SCHEDULE 14A
(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

þ  Definitive Proxy Statement

 

o  Definitive Additional Materials

 

o  Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

 

Vector Group Ltd.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

þ  No fee required.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VECTOR GROUP LTD.

100 S.E. Second Street

Miami, Florida 33131

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held June 11, 2010

 

To the Stockholders of Vector Group Ltd.:

 

The Annual Meeting of Stockholders of Vector Group Ltd., a Delaware corporation (the “Company”), will be held at the Miami Tower, 100 S.E. Second Street, 19th Floor Auditorium, Miami, Florida 33131 on Friday, June 11, 2010 at 11:00 a.m., and at any postponement or adjournment thereof, for the following purposes:

 

1. To elect seven directors to hold office until the next annual meeting of stockholders and until their successors are elected and qualified.

 

2. To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered certified public accounting firm for the year ending December 31, 2010; and

 

3. To transact such other business as properly may come before the meeting or any adjournments or postponements of the meeting.

 

Every holder of record of Common Stock of the Company at the close of business on April 15, 2010 is entitled to notice of the meeting and any adjournments or postponements thereof and to vote, in person or by proxy, one vote for each share of Common Stock held by such holder. A list of stockholders entitled to vote at the meeting will be available to any stockholder for any purpose germane to the meeting during ordinary business hours from May 31, 2010 to June 11, 2010, at the headquarters of the Company located at 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131. A proxy statement, form of proxy and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 are enclosed herewith.

 

By Order of the Board of Directors,

 

 

Howard M. Lorber
President and Chief Executive Officer

 

Miami, Florida

April 16, 2010

 

 

 

VECTOR GROUP LTD.
100 S.E. Second Street
Miami, Florida 33131

 

 

 

PROXY STATEMENT

 

 

INTRODUCTION

 

The enclosed proxy is solicited on behalf of the board of directors of Vector Group Ltd., a Delaware corporation (the “Company”). The proxy is solicited for use at the annual meeting of stockholders to be held at the Miami Tower, 100 S.E. Second Street, 19th Floor Auditorium, Miami, Florida 33131 on Friday, June 11, 2010, at 11:00 a.m., and at any postponement or adjournment. The Company’s offices are located at 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131, and its telephone number is (305) 579-8000.

 

VOTING RIGHTS AND SOLICITATION OF PROXIES

 

Every holder of record of Common Stock of the Company at the close of business on April 15, 2010 is entitled to notice of the meeting and any adjournments or postponements and to vote, in person or by proxy, one vote for each share of Common Stock held by such holder. At the record date, the Company had outstanding 71,272,731 shares of Common Stock. This proxy statement, accompanying notice and proxy and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 are first being mailed to stockholders on or about April 21, 2010.

 

Any stockholder giving a proxy has the power to revoke the proxy prior to its exercise. A proxy can be revoked by an instrument of revocation delivered at or prior to the annual meeting to Marc N. Bell, the secretary of the Company, by a duly executed proxy bearing a date or time later than the date or time of the proxy being revoked, or at the annual meeting if the stockholder is present and elects to vote in person. Mere attendance at the annual meeting will not serve to revoke a proxy. A stockholder whose shares are held in a brokerage or bank account will need to obtain a legal proxy from the broker, bank or other intermediary in order to vote at the meeting.

 

All proxies received and not revoked will be voted as directed. If no directions are specified, proxies which have been signed and returned will be voted “FOR” the election of the board’s nominees and “FOR” the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered certified public accounting firm. Provided a quorum is present at the meeting, the nominees receiving a majority of the votes cast by holders of Common Stock voting in person or by proxy at the meeting will be elected as directors. The proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered certified public accounting firm will require approval of a majority of the votes cast. A New York Stock Exchange member broker who holds shares in street name for a customer has the authority to vote shares held on behalf of that customer on Proposal No. 2 to ratify the Company’s independent registered certified public accounting firm even if the broker does not receive instructions from the customer. However, effective this year, New York Stock Exchange rules no longer permit member brokers who do not receive instructions from customers who hold their shares in street name to vote on Proposal No. 1 to elect directors. Abstentions and shares held of record by a broker or its nominee that are voted on any matter are included in determining the number of votes present for quorum purposes. Broker shares that are registered as being present at the meeting but are not voted, or a “broker non-vote”, on any matter will be included in determining whether a quorum is present.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth, as of the record date, the beneficial ownership of the Company’s Common Stock, the only class of voting securities, by:

 

 

Unless otherwise indicated, each person possesses sole voting and investment power with respect to the shares indicated as beneficially owned, and the business address of each person is 100 S.E. Second Street, Miami, Florida 33131.

 

 

 

 

BOARD PROPOSAL 1 — NOMINATION AND ELECTION OF DIRECTORS

 

The by-laws of the Company provide, among other things, that the board, from time to time, shall determine the number of directors of the Company. The size of the board is presently set at seven. The present term of office of all directors will expire at the 2010 annual meeting. Seven directors are to be elected at the 2010 annual meeting to serve until the next annual meeting of stockholders and until their respective successors are duly elected and qualified or until their earlier resignation or removal.

 

It is intended that proxies received will be voted “FOR” election of the nominees named below unless marked to the contrary. In the event any such person is unable or unwilling to serve as a director, proxies may be voted for substitute nominees designated by the present board. The board has no reason to believe that any of the persons named below will be unable or unwilling to serve as a director if elected.

 

The board recommends that stockholders vote “FOR” election of the nominees named below.

 

Information with Respect to Nominees

 

The following table sets forth certain information, as of the record date, with respect to each of the nominees. Each nominee is a citizen of the United States.

 

Business Experience and Qualifications of Nominees

 

The Company believes that the combination of the various qualifications, skills and experiences of its directors contribute to an effective and well-functioning board and that individually and as a whole, the directors possess the necessary qualifications to provide effective oversight of the business, and provide quality advice to the Company’s management. Details regarding the experience and qualifications of the directors are set forth below.

 

Bennett S. LeBow is the Chairman of the Company’s Board of Directors and has been a director of the Company since October 1986. Mr. LeBow, currently a private investor, served as Executive Chairman from January 2006 until his retirement on December 30, 2008. He served as the Chairman and Chief Executive Officer of the Company from June 1990 to December 2005. Mr. LeBow served as President and Chief Executive Officer of Vector Tobacco Inc., a subsidiary of the Company engaged in the development and marketing of low nicotine and nicotine-free cigarette products and the development of reduced risk cigarette products, from January 2001 until December 2007 and as a director from October 1999 until December 2007. Mr. LeBow was Chairman of the Board of New Valley Corporation from January 1988 to December 2005 and served as its Chief Executive Officer from November 1994 to December 2005. New Valley Corporation was a majority-owned subsidiary of the Company until December 2005, when the Company acquired the remaining minority interest, engaged in the real estate business and seeking to acquire additional operating companies and real estate properties. Mr. LeBow’s pertinent experience, qualifications, attributes and skills include his decades of experience as an investor and the knowledge and experience in the cigarette industry he has attained through his service as our Chief Executive Officer from 1990 to 2005 and as Chairman of the Board since 1990.

