Registration Rights Agreement

REGISTRATION RIGHTS AGREEMENT


REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of March 2, 1998 among Brooke Group Ltd., a Delaware corporation ("Brooke"), and the entities listed on Exhibit A attached hereto (individually, together with transferees, assignees or other successors, and including any Warrant Holder following exercise of its warrant, in it capacity as a holder of Registrable Securities, a "Warrant Holder" and collectively the "Warrant Holders").


RECITALS


A. Brooke has granted Warrant Holders warrants to the Registrable Securities in the amounts specified on Exhibit A;


B. Brooke and the Warrant Holders desire that Brooke use its reasonable best efforts to file, by September 15, 1999, with the SEC a Registration Statement to register the resale by the Warrant Holders of the Registrable Securities.


NOW, THEREFORE, in consideration of the foregoing and the representations, warranties and agreements set forth herein, and intending to be legally bound, the parties hereto hereby agree as follows:


ARTICLE 1
DEFINITIONS AND USAGE


Section 1.1 Definitions. As used in this Agreement, the following terms shall have the following meanings:


"Brooke" has the meaning set forth in the Preamble.


"Effectiveness Period" has the meaning set forth in Section 2.2.1.


"Exchange Act" means the Securities Exchange Act of 1934.


"Initial Shelf Registration" has the meaning set forth in Section 2.2.1.


"Losses" has the meaning set forth in Section 4.1.


"Person" or "person" means an individual, trustee, corporation, limited liability company, partnership, joint stock company, trust, unincorporated association, union, business association, firm or other entity.


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"Preliminary Prospectus" means any preliminary prospectus that may be included in any Registration Statement.


"Prospectus" means the prospectus included in or related to any Registration Statement (including a prospectus that includes any information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.


"Registrable Securities" means collectively the shares of common stock of Brooke, $0.10 par value per share, which are subject to that certain Warrant, dated March 2, 1998, granted by Brooke to the Warrant Holder, including such share of common stock at any time following exercise of such Warrant, in whole or in part. However, such common stock will cease to be a Registrable Security when it (i) is sold in an open market transaction or in an underwritten public offering, (ii) is sold to any person other than an "affiliate" of Brooke (as defined under the Regulations) pursuant to a Registration Statement, (iii) unless the Warrant Holder is an affiliate, such common stock is eligible for resale without restriction pursuant to Rule 144(k) of the Regulations or any similar rule or regulation hereafter adopted by the SEC (provided, however, that if such Warrant Holder is an "affiliate", all securities owned by it shall remain "Registrable Securities") or (iv) ceases to be outstanding.


"Registration Statement" means any registration statement of Brooke under the Securities Act that covers any of the Registrable Securities, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement and all material deemed part of such registration statement by Rule 430A of the Regulations.


"Regulations" means the regulations of the SEC under the Securities Act.


"Rule 415" means Rule 415 of the Regulations or any similar rule or regulation hereafter adopted by the SEC.


"SEC" means the Securities and Exchange Commission.


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"Securities Act" means the Securities Act of 1933.


"Shelf Registration" has the meaning set forth in Section 2.2.2.


"Subsequent Shelf Registration" has the meaning set forth in Section 2.2.2.


"Underwritten registration" or "underwritten offering" means a registration in which securities of Brooke are sold to one or more underwriters or group or a syndicate of underwriters for offering to the public.


"Warrant Holder" has the meaning set forth in the Preamble.


Section 1.2 Usage. (a) References to Articles, Sections and Exhibits are to articles and sections hereof and exhibits hereto, references to a Person are also references to its successors and assigns, references to a document are to it as amended, waived and otherwise modified from time to time, and references to a statute or another governmental rule are to it as amended and otherwise modified from time to time. The definitions set forth in Section 1.1 are equally applicable both to the singular and plural forms and the feminine, masculine and neuter forms of the terms defined. "Including" and correlative terms shall be deemed to be followed by "without limitation," if not followed by such words or words of like import. The headings of Articles and Sections and the table of contents relating hereto have been included solely for convenience of references and shall not have any effect on the construction hereof.


(b) This Agreement contemplates the filing of registration statements under the Securities Act involving various offers and sales of securities. In connection with such registration statements, there may be identified therein one or more underwriters through which securities are to be offered pursuant to either a "firm commitment" or "best-efforts" arrangement, and, in the case where there is more than one underwriter, one or more of the underwriters may be designated as the "manager" or "representative" or the "co-managers" or "representatives" of the several underwriters. Accordingly, all references herein to an "underwriter" or the "underwriters" are intended to refer to a "principal underwriter" (as defined in Rule 405 of the Regulations) and to provide for those transactions in which securities may be offered by or through one or more underwriters, and not to imply that any of the transactions contemplated hereby is conditioned in any manner whatsoever on the participation therein by one or more underwriters on behalf of any party.


