for a further description of the MAI Distribution. The information describing the business of MAI set forth in Item 1 of MAI's Annual Report on Form 10-K for the year ended December 31, 1994 is incorporated herein by reference. At December 31, 1 994, the Company held an approximately 15% voting interest in SkyBox International Inc. ('SkyBox"), its former indirect wholly-owned subsidiary of which approximately 81.5% of the outstanding shares of common stock were distributed to the Company's shareholders in the form of a special dividend on or about October 6, 1993. On March 27, 1995, the Company divested its remaining shares of SkyBox common stock through open market sales. On or about March 29, 1995, SkyBox redeemed the Company's remaining holdings of its preferred stock. SkyBox is a producer, marketer and distributor of collectible sports and trading cards and related products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Recent Events'. As a result of the Company's sale of its SkyBox common stock and the redemption of its SkyBox preferred holdings, certain information previously reflected in consolidation in the Company's financial statements for the year ended 1992 and for the nine month period ended September 30, 1993 has been reclassified to reflect SkyBox's operations as discontinued operations. See Note 2 to the Consolidated Financial Statements for a further description of the Company's divestiture of its equity interest in SkyBox. The information describing the business of SkyBox set forth in Item 1 of SkyBox's Annual Report on Form 10-K for the year ended December 31, 1994 is incorporated herein by reference. Employees At December 31, 1994, without giving effect to the MAI Distribution, the Company and its consolidated subsidiaries, other than those located in the CIS, had approximately 1,850 employees of which approximately 1,150 were employed by Liggett and approximately 647 were employed by MAI. Approximately 26% of the Company's employees are hourly employees and are represented by unions. The Company and its consolidated subsidiaries have not experienced any significant work stoppages since 1977, and the Company considers its relationship with its employees and their unions to be satisfactory. Item 2. Properties The Company's principal executive offices are located in Miami, Florida. The Company subleases 12,356 square feet of office space in an office building in Miami (the "Premises"). The term of the sublease is until February 28, 1999. New Valley recently relocated its principal executive office to Miami and currently shares office space with the Company at the Premises. The Company intends to enter into an expense sharing agreement with New Valley regarding its use and occupation of the Premises. Substantially all of Liggett's tobacco manufacturing facilities, consisting principally of factories, distribution and storage facilities, are located in or near Durham, North Carolina. Such facilities are both owned and leased. The principal properties owned or leased by Liggett are as follows:

Owned or Location Leased Approximate Total Square Footage Corporate Office/ Manufacturing Complex Durham, NC Owned Warehouse Durham, NC Owned Storage Facilities Danville, VA Owned Distribution Center Durham, NC Leased 1,350,000 203,000 578,000 40,000 Liggett's Durham, North Carolina facility consists of 16 major structures located on approximately 25 acres. Included are Liggett's manufacturing complex, research facility and corporate offices. In or about June 1993, the Company leased on terms consistent with those available in the general marketplace a substantial portion of one of its Durham headquarters buildings to SkyBox. The Company recently completed leasing the remainder of the building to an unrelated party. Liggett leases the Durham, North Carolina distribution center pursuant to a lease which expires May 31, 1999. Liggett utilizes approximately 40% of the distribution center and subleases the remaining 60% to a third party. Liggett has an option to purchase the leased property at any time during the term of the lease. Item 3. Legal Proceedings Reference is made to Note 14 to the Consolidated Financial Statements which embodies a description of certain legal proceedings to which the Company is or has been a party. Item 4. Submission of Matters to a Vote of Secudty Holders During the fourth quarter of fiscal 1994, the Company submitted certain matters to a vote of security holders at its Annual Meeting of Shareholders held on December 15, 1994, as proxies for said meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. The following constitutes a brief description of the matters voted upon at the meeting and a tabulation of the results: Total shares outstanding as of November 15, 1994 (the record date) - 18,260,844 Total shares voted in person or by proxy - 17,178,214 Election of directors: For Withheld Bennett S. LeBow 17,121,724 56,490 Robert J. Eide 17,122,624 55,590 Jeffrey S. Podell 17,122,624 55,590 the Company for the year ending December 31, 1994. For ~ 17,152,354 12,700 To approve the appointment of Coopers & Lybrand L.L.P. as independent accountants for Abstain 13,160 Executive Officers of the Registrant The executive officers of the Company, their respective ages, and the positions held with the Company, are listed below. I~ach of the executive officers of the Company serves until the election and qualification of his successor or until his death, resignation or removal by the Board of 9