 

Howard M. Lorber has been President and Chief Executive Officer of the Company since January 2006 and has served as a director of the Company since January 2001. He served as President and Chief Operating Officer of the Company from January 2001 to December 2005. From November 1994 to December 2005, Mr. Lorber served as President and Chief Operating Officer of New Valley Corporation, where he also served as a director. Mr. Lorber was Chairman of the Board of Directors of Hallman & Lorber Assoc. Inc., consultants and actuaries of qualified pension and profit sharing plans, and various of its affiliates from 1975 to December 2004 and has been a consultant to these entities since January 2005; Chairman of the Board of Directors since 1987 and Chief Executive Officer from November 1993 to December 2006 of Nathan’s Famous, Inc., a chain of fast food restaurants; a director of United Capital Corp., a real estate investment and diversified manufacturing company, since May 1991; and the Vice Chairman of the Board of Ladenburg Thalmann Financial Services Inc. since May 2001. He is also a trustee of Long Island University. In addition to his decades of experience as a real estate investor and service as a director of other publicly-traded corporations, Mr. Lorber’s pertinent experience, qualifications, attributes and skills include his knowledge and experience at the Company attained through his service as our President since 2001 and CEO since 2006 as well as his leadership and service as New Valley’s President and Chief Operating Officer from 1994 to 2005.

 

Ronald J. Bernstein has served as President and Chief Executive Officer of Liggett since September 1, 2000 and of Liggett Vector Brands since March 2002 and has been a director of the Company since March 2004. From July 1996 to December 1999, Mr. Bernstein served as General Director and, from December 1999 to September 2000, as Chairman of Liggett-Ducat Ltd., the Company’s former Russian tobacco business sold in 2000. Prior to that time, Mr. Bernstein served in various positions with Liggett commencing in 1991, including Executive Vice President and Chief Financial Officer. Mr. Bernstein’s pertinent experience, qualifications, attributes and skills include the knowledge and experience in the cigarette industry he has attained through his 19 years of employment with our tobacco and real estate subsidiaries.

 

Henry C. Beinstein has been a director of the Company since March 2004. Since January 2005, Mr. Beinstein has been a partner of Gagnon Securities LLC, a broker-dealer and FINRA member firm, and has been a money manager and registered representative at such firm since August 2002. He retired in August 2002 as the Executive Director of Schulte Roth & Zabel LLP, a New York-based law firm, a position he had held since August 1997. Before that, Mr. Beinstein had served as the Managing Director of Milbank, Tweed, Hadley & McCloy LLP, a New York-based law firm, commencing November 1995. Mr. Beinstein was the Executive Director of Proskauer Rose LLP, a New York-based law firm, from April 1985 through October 1995. Mr. Beinstein is a certified public accountant in New York and New Jersey and prior to joining Proskauer was a partner and National Director of

Finance and Administration at Coopers & Lybrand. Mr. Beinstein also serves as a director of Ladenburg Thalmann Financial Services Inc. and Castle Brands Inc. Mr. Beinstein has been licensed as a Certified Public Accountant in the state of New York since 1968. Mr. Beinstein’s pertinent experience, qualifications, attributes and skills include financial literacy and expertise, managerial experience through his years at Coopers & Lybrand, Proskauer Rose LLP, Milbank, Tweed, Hadley & McCloy LLP and Schulte Roth & Zabel LLP, and the knowledge and experience he has attained through his service as a director of the Company and other publicly traded corporations.

 

Robert J. Eide has been a director of the Company since November 1993. Mr. Eide has been the Chairman and Chief Executive Officer of Aegis Capital Corp., a registered broker-dealer and FINRA member firm, since 1984. Mr. Eide also serves as a director of Nathan’s Famous, Inc. and Ladenburg Thalmann Financial Services Inc. Mr. Eide has been a member of the New York State Bar Association since 1979. Mr. Eide’s pertinent experience, qualifications, attributes and skills include financial literacy and expertise, managerial experience, and the knowledge and experience he has attained through his service as a director of the Company and other publicly traded corporations.

 

Jeffrey S. Podell has been a director of the Company since November 1993. Mr. Podell has been the Chairman of the Board and President of Newsote, Inc., a privately-held holding company, since 1989. Mr. Podell also serves as a director of Ladenburg Thalmann Financial Services Inc. Mr. Podell was a member of the New York State Bar Association from 1965 until March 2010. Mr. Podell’s pertinent experience, qualifications, attributes and skills include managerial experience and the knowledge and experience he has attained through his service as a director of the Company and other publicly traded corporations.

 

Jean E. Sharpe has been a director of the Company since May 1998. Ms. Sharpe is a private investor and has engaged in various philanthropic activities since her retirement in September 1993 as Executive Vice President and Secretary of the Company and as an officer of various of its subsidiaries. Ms. Sharpe previously served as a director of the Company from July 1990 until September 1993. Ms. Sharpe has been a member of the New York State Bar Association since 1979. Ms. Sharpe’s pertinent experience, qualifications, attributes and skills include the knowledge and managerial experience she has attained as serving as our general counsel from 1988 until 1993 and her service as a director of the Company.

 

Board of Directors and Committees

 

The board of directors, which held eight meetings in 2009, currently has seven members. Each director attended at least 75% of the aggregate number of meetings of the board and of each committee, which the director served as a member, during such period. To ensure free and open discussion and communication among the independent directors of the board, the independent directors meet in executive sessions periodically, with no members of management present. The chair of the corporate governance and nominating committee presides at the executive sessions.

 

The Company’s Corporate Governance Guidelines provide that the board shall be free to choose its chair in any way it deems best for the Company at any time. The board believes that it is desirable to have the flexibility to decide whether the roles of Chairman of the Board and Chief Executive Officer should be combined or separate in light of the Company’s circumstances from time to time. The roles of Chief Executive Officer and Chairman of the Board are presently held by two different directors. The Chief Executive Officer is responsible for setting the strategic direction of the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board provides guidance to the Chief Executive Officer, reviews the agenda for board meetings and presides over meetings of the full board.

 

The board of directors oversees the risks that could affect the Company through its committees and reports of officers responsible for particular risks within the Company.

 

The board of directors has four committees established in accordance with the Company’s bylaws: the executive committee, audit committee, compensation committee, and corporate governance and nominating committee. The board has determined that four of the Company’s non-employee directors (Henry C. Beinstein, Robert J. Eide, Jeffrey S. Podell and Jean E. Sharpe) have no material relationship with the Company and meet the New York Stock Exchange listing standards for independence. Each of the members of the audit committee,

compensation committee, and corporate governance and nominating committee meets the New York Stock Exchange listing standards for independence.

 

The executive committee, whose members are presently Messrs. LeBow, chairman, Lorber and Eide, did not meet in 2009. The executive committee exercises, in the intervals between meetings of the board, all the powers of the board in the management and affairs of the Company, except for matters expressly reserved by law for board action.