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ARTICLE 2
REGISTRATION OF REGISTRABLE SECURITIES UNDER SECURITIES ACT


Section 2.1 Required Registration of Registrable Securities. Brooke shall use its reasonable best efforts to register the Registrable Securities upon the terms, and subject to the limitations and conditions, hereinafter set forth.


Section 2.2 Shelf Registration.


Section 2.2.1 Initial Shelf Registration. Prior to September 15, 1999, Brooke shall prepare and file with the SEC a Registration Statement for an offering to be made by the Warrant Holders on a continuous basis under Rule 415 covering all the Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf Registration shall be on an appropriate form permitting registration of all Registrable Securities for resale by the Warrant Holders in the manner or manners reasonably designated by them (including one or more underwritten offerings). Brooke shall cause the Initial Shelf Registration to be declared effective under the Securities Act on or before October 31, 1999 and to keep the Initial Shelf Registration continuously effective and the Prospectus current under the Securities Act during the period (the "Effectiveness Period") ending on the earliest date on which (x) all Registrable Securities have been sold other than to a Warrant Holder, (y) a Subsequent Shelf Registration covering all the Registrable securities has been declared effective under the Securities Act or (z) in the opinion of Milbank, Tweed, Hadley & McCloy or other nationally recognized counsel to Brooke reasonably acceptable to the Warrant Holders, which opinion shall be reasonably satisfactory in form, scope and substance to the Warrant Holders, registration of the Registrable Securities is no longer required under the Securities Act for the Warrant Holders to sell all remaining Registrable Securities in the open market without limitations as to volume or manner of sale and without being required to file any forms or reports with the SEC under the Securities Act or the Regulations other than a notice of sale under Rule 144 under the Regulations. No Warrant Holders of Registrable Securities may include any of its Registrable Securities in any Shelf Registration pursuant to this Agreement unless and until such Warrant Holder furnishes to Brooke in writing such information as Brooke may reasonably request pursuant to Section 6.2(b).


Section 2.2.2 Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period, Brooke shall use its reasonable best efforts to (i) obtain the prompt withdrawal of any order


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suspending the effectiveness thereof and (ii) in any event, within 45 days of such cessation of effectiveness, amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof or file an additional Registration Statement covering all of the Registrable Securities (a "Subsequent Shelf Registration," subject to the last sentence of this Section 2.2.2) for an offering to be made by the Warrant Holders on a delayed or continuous basis under Rule 415 in a manner reasonably expected to be acceptable to the SEC. If a Subsequent Shelf Registration is filed, Brooke shall use its reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and keep such Registration statement continuously effective and the Prospectus current until the end of the Effectiveness Period. As used herein, the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. If by reason of the Securities Act or the Regulations a Shelf Registration shall not permit the resale by a Warrant Holder of Registrable Securities acquired from another Warrant Holder, the obligations of Brooke shall extend to the filing of, and other registration procedures with respect to, another registration statement (which shall be a Subsequent Shelf Registration).


Section 2.2.3 Supplements and Amendments. Subject to Section 2.3.1(q), Brooke shall promptly supplement and amend the Registration Statement and the Prospectus (i) if required by the Regulations or the instructions applicable to the registration form used for the Shelf Registration, (ii) if required by the Securities Act or the Regulations, (iii) if required to prevent the Registration Statement or the Prospectus from containing any material misstatement or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iv) if reasonably requested by the Warrant Holders or by any underwriter of the Registrable Securities.


Section 2.3 Registration Procedures.


Section 2.3.1 Shelf Registration. In connection with a Shelf Registration, Brooke shall use its reasonable best efforts to effect such registration to permit the sale of Registrable Securities in accordance with the method or methods of disposition reasonably intended by the Warrant Holders, and pursuant thereto Brooke shall:


(a) Filing of Registration Statement. Before filing any
Registration Statement or Prospectus or any amendments or supplements
thereto, furnish to and afford the Warrant Holders of the Registrable
Securities covered by such


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Registration Statement, and the managing underwriters, if any, a
reasonable opportunity to review and, if they desire, comment on all
such documents (including any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed.


(b) Compliance with Law. Comply with the provisions of the
Securities Act, the Exchange Act and the rules and regulations of the
SEC promulgated thereunder applicable to it with respect to the
disposition of all Registrable Secu rities covered by such
Registration Statement as amended or by such Prospectus as
supplemented.