Directors of the Company. The Company's executive officers devote substantially all of their business efforts to the affairs of the Company. Name ~ Position Bennett S. LeBow 57 Chairman of the Board, President, Chief Execu- tive Officer and Treasurer Gerald E. Sauter 51 Vice President, Chief Financial Officer and Secretary Bennett S. LeBow (the "Chairman") has been Chairman of the Board, President and Chief Executive Officer of the Company since June 1990 and has been a director of the Company since October 1986. For the past five years, the Chairman's principal occupation has been as an officer and/or director of, and a private investor in, privately and publicly held companies. Since November 1990, he has been Chairman of the Board, President and Chief Executive Officer of BGLS Inc. ("BGLS"), a wholly-owned subsidiary of the Company which is in the business of acquiring other companies and which holds (either directly or indirectly) the Company's equity interests in several private and public companies. Each of the publicly held companies have been, directly or indirectly, operating companies. The Chairman has been a director of Liggett since June 1990 and Chairman of the Board of Directors of Liggett from July 1990 to May 1993. He served as one of three interim Co-Chief Executive Officers of Liggett from March 1993 to May 1993. He has been Chairman of the Board of New Valley, in which the Company holds an indirect interest of approximately 42%, since January 1988 and Chief Executive Officer thereof since November 1994. In or about November 1991, an involuntary petition seeking an order for relief under Chapter 11 of Title 11 of the United States Code was commenced against New Valley by certain of its bondholders. New Valley emerged from bankruptcy reorganization proceedings in or about January 1995 subsequent to the United States Bankruptcy Court for the District of New Jersey's confirmation of New Valley's First Amended Joint Chapter 11 Plan of Reorganization, as amended, on or about November 1, 1994. He has been a director of MAI since 1984 and has been Chairman of the Board thereof since November 1990. He was Chief Executive Officer of MAI from November 1990 to April 1993. In or about April 1993, MAI filed for protection under Chapter 11 of Title 11 of the United States Code. MAI emerged from bankruptcy reorganization proceedings in or about November 1993 upon the United States Bankruptcy Court for the District of Delaware's confirmation of MAI's First Amended Joint Chapter 11 Plan of Reorganization. From June 1990 until August 1994, he was Chairman of the Board and/or a director of SkyBox. Gerald E. Sauter has been Vice President and Chief Financial Officer of the Company since April 1993 and Secretary since December 1993. Mr. Sauter has been Vice President, Secretary and Chief Financial Officer of BGL$ since April 1993. He has been a director and Vice President, Chief Financial Officer and Treasurer of New Valley since November 1994. Mr. Sauter has been employed by Brooke Management Inc. ("BMI"), a subsidiary of the Company, in various capacities since before 1989. l0

PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Market Information The Company's common stock, $.10 par value per share (the "Common Stock"), is listed and traded on the New York Stock Exchange ("NYSE") under the symbol "BGL". ]-he high, low and closing sale prices for a share of Common Stock on the NYSE, as reported by the NYSE Quarterly Market Statistics, for each fiscal quarter of 1994 and 1993 were as follows (in dollars): 1994 High Low (;lose Fourth Quarter 4 1/2 2 5/8 3 3/4 Third Quarter 5 3/8 1 3/8 4 3/8 Second Quarter 2 1 1/4 1 1/2 First Quarter 2 1/4 1 1/2 1 5/8 1993 High Low Close Fourth Quarter 6 1 1/4 1 7/8 Third Quarter 6 1/8 2 5/8 4 1/2 Second Quarter 3 1/4 1 3/4 2 5/8 First Quarter 3 1 3/8 2 3/8 Holders As of April 11, 1995, there were approximately 300 record owners of the Company's 18,247,096 outstanding shares of Common Stock. Dividends No cash dividends were paid on the shares of Common Stock during fiscal years 1993 and 1994. On January 25, 1995, the Board of Directors of the Company declared that it would resume a quarterly cash dividend of $.075 per share on the Common Stock. The declaration of future cash dividends is within the discretion of the Board of Directors of the Company and is subject to a variety of contingencies such as market conditions, earnings and the financial condition of the Company. The Company currently has loan agreements that embody certain financial covenants that restrict the payment of dividends and the Company may enter into future loan agreements with similar limitations. Item 6. Selected Financial Data Selected financial data for the Company for each of its last five (5) fiscal years is set forth under the caption "Selected FinancialData" on page A-1 of this report on Form IO-K.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations A discussion of the Company's financial condition and results of operations is set forth under the caption "Managernent's Discussion and Analysis of Financial Condition and Results of Operations" on pages B-1 through B-1 1 of this report on Form IO-K. Item 8. Financial Statements and Supplementary Data Financial statements of the Corporation and specific supplementary financial information is set forth on pages C-1 through C-38 of this report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 12