 

The audit committee, whose members are presently Messrs. Beinstein, chairman, Eide and Podell and Ms. Sharpe, met ten times in 2009. The committee is governed by a written charter which requires that it discuss policies and guidelines to govern the process by which risk assessment and risk management are handled and that it meet periodically with management to review and assess the Company’s major financial risk exposures and the manner in which such risks are being monitored and controlled. Accordingly, in addition to its other duties, the audit committee periodically reviews the Company’s risk assessment and management, including in the areas of legal compliance, internal auditing and financial controls. In this role, the audit committee considers the nature of the material risks the Company faces, and the adequacy of the Company’s policies and procedures designed to respond to and mitigate these risks and receives reports from management and other advisors. Although the board’s primary risk oversight has been assigned to the audit committee, the full board also receives regular reports from members of senior management on areas of material risk to the Company, including operational, financial, competitive and legal risks. In addition to an ongoing compliance program, the board encourages management to promote a corporate culture that understands risk management and incorporates it into the overall corporate strategy and day-to-day business operations. The Company’s board of directors and its audit committee regularly discuss with management the Company’s major risk exposures, their potential financial impact on the Company, and the steps (both short-term and long-term) the Company takes to manage them. The audit committee oversees the Company’s financial statements, system of internal controls, and auditing, accounting and financial reporting processes and risks related thereto; the audit committee appoints, compensates, evaluates and, where appropriate, replaces the Company’s independent accountants; reviews annually the audit committee charter; and reviews and pre-approves audit and permissible non-audit services. See “Audit Committee Report”. Each of the members of the audit committee is financially literate as required of audit committee members by the New York Stock Exchange and independent as defined by the rules of the Securities and Exchange Commission. The board of directors has determined that Mr. Beinstein is an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission.

 

The compensation committee, whose members in 2009 included Mr. Eide (until March 9, 2009), Messrs. Podell and Beinstein, and Ms. Sharpe (effective March 9, 2009) met seven times in 2009. Effective March 9, 2009, Mr. Eide resigned from the compensation committee, Mr. Podell was appointed chairman of the committee, and Ms. Sharpe was appointed as a member of the committee. The committee is governed by a written charter. The compensation committee is responsible for risks relating to employment policies and the Company’s compensation and benefits systems. To aid the compensation committee with its responsibilities, the compensation committee retains an independent consultant, as necessary, to understand the implications of compensation decisions being made. The compensation committee reviews, approves and administers management compensation and executive compensation plans. The compensation committee also administers the Company’s 1998 Long-Term Incentive Plan, the Amended and Restated 1999 Long-Term Incentive Plan and the Senior Executive Annual Bonus Plan. See “Compensation Discussion and Analysis” on page 9. In March 2009, the compensation committee formed a Performance-Based Compensation Subcommittee (“Subcommittee”), consisting of Messrs. Beinstein and Podell, and delegated to the Subcommittee the authority to grant compensation to executive officers that is intended to qualify as “performance-based compensation” exempt from the $1 million deduction limitation of Section 162(m) of the Internal Revenue Code.

 

The corporate governance and nominating committee, whose members are presently Ms. Sharpe, chair, and Messrs. Eide and Beinstein, met twice in 2009. The committee is governed by a written charter. This committee is responsible for the oversight of risks relating to the management and board succession planning. The committee assists the board of directors in identifying individuals qualified to become board members and recommends to the board the nominees for election as directors at the next annual meeting of stockholders, develops and recommends to the board the corporate governance guidelines applicable to the Company, and oversees the evaluation of the

board and management. In recommending candidates for the board, the committee takes into consideration the following criteria established by the board in the Company’s corporate governance guidelines:

 

 

The committee also considers such other factors as it deems appropriate, including judgment, skill, diversity, experience with businesses and other organizations of comparable size, the interplay of the candidate’s experience with the experience of other board members, and the extent to which the candidate would be a desirable addition to the board and any committees of the board. The committee does not assign specific weights to particular criteria and no particular criteria is necessarily applicable to all nominees. The Company believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the board to fulfill its responsibilities. The committee will consider nominees recommended by stockholders, which nominations should be submitted by directing an appropriate letter and resume to Marc N. Bell, the secretary of the Company, 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131. If the Company were to receive recommendations of candidates from the Company’s stockholders, the committee would consider such recommendations in the same manner as all other candidates.

 

Corporate Governance Materials

 

The Company’s corporate governance guidelines, code of business conduct and ethics and current copies of the charters of the Company’s audit committee, compensation committee, and corporate governance and nominating committee are all available in the investor relations section of the Company’s website (www.vectorgroupltd.com/invest.asp) and are also available in print to any stockholder who requests it.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Compensation Objectives

 

The primary objectives of the compensation committee of the board of directors with respect to executive compensation are:

 

 

The Company attempts to achieve these objectives through its compensation plans that tie a substantial portion of the executives’ overall compensation to the Company’s financial performance. While the compensation of the Company’s executives is largely the result of negotiated agreements, which are reviewed annually, the Company’s compensation philosophy is intended to reward its executives with competitive compensation, while rewarding outstanding performance with above-average total compensation.

Independent compensation consultants may be retained from time to time for advice and guidance in assessing whether our compensation program is reasonable and competitive. In connection with the employment agreements entered into with Mr. Lorber, the Company’s President and Chief Executive Officer, and Ronald J. Bernstein, President and Chief Executive of the Company’s Liggett and Liggett Vector Brands subsidiaries, in 2006 and 2005, respectively, the compensation committee engaged the services of GK Partners as consultants. Based on the opinion of GK Partners with respect to Mr. Lorber’s and Mr. Bernstein’s compensation provided for in their employment agreements at that time, the compensation committee believes that the compensation of Mr. Lorber and Mr. Bernstein was reasonable and competitive with the compensation of similarly situated executives at such time. During 2008, the compensation committee engaged GK Partners in connection with an amendment to the Company’s Supplemental Retirement Plan, which increased Mr. Lorber’s benefits thereunder. See “Supplemental Retirement Plan” on page 19. During 2009, the compensation committee engaged GK Partners in connection with the restricted stock grant awarded to Mr. Lorber and option grants to Messrs. Lorber, Lampen, Kirkland and Bell. See “Equity Compensation” on page 12.

 

Compensation arrangements, as reflected in the employment agreements with the Company’s executive officers, are usually negotiated on an individual basis between the Chief Executive Officer and each of the other executives. While the compensation committee has delegated to the Chief Executive Officer the responsibility of negotiating these employment agreements and his input is given significant consideration by the compensation committee, the compensation committee and the board have final authority over all compensation matters.

 

Compensation Components

 

The key components of the Company’s executive compensation program consist of a base salary, an annual performance-based bonus pursuant to the Senior Executive Annual Bonus Plan, the 1999 Amended and Restated Long-Term Incentive Plan (the “1999 Plan”) and various benefits, including the Company’s Supplemental Retirement Plan, the Liggett Vector Brands Inc. 401(k) plan and the use of corporate aircraft by the President and Chief Executive Officer. The employment agreements with the Company’s named executive officers also provide for severance compensation in the event of termination other than for cause during the term of the agreement or, in certain cases, following a change in control during the term of the agreements.