(c) Notice. Notify the Warrant Holders owning the Registrable
Securities covered by the Registration Statement, and the managing
underwriters, if any, promptly, and confirm such notice in writing (i)
when a Registration Statement and an amendment thereto or a Prospectus
or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective
(including in such notice a written statement that any such Warrant
Holder may, upon request, obtain, without charge, one conformed copy
of such Registration Statement or post-effective amendment including
financial statements and schedules, documents incorporated or deemed
to be incor porated by reference and exhibits), (ii) of the issuance
by the SEC of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the
use of any Preliminary Prospectus, the initiation of any proceedings
for that purpose or any other communication between the SEC and Brooke
or their rep resentatives related to a Shelf Registration, (iii) if at
any time when a prospectus is required by the Securities Act to be
delivered in connection with sales of the Registrable Securities, the
representations and warranties of Brooke contained in any agreement
(including any underwriting agreement) contemplated by Section
2.3.1(m) cease to be true and correct, (iv) of the receipt by Brooke
of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration
Statement or any of the Registrable Securities for offer or sale in
any jurisdiction, or the initiation or threatening of any proceeding
for such purpose, (v) of the happening of any event or any information
becoming known that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case
of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the


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statements therein not misleading, and, in the case of the Prospectus,
it will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
and (vi) of Brooke's determination that a post-effective amendment to
a Registration Statement would be necessary or advisable under
applicable law.


(d) Prevent Suspension of Effectiveness. Use its reasonable
best efforts to prevent the issuance of any order suspending the
effectiveness of a Registration Statement or of any order preventing
or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Securities
for offers or sales in any jurisdiction, and, if any such order is
issued, use its reasonable best efforts to obtain the withdrawal of
any such order at the earliest possible moment.


(e) Underwritten Offering. If the Registrable Securities are
to be sold in an underwritten offering, (i) as promptly as is
reasonably practicable incorporate in a prospectus supplement or
post-effective amendment to the Registration Statement such
information as is required by the Securities Act, Regulation S-K of
the Regulations, the Regulations and instructions applicable to the
registration form used for such Registration Statement to be disclosed
concerning, among other things, the terms of the underwritten
offering, the underwriters, and the plan of distribution and (ii) make
all required filings of such prospectus supplement or such
post-effective amendment as soon as practicable.


(f) Copies of Filings. Furnish to the Warrant Holders owning
Registrable Securities that so request and each managing underwriter,
if any, without charge, one conformed copy of the Registration
Statement and each post-effective amendment thereto, including
financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits.


(g) Delivery of Prospectus. Deliver to the Warrant Holders
owning Registrable Securities, and the underwriters, if any, without
charge, as many copies of the Prospectus or Prospectuses (including
each form of Preliminary Prospectus) and each amendment or supplement
thereto and any documents incorporated or deemed to be incorporated by
reference therein as such Persons may reasonably request; and Brooke
hereby consents to the use of each such Prospectus and


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Preliminary Prospectus and each amendment or supplement thereto by
each of the selling Warrant Holders and the underwriters or agents, if
any, and dealers, if any, in connection with the offering and sale of
the registrable Securities covered by such Prospectus and any
amendment or supplement thereto in the manner set forth in the
relevant Registration Statement.


(h) Blue Sky Laws. Use its reasonable best efforts to
register or qualify, and to cooperate with the selling Warrant Holders
with respect to the Registrable Securities, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification)
of such Registrable Securities for offer and sale under the securities
or Blue Sky laws of such jurisdictions within the United States as
such Warrant Holders or the managing underwriters, if any, reasonably
request in writing; keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period; and do
any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement in the
manner set forth in such Registration Statement; provided, however,
that Brooke shall not be required to (A) qualify generally to do
business in any jurisdiction where it is not then so qualified, (B)
subject itself to general service of process in any such jurisdiction
where it is not then so subject or (C) subject itself to taxation in a
material amount in any such jurisdiction.


(i) Certificates. Cooperate with the selling Warrant Holders
with respect to Registrable Securities and the managing underwriters,
if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depository Trust Company; and
enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters, if any, or
Warrant Holders may reasonably request.


(j) Governmental Agencies. Use its reasonable best efforts to
cause the Registrable Securities covered by the Registration Statement
to be registered with or approved by such other governmental agencies,
or authorities as may be necessary to enable the selling Warrant
Holders thereof or the underwriters, if any, to consummate the
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