PART III Item 10, Directors and Executive Officers of the Registrant Information required by this Item 10 is contained in the Company's definitive Proxy Statement for its 1995 Annual Meeting of Shareholders (the "Proxy Statement"), to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year covered by this Repor~ pursuant to Regulation 14A under the Securities Exchange Act of 1934, is incorporated herein by reference. Item 1 1. Executive Compensation Information required by this incorporated herein by reference. Item 11 is contained in the Proxy Statement which is Item 12. Security Ownership of Certain Beneficial Owners and Management Information required by this Item 12 is contained in the Proxy Statement which incorDorated herein by reference. is Item 13, Certain Relationships and Related Transactions Information required by this Item 13 is contained incorporated herein by reference. in the Proxy Statement which is

PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8oK (a)(1) Index to 1994 Financial Statements: The Financial Statements listed in the accompanying Index to Selected Financial Information, Management's Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Financial Statement Schedules on page 15 are filed as part of this report on Form IO-K. (a)(2) Financial Statement Schedules: The Financial Statement Schedules listed in the accompanying Index to Selected Financial Information, Management's Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Financial Statement Schedules on page 15 are filed as part of this report on Form IO-K. (a|(31 Exhibits: The Exhibits listed in the accompanying Index of Exhibits on page E-1 are filed as part of this report on Form IO-K. (b) Reports on Form 8-K: Inapplicable. (c| Exhibits See Index of Exhibits on page E-I. (d| Financial Statement Schedules The Financial Statement Schedules listed in the accompanying Index to Selected Financial Information, Management's Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Financial Statement Schedules on page 15 are filed as part of this report on Form IO-K.

BROOKE GROUP LTD, Form IO-K for the Year Ended December 31, 1994 Items 6, 7, 8, 14(a) (1) and (2), and 14(d) Index to Selected Financial Information, Management's Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Financial Statement Schedules Selected Financial Information, Management's Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Schedules of the Registrant and its subsidiaries, required to be included in Items 6, 7, 8, 14(a) (1) and (2), and 14(d) are listed below: Page SELECTED FINANCIAL DATA .................................................................... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..................................................... B-1 FINANCIAL STATEMENTS: Report of Independent Accountants ................................................. C-1 Consolidated Balance Sheets as of December 31, 1994 and 1993 ....... C-3 Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992 .................................................................. C-5 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1994, 1993 and 1992 .................................... C-6 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993, and 1992 ................................................................. C-7 Notes to Consolidated Financial Statements ...................................... C-9 Report of Independent Accountants-MAI Systems Corporation ............. C-39 Report of Independent Accountants-New Valley Corporation ................ C-40 FINANCIAL STATEMENT SCHEDULES: Report of Independent Accountants ................................................. D-1 Schedule II -- Valuation and Qualifying Accounts ............................. D-2 Financial Statement Schedules not listed above have been omitted because they are not app!icable or the required information is contained in the Consolidated Financial Statements or accompanying Notes. 15

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Rel3ort to be signed on its behalf by the undersigned thereunto duly authorized. BROOKE GROUP LTD, (Registrant) Date: April 12, 1995 By: /s/Bennett S. LeBow Bennett S. LeBow Chairman of the Board, President, Chief Executive Officer and Treasurer