 

Base Salary

 

Base salaries for the Company’s named executive officers are established based on their overall business experience and managerial competence in their respective executive roles, as well as their personal contributions to the Company and are intended to provide a competitive level of fixed compensation. The compensation committee believes that executive base salaries should be targeted at competitive levels while rewarding outstanding performance with above-average total compensation. Base salaries are reviewed annually, based on recommendations by the Company’s Chief Executive Officer with respect to the salaries of executive officers other than himself, and may be increased from time to time based on review of Company and individual executive performance. Automatic cost of living adjustments to base salary are included under the terms of the employment agreements of Messrs. Lorber and Bernstein.

 

Effective January 1, 2009, as a result of the cost of living provision, the base salary of Mr. Lorber was increased to $2,807,729. Mr. Bernstein’s salary was not increased after he waived his contractual cost-of-living increase of $6,189. In March 2009, as part of the annual compensation review process, the compensation committee increased Mr. Lampen’s base salary from $750,000 to $800,000, effective January 1, 2009. The salaries and target bonus opportunities of the other named executive officers were not changed.

 

Effective January 1, 2010, as a result of the cost of living provision, the base salary of Mr. Lorber was increased to $2,873,149 and the base salary of Mr. Bernstein was increased to $853,450. The compensation committee did not adjust the salaries or target bonus opportunities of the other named executive officers in February 2010 as part of the annual compensation review process.

 

Annual Bonus Plan

 

The Company’s executive officers are eligible to participate in the Senior Executive Annual Bonus Plan (the “Bonus Plan”), which was adopted by the board of directors in January 2006 and approved by the Company’s

stockholders in May 2006. Under the Bonus Plan, unless another committee is designated by the Board, the compensation committee selects participants in the Bonus Plan, determines the amount of their award opportunities, selects the performance criteria and the performance goals for each year and administers and interprets the Bonus Plan. An eligible executive may (but need not) be selected to participate in the Bonus Plan each year. In March 2009, the compensation committee formed the Subcommittee, consisting of Messrs. Beinstein and Podell, and delegated to the Subcommittee the authority to grant compensation to executive officers under the Bonus Plan that is intended to qualify as “performance-based compensation” exempt from the $1 million deduction limitation of Section 162(m) of the Internal Revenue Code.

 

In 2009, each of the Company’s named executive officers participated in the Bonus Plan. The Bonus Plan performance criteria for 2009 varied among the participants depending upon the entity that employed the participant. For Messrs. Lorber, Lampen, Kirkland and Bell, the criteria were based 37.5% on adjusted earnings before interest and taxes, or Adjusted EBIT, for Liggett, 37.5% on cash distributions to stockholders of the Company and 25% on adjusted earnings before interest, taxes and amortization, or Adjusted EBITA, for Douglas Elliman Realty, LLC. For Mr. Bernstein, the criteria were based 90% on adjusted EBIT for Liggett and 10% on Adjusted EBIT of Vector Tobacco Inc. These measures were chosen because Adjusted EBIT is commonly used as a measure of performance in the tobacco industry and Adjusted EBITA is commonly used to measure performance in the real estate brokerage industry and are, in each case, the drivers of the business and stockholder value in those industries. Under the terms of their respective employment agreements, for 2009, Messrs. Lorber, Lampen, Kirkland, Bell and Bernstein were eligible to receive a target bonus of 100%, 33%, 25%, 25% and 50% of their respective base salaries. Depending on the level of achievement of the performance criteria, the actual amounts of incentive bonuses could also exceed the target bonus amounts. The Committee may exercise negative discretion with respect to any award to reduce any amount that would otherwise be payable under the Bonus Plan.

 

In 2009, the performance goals for Messrs. Lorber, Lampen, Kirkland, Bell and Bernstein were set at levels which were believed to be reasonably achievable based on internal corporate plans. For Messrs. Lorber, Lampen, Kirkland and Bell, the satisfaction of the performance criteria were as follows:

 

 

Based on the actual results of 2009 compared to the established performance criteria, bonuses equal to 115.625% of target bonus amounts were achieved for Messrs. Lorber, Lampen, Kirkland and Bell, and they were awarded bonuses of 115.625% of their respective target bonus amounts.

 

The minimum level of Liggett’s Adjusted EBIT and Vector Tobacco’s Adjusted EBIT were satisfied for Mr. Bernstein to be awarded a bonus. For Mr. Bernstein, the satisfaction of the performance criteria were as follows:

 

 

Based on the actual results of 2009 compared to the established performance criteria, 145.64% of Mr. Bernstein’s target bonus was achieved, which is 72.82% of his base salary.

 

Bonus amounts for achieving performance criteria in between the amounts listed above are determined by linear interpolation between the higher and lower amounts. The actual performance-based bonus payments made to the

selected participants for the years ended December 31, 2007, 2008 and 2009 are set forth in the column labeled “Non-Equity Incentive Compensation” in the Summary Compensation Table on page 15.

 

Equity Compensation

 

Long-term equity compensation is intended to provide a variable pay opportunity that rewards long-term performance by the Company as a whole. For several years prior to 2009, no awards had been made, as the named executive officers had outstanding awards.

 

On April 7, 2009, the compensation committee awarded Mr. Lorber a restricted stock grant of 525,000 shares of the Company’s Common Stock under the 1999 Plan in order to provide him a meaningful incentive to remain with the Company and enhance its value beyond January 1, 2013 when he is eligible for full retirement. Under the terms of the award, one-fifth of the shares (105,000) will vest on September 15, 2010 and on each anniversary thereof through September 15, 2014. In the event Mr. Lorber’s employment with the Company is terminated for any reason other than his death, his disability or a change of control (as defined in his Restricted Share Agreement) of the Company, any remaining balance of the shares not previously vested will be forfeited by Mr. Lorber. The compensation committee noted that Mr. Lorber has not received a restricted stock award since a 2005 award which would be fully vested on September 15, 2009. The compensation committee consulted with GK Partners concerning the award and were advised that, in the consultant’s opinion, the award would be reasonable and appropriate in the context of current market practices.

 

On December 3, 2009, options to purchase shares of Common Stock were awarded to Messrs. Lorber, Lampen, Kirkland and Bell in order to recognize past and current performance, to serve as a means to incentivize and retain these key executives and to replace benefits (including the dividend equivalents described below) associated with the options that were exercised prior to expiration in October 2009. The Subcommittee also took into consideration the fact that Mr. Lorber had not received an option award since 2001 and that Messrs. Lampen, Kirkland and Bell had not received option awards since 1999 and determined that it was appropriate to grant awards for a number of shares which approximated in each case, the number of shares under the 1999 awards that were exercised earlier in the year. The Subcommittee consulted with GK Partners concerning the awards and were advised that, in the consultant’s opinion, the awards would be reasonable and appropriate in the context of current market practices.

 

Dividend Equivalents

 

Under the terms of various stock option grants made to the Company’s named executive officers under the Company’s stock plans, cash and stock dividend equivalent payments are made to the executive officers with respect to the shares of Common Stock underlying the unvested or unexercised portion of the options. These payments are made at the same rate as dividends paid on the Company’s issued and outstanding shares of Common Stock. Named executive officers received payments for such dividend equivalent rights on options for 2009 as follows: Mr. Lorber — $1,849,157; Mr. Lampen — $250,152; Mr. Kirkland — $115,767; and Mr. Bell — $125,076. In accordance with the rules of the SEC, these amounts have not been separately reported in the Summary Compensation Table because the value of the dividend equivalent rights was included in the initial grant date fair value of the underlying options grants which is reported in the table.

 

Supplemental Retirement Plan

 

The Company’s named executive officers and certain other management employees are eligible to participate in the Supplemental Retirement Plan, which was adopted by the board of directors in January 2002 to promote retention of key executives and to provide them with financial security following retirement. As described more fully and quantified in the Pension Benefits table on page 19, the Supplemental Retirement Plan provides for the payment to a participant at his normal retirement date of a lump sum amount that is the actuarial equivalent of a single life annuity commencing on that date. The single life annuity amounts for the named executives were determined by the Company’s board of directors giving consideration to a variety of pertinent factors including (but not limited to) the executive’s level of annual compensation.

 

Other Benefits

 

The Company’s executive officers are eligible to participate in all of its employee benefit plans, such as medical, dental, vision, group life, disability and accidental death and dismemberment insurance and Liggett Vector

Brands 401(k) plan. These benefits are designed to provide a safety net of protection against the financial catastrophes that can result from illness, disability or death. The Company also provides vacation and other paid holidays to its executive officers, as well as certain other perquisites further described below and in the Summary Compensation Table. Finally, the Company’s executive officers are eligible to receive certain payments upon retirement pursuant to the Supplemental Retirement Plan.

 

Perquisites

 

The Company provides the perquisites or personal benefits to its named executive officers discussed below. The Company’s corporate aircraft are made available for the personal use of Mr. Lorber and other executive officers at Mr. Lorber’s discretion. The Company’s corporate aircraft policy permits personal use of corporate aircraft by executives, subject to an annual limit of $200,000 for personal use by Mr. Lorber. For purposes of determining the amounts allowable under the policy, the value of the personal usage is calculated using the applicable standard industry fare level formula established by the Internal Revenue Service (as distinguished from the incremental cost used for determining the value included in the Summary Compensation Table), and Mr. Lorber and any other executive officers pay income tax on such value. In addition, Mr. Lorber is entitled to a car and driver provided by the Company, a $7,500 per month allowance for lodging and related business expenses and two club memberships. See the Summary Compensation Table for details regarding the value of perquisites received by the named executive officers.

 

Change in Control Provisions

 

The employment agreement entered into between the Company and Mr. Lorber contains change in control provisions. The purpose of these provisions is to avoid the distraction and loss of key management personnel that may occur in connection with rumored or actual corporate transactions and/or other fundamental corporate changes and to provide adequate protection to key management personnel in the event that their employment is terminated following a change of control. A change in control provision protects stockholder interests by enhancing employee focus during rumored or actual change in control activity through incentives to remain with the Company despite uncertainties while a transaction is under consideration or pending and assurance of severance and benefits for terminated executives. A detailed summary of these provisions is set forth under the heading “Payments Made Upon a Change in Control” on page 21.

 

Inter-Relationship of Elements of Compensation Packages

 

The various elements of the compensation package for the Company’s executive officers are not directly inter-related. For example, if it does not appear as though the target bonus will be achieved, the number of options that will be granted is not affected. There is no significant interplay of the various elements of total compensation between each other. If options that are granted in one year become underwater due to a decrease in the Company’s stock price, the amount of the bonus amount or compensation to be paid the executive officer for the next year is not impacted. Similarly, if options become extremely valuable due to a rising stock price, the amount of compensation or bonus to be awarded for the next year is not affected. However, the compensation committee does evaluate the total value of executive remuneration when making decisions with respect to any particular element thereof. While the compensation committee has discretion to make exceptions to any compensation or bonus payouts under the Bonus Plan, it did not approve any exceptions to the Bonus Plan with regard to any named executive officers in 2009.

 

Tax and Accounting Implications

 

Deductibility of Executive Compensation

 

The compensation committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which generally provides that no publicly held company may deduct compensation in excess of $1,000,000 paid in any taxable year to its chief executive officer or any of its three other highest compensated officers (other than the Chief Financial Officer) at year-end unless:

 

 

 

Determinations with respect to compensation intended to be deductible under Section 162(m) are made by the Subcommittee, which consists of Messrs. Podell and Beinstein. In certain situations, the compensation committee or the Subcommittee has in the past and may in the future approve compensation that will not meet these deductibility requirements in order to ensure appropriate and competitive levels of total compensation for the Company’s executive officers. In this regard, for 2009, the amount of base salary and restricted stock in excess of $1,000,000 paid to Mr. Lorber for 2009 was not deductible for federal income tax purposes under Section 162(m) of the Internal Revenue Code.

 

Accounting for Stock-Based Compensation

 

Beginning on January 1, 2006, the Company began accounting for stock-based payments including stock option and restricted stock awards under the Plans in accordance with the requirements of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”).

 

Compensation Committee Report

 

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with management and, based on such review and discussion, has recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

THE COMPENSATION COMMITTEE

 

Jeffrey S. Podell, Chairman
Henry C. Beinstein
Jean E. Sharpe

 

SUMMARY COMPENSATION TABLE FOR YEARS 2007 — 2009

 

The following table below summarizes the compensation of the named executive officers for the years ended December 31, 2009, 2008 and 2007. The named executive officers are the Company’s Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers ranked by their total compensation in the table below (not taking into account the amount in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column).

 

 

 

Employment Agreements and Severance Arrangements

 

On January 27, 2006, the Company and Howard M. Lorber entered into an Amended and Restated Employment Agreement (the “Amended Lorber Agreement”), which replaced his prior employment agreements with the Company and with New Valley Corporation. The Amended Lorber Agreement has an initial term of three years effective as of January 1, 2006, with an automatic one-year extension on each anniversary of the effective date unless notice of non-extension is given by either party within 60 days before this date. Mr. Lorber’s salary is subject to an annual cost of living adjustment. As of January 1, 2010, Mr. Lorber’s annual base salary was $2,873,149. In addition, the Company’s board must periodically review his base salary and may increase but not decrease it from time to time in its sole discretion. Mr. Lorber is eligible on an annual basis to receive a target bonus of 100% of his base salary under the Bonus Plan. During the period of his employment, Mr. Lorber is entitled to various benefits, including a Company-provided car and driver, a $7,500 per month allowance for lodging and related business expenses, two club memberships and dues, and use of corporate aircraft in accordance with the Company’s Corporate Aircraft Policy. Following termination of his employment by the Company without cause (as defined in the Amended Lorber Agreement), termination of his employment by him for certain reasons specified in the Amended Lorber Agreement or upon death or disability, he (or his beneficiary in the case of death) would continue to receive for a period of 36 months following the termination date his base salary and the bonus amount earned by him for the prior year (with such bonus amount limited to 100% of base salary). In addition, all of Mr. Lorber’s outstanding equity awards would be vested and any stock options granted after January 27, 2006 would continue to be exercisable for no less than two years or the remainder of the original term if shorter. Following termination of his employment for any of the reasons described above (other than death or disability) within two years of a change in control (as defined in the Amended Lorber Agreement), he would receive a lump sum payment equal to 2.99 times the sum of his then current base salary and the bonus amount earned by him for the prior year (with such bonus amount limited to 100% of base salary). In addition, Mr. Lorber is indemnified against excise taxes that are imposed on change-of-control payments under Section 4999 of the Internal Revenue Code of 1986. In the event of a termination of his employment under the circumstances where he is entitled to the severance payments discussed above, Mr. Lorber will also be credited with an additional 36 months of service towards vesting under the Company’s Supplemental Retirement Plan.

 

On January 27, 2006, the Company entered into Employment Agreements (the “Other Executive Agreements”) with Richard J. Lampen, the Company’s Executive Vice President, J. Bryant Kirkland III, the Company’s Vice President and, effective April 1, 2006, Chief Financial Officer, and Marc N. Bell, the Company’s Vice President, General Counsel and Secretary. The Other Executive Agreements replaced prior employment agreements with the Company or New Valley Corporation. The Other Executive Agreements have an initial term of two years effective as of January 1, 2006, with an automatic one-year extension on each anniversary of the effective date unless notice of non-extension is given by either party within 60 days before this date. As of January 1, 2009, the annual base salaries provided for in these Other Executive Agreements were $800,000 for Mr. Lampen (increased from $750,000 in February 2009, effective as of January 1, 2009), $375,000 for Mr. Kirkland and $400,000 for Mr. Bell. In addition, the Company’s board must periodically review these base salaries and may increase but not decrease them from time to time in its sole discretion. These executives are eligible to receive a target bonus of 33.3% for Mr. Lampen, and 25% for Messrs. Kirkland and Bell, of their base salaries under the Bonus Plan. Following termination of their employment by the Company without cause (as defined in the Other Executive Agreements), termination of their employment by the executives for certain reasons specified in the Other Executive Agreements or upon death or disability, they (or their beneficiaries in the case of death) would continue to receive for a period of 24 months following the termination date their base salary and the bonus amount earned by them for the prior year (with such bonus amount limited to 33.3% of base salary for Mr. Lampen and 25% of base salary for Messrs. Kirkland and Bell).

On November 11, 2005, Liggett, a wholly-owned subsidiary of the Company, and Ronald J. Bernstein entered into an Employment Agreement (the “Bernstein Employment Agreement”), pursuant to which Mr. Bernstein serves as President and Chief Executive Officer of Liggett and affiliated companies. The Bernstein Employment Agreement has an initial term expiring December 31, 2008, with an automatic one-year extension on each anniversary of the effective date unless notice of non-extension is given by either party within six months before this date. As of January 1, 2010, Mr. Bernstein’s annual base salary was $853,450. Mr. Bernstein’s salary is subject to an annual cost of living adjustment. Under the terms of the Bernstein Employment Agreement, Mr. Bernstein is eligible on an annual basis to receive a bonus of up to 100% of his base salary under the Bonus Plan predicated on Liggett and Vector Tobacco meeting certain pre-established operating goals. Following termination of his employment without cause, he would continue to receive his base salary for a period of 24 months.

 

Restricted Stock and Option Awards

 

GRANTS OF PLAN-BASED AWARDS IN 2009

 

The table below provides information with respect to incentive compensation granted to each of the named executive officers for the year ended December 31, 2009.

 

 

 

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2009

 

The table below provides information with respect to the outstanding equity awards of the named executive officers as of December 31, 2009.

 

 

 

 

OPTION EXERCISES AND STOCK VESTED IN YEAR ENDED DECEMBER 31, 2009

 

The table below provides information with respect to the number of options or shares of restricted stock granted under the Plans to the named executive officers in previous years that were exercised or vested during 2009, as well as, in the case of option exercises, the market value of the Common Stock less the exercise price on the exercise date and, in the case of restricted stock awards, the market value of the stock on the vesting date.

 

 

 

 

PENSION BENEFITS AT 2009 FISCAL YEAR END

 

The table below quantifies the benefits expected to be paid from the Company’s Supplemental Retirement Plan and, in the case of Mr. Bernstein, also from Liggett’s Qualified Plan. The terms of the plans are described below the table.

 

 

 

 

Supplemental Retirement Plan

 

The Supplemental Retirement Plan provides for the payment to a participant at his normal retirement date of a lump sum amount that is the actuarial equivalent of a single life annuity commencing on that date. The “normal retirement date” under the Supplemental Retirement Plan is defined as the January 1st following attainment by a participant of the later age 60 or the completion of eight years of employment following January 1, 2002 (in the case of Messrs. Lorber and Bernstein) or January 1, 2004 (in the case of Messrs. Lampen, Kirkland and Bell).

 

The following table sets forth for each named executive officer his hypothetical single life annuity, his normal retirement date and his projected lump sum payment at his normal retirement date.

 

 

No benefits are payable under the Supplement Retirement Plan if a named executive officer resigns without good reason before attaining his normal retirement date. In the case of a participant who becomes disabled prior to his normal retirement date or whose service is terminated without cause, the participant’s benefit consists of a pro-

rata portion of the full projected retirement benefit to which he would have been entitled had he remained employed through his normal retirement date, as actuarially discounted back to the date of payment. The beneficiary of a participant who dies while working for the Company or a subsidiary (and before becoming disabled or attaining his normal retirement date) will be paid an actuarially discounted equivalent of his projected retirement benefit; conversely, a participant who retires beyond his normal retirement date will receive an actuarially increased lump sum payment to reflect the delay in payment using a post- retirement interest rate of 7.5%. The lump sum amount under the Supplemental Retirement Plan is paid six months following the named executive officer’s retirement on or after his normal retirement date or termination of employment without cause, along with interest at the prime lending rate as published in the Wall Street Journal on the lump sum amount for this six-month period.

 

In April 2008, the compensation committee of the board approved an amendment to the Supplemental Retirement Plan to provide Mr. Lorber with an additional benefit under the Supplemental Retirement Plan equal to a $735,682 lifetime annuity beginning January 1, 2013. The compensation committee approved this amendment to provide an incentive for Mr. Lorber to remain with the Company past his current retirement date under the Supplemental Retirement Plan, which is January 1, 2010. This additional benefit vests in full on January 1, 2013, subject to Mr. Lorber remaining continuously employed by the Company through that date, subject to partial vesting for termination of employment under certain circumstances. In addition, in the event of a termination of Mr. Lorber’s employment under the circumstances where he is entitled to severance payments under his employment agreement, Mr. Lorber will be credited with an additional 36 months of service towards vesting under the Supplemental Retirement Plan. See “Employment Agreements and Severance Arrangements” on page 16. As a result of the additional benefit granted to him, Mr. Lorber will be eligible to receive a total lump sum retirement benefit of $20,607,948 in 2013, an increase of $7,121,988 over the benefit he would have been entitled to receive under the Supplemental Retirement Plan prior to the amendment, assuming a January 1, 2013 retirement date.

 

In January 2006, the Company amended and restated the Supplemental Retirement Plan. The amendments to the Supplemental Retirement Plan were intended, among other things, to cause the plan to meet the applicable requirements of the “deferred compensation” provisions of Section 409A of the Internal Revenue Code. The Supplemental Retirement Plan is intended to be unfunded for tax purposes, and payments under the Supplemental Retirement Plan will be made out of the Company’s general assets.

 

Qualified Plan

 

Liggett’s salaried employees are entitled to benefits payable under the Qualified Plan based on a formula that yields an annual amount payable over the participant’s life beginning at age 65. Liggett discontinued providing additional benefits under the Qualified Plan for service on and after January 1, 1994.  As of December 31, 2009, none of the named executive officers was eligible to receive any benefits under the Qualified Plan, except for Mr. Bernstein who is entitled to a monthly benefit of $372 at age 65.

 

Potential Termination and Change in Control Payments

 

The compensation payable to named executive officers upon voluntary termination, involuntary termination without cause, termination for cause, termination following a change in control and in the event of disability or death of the executive is described below.

 

Payments Made Upon Termination

 

Regardless of the manner in which a named executive officer’s employment terminates, unless terminated for cause, he or she may be entitled to receive amounts earned during his or her term of employment. Such amounts include:

 

 

 

Payments Made Upon Involuntary Termination of Employment without Cause or for Good Reason, Death or Disability

 

In the event of the termination of a named executive officer by the Company without cause or by the named executive officer for good reason, or upon the death or disability of a named executive officer, in addition to the benefits listed under the heading “Payments Made Upon Termination”, the named executive officer or his designated beneficiary upon his death will receive the following benefits:

 

 

Payments Made Upon a Change in Control

 

Howard M. Lorber

 

Mr. Lorber’s employment agreement has a change in control provision if his employment is terminated without cause or by the executive for good reason within two years of a change in control, Mr. Lorber will be entitled to receive the following severance benefits:

 

 

 

Richard J. Lampen, J. Bryant Kirkland III, Marc N. Bell and Ronald J. Bernstein

 

While their respective employment agreements do not contain any change of control provisions, in the event of the termination of Messrs. Lampen, Kirkland, Bell and Bernstein by the Company without cause or by the named executive officer for good reason upon a change of control, such named executive officers will receive the same severance benefits described in the previous section.

 

Definition of Change in Control

 

Pursuant to the employment agreement between the Company and Mr. Lorber, a “change in control” is deemed to occur if:

 

 

Definition of Termination for Cause

 

Under each of the employment agreements with Messrs. Lorber, Lampen, Kirkland and Bell, termination by the Company for “cause” is defined as:

 

 

Under the employment agreement between Liggett and Mr. Bernstein, “cause” is defined as:

 

 

Definition of Termination for Good Reason

 

Under each of the employment agreements with Messrs. Lorber, Lampen, Kirkland and Bell, termination by the executive for “good reason” is defined as:

 

 

Under the employment agreement with Mr. Bernstein, “good reason” exists if, without the prior written consent of Mr. Bernstein:

 

 

 

Assumptions Regarding Post Termination Payment Tables

 

The following tables were prepared as though each named executive officer’s employment was terminated on December 31, 2009 (the last business day of 2009) using the closing price of the Company’s Common Stock as of that day ($14.00). The amounts under the columns which reflect a Change in Control assume that a change in control occurred on December 31, 2009. However, the executives’ employment was not terminated on December 31, 2009 and a change in control did not occur on that date. There can be no assurance that a termination of employment, a change in control or both would produce the same or similar results as those described if either or both of them occur on any other date or at any other price, or if any assumption is not correct in fact.

 

Tax Gross-Up Assumptions

 

 

Equity-Based Assumptions

 

 

Incentive Plan Assumptions

 

 

Retirement Benefit Assumptions

 

 

Howard M. Lorber

 

 

 

 

Richard J. Lampen

 

 

 

 

 

J. Bryant Kirkland III

 

 

 

 

Marc N. Bell

 

 

 

 

 

Ronald J. Bernstein

 

 

 

 

Compensation of Directors

 

The compensation of the non-employee directors is designed to be simple and easy for stockholders to understand and to be fair based on the amount of work required of directors of the Company. Each of the non-employee directors receives:

 

 

No stock options to purchase Common Stock were granted to the non-employee directors in 2009. During the second quarter of 2010, the Company intends to grant 10,000 restricted shares of Common Stock under the 1999 Plan to each of its five non-employee directors in order to align the director’s interests with the long-term interests of the stockholders. The stock grant will vest in three equal annual installments commencing on the first anniversary of

the date of grant based on continued service as a director, subject to earlier vesting upon death, disability or the occurrence of a change in control.

 

The table below summarizes the compensation the Company paid to the non-employee directors for the year ended December 31, 2009.

 

NON-EMPLOYEE DIRECTOR COMPENSATION IN FISCAL YEAR 2009

 

 

 

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Company’s compensation committee is, or has been, an employee or officer of the Company other than Ms. Sharpe who joined the compensation committee in March 2009. Ms. Sharpe retired as an officer of the Company in 1993. During 2009, (i) no member of the Company’s compensation committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K; and (ii) none of the Company’s executive officers served on the compensation committee (or equivalent) or board of directors of another entity whose executive officer(s) served on the Company’s compensation committee or board of directors.

 

Audit Committee Report

 

The audit committee report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

 

Management is responsible for the Company’s internal controls and the financial reporting process, including its financial statements and management’s assessment of the effectiveness of the Company’s internal control over financial reporting. PricewaterhouseCoopers LLP, the Company’s independent registered certified public accounting firm, issues opinions on the conformity of the Company’s audited financial statements with generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The audit committee reviews these processes on behalf of the board of directors. In this context, the committee has reviewed and discussed with management and PricewaterhouseCoopers LLP the audited financial statements for the year ended December 31, 2009, management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the evaluation by PricewaterhouseCoopers LLP of the effectiveness of the Company’s internal control over financial reporting.

 

The audit committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Statement of Auditing Standards No. 61, Communication with Audit Committees, as modified or supplemented,

which includes, among other items, matters related to the conduct of the audit of the Company’s financial statements. The audit committee also has received written disclosures and the letter from PricewaterhouseCoopers LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding PricewaterhouseCoopers LLP’s communications with the audit committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence from the Company. The audit committee has also considered whether the provision of the services described under the caption “Audit Fees and Non-Audit Fees” is compatible with maintaining the independence of the independent auditors.

 

Based on the review and discussions referred to above, the audit committee recommended to the board of directors that the audited financial statements and management’s assessment of the effectiveness of the Company’s internal control over financial reporting be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission.

 

This report is submitted by the audit committee of the Company.

 

Henry C. Beinstein, Chairman
Robert J. Eide
Jeffrey S. Podell
Jean E. Sharpe

 

Audit and Non-Audit Fees

 

The audit committee reviews and approves audit and permissible non-audit services performed by PricewaterhouseCoopers LLP, as well as the fees charged by PricewaterhouseCoopers LLP for such services. In accordance with Section 10A(i) of the Securities Exchange Act, before PricewaterhouseCoopers LLP is engaged to render audit or non-audit services, the engagement is approved by the audit committee. All of the services provided and fees charged by PricewaterhouseCoopers LLP in 2009 and 2008 were pre-approved by the audit committee.

 

Audit Fees.  The aggregate fees billed by PricewaterhouseCoopers LLP for professional services for the audit of the annual financial statements of the Company and its consolidated subsidiaries, audit of effectiveness of internal control over financial reporting under Sarbanes-Oxley Section 404, audits of subsidiary financial statements, reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q, comfort letters, consents and review of documents filed with the SEC were $1,928,009 for 2009 and $1,996,466 for 2008.

 

Audit-Related Fees.  No fees were billed by PricewaterhouseCoopers LLP for audit-related professional services in 2009 and 2008.

 

Tax Fees.  The aggregate fees billed by PricewaterhouseCoopers LLP for professional services for tax services were $48,466 in 2009 and $60,050 in 2008. The services were primarily for federal and state tax advice.

 

All Other Fees.  The aggregate fees billed by PricewaterhouseCoopers LLP for other services were $17,126 in 2009 and $6,000 in 2008. The 2009 amounts consisted of $14,126 related to consulting regarding the Company’s real estate investments and $3,000 for accounting research software. The 2008 amounts consisted of licensing of accounting research software.

 

Pre-Approval Policies and Procedures

 

The audit committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other services performed by the independent registered certified public accounting firm. The policy provides for pre-approval by the audit committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the audit committee must approve the permitted service before the independent registered certified public accounting firm is engaged to perform it. The audit committee approved all services provided by PricewaterhouseCoopers LLP.

Equity Compensation Plan Information

 

The following table summarizes information about the options, warrants and rights and other equity compensation under the Company’s equity plans as of December 31, 2009.

 

 

 

 

Certain Relationships and Related Party Transactions

 

The board of directors has adopted a written policy for the review and approval of transactions between the Company and its directors, director nominees, executive officers, greater than five percent beneficial owners and their immediate family members. The policy covers any related party transaction that meets the minimum threshold for disclosure in the Company’s proxy statement under the relevant Securities and Exchange Commission rules. The audit committee is responsible for reviewing and, if appropriate, approving or ratifying any related party transactions. In determining whether to approve, disapprove or ratify a related party transaction, the audit committee will take into account, among other factors it deems appropriate, (i) whether the transaction is on terms no less favorable to the Company than terms that would have been reached with an unrelated third party, (ii) the extent of the interest of the related party in the transaction and (iii) the purpose and the potential benefits to the Company of the transaction.

 

The related party transactions described in this proxy statement entered into before this policy was adopted were approved by the board of directors or the audit committee.

 

As of the record date, Jefferies was the beneficial owner of 5.3% of the Common Stock. Jefferies or its affiliates have from time to time provided investment banking, general financing and banking services to the Company and its affiliates, for which they have received customary compensation. During 2009, the Company paid to Jefferies and its affiliates fees in the amount of approximately $4,547,000. In October 2009, the Company entered into an agreement with Jefferies & Company, Inc. where Jefferies would provide advisory services to the Company in connection with current and potential real estate transactions and investments. The agreement is on a month-to-month basis, terminable by either party on five business days’ notice, and provides for a $50,000 per month payment plus out-of-pocket expenses. The Company and Jefferies or its affiliates may provide similar services in the future. Affiliates of Jefferies owned convertible notes of the Company in 2009.

 

In September 2006, the Company entered into an agreement with Ladenburg Thalmann Financial Services Inc. (NYSE Amex: LTS) pursuant to which the Company agreed to make available to LTS the services of Mr. Lampen to serve as the President and Chief Executive Officer of LTS and to provide certain other financial and accounting services, including assistance with complying with Section 404 of the Sarbanes-Oxley Act of 2002. LTS paid the Company $600,000 for 2009 under the agreement and pays the Company at a rate of $600,000 per year in 2010. The agreement is terminable by either party upon 30 days’ prior written notice. The Company beneficially owns 8.3% of the LTS shares and various executive officers and directors of the Company serve as members of the Board of Directors of LTS.

 

In October 2008, the Company acquired for $4,000,000 an approximate 11% interest in Castle Brands Inc. (NSYE Amex: ROX), a publicly traded developer and importer of premium branded spirits. Mr. Beinstein serves as

an independent director of Castle, and Mr. Lampen is serving as Castle’s interim President and Chief Executive Officer and as a director. In October 2008, the Company entered into an agreement with Castle where the Company agreed to make available the services of Mr. Lampen as well as other financial and accounting services. Castle paid the Company management fees of $100,000 for 2009 under the agreement and pays the Company at a rate of $100,000 per year in 2010. In December 2009, the Company was part of a consortium, which included Dr. Phillip Frost, who is a beneficial owner of approximately 11.8% of the Company’s common stock and Mr. Lampen, that agreed to provide a line of credit to Castle. The three-year line was for a maximum amount of $2,500,000, bears interest at a rate of 11% per annum on amounts borrowed, pays a 1% annual commitment fee and is collateralized by Castle’s receivables and inventory. the Company’s commitment under the line is $900,000; no amounts had been drawn or were outstanding under the credit line as of December 31, 2009.

 

In addition to its interests in LTS and Castle, the Company has investments in other entities where Dr. Frost has a relationship. These include: (i) three investments in 2006, 2008 and 2009 totaling approximately $11,000,000 for 10,057,110 shares in OPKO Inc. (NYSE Amex: OPK); (ii) a $500,000 investment in 2008 for 2,259,796 shares in Cardo Medical Inc. (OTC BB: CDOM); and (iii) a $375,000 investment in 2008 in Cocrystal Discovery Inc. (one-third funded in March 2010). Dr. Frost is a director, executive officer and/or more than 10% stockholder of these entities as well as of LTS and Castle. Additional investments in entities where Dr. Frost has a relationship may be made in the future.

 

On May 11, 2009, the Company issued in a private placement a 6.75% Variable Interest Senior Convertible Note due 2014 in the principal amount of $50,000,000 to an entity affiliated with Dr. Frost. The purchase price was paid in cash ($38,224,650) and by tendering $11,005,000 principal amount of the Company’s 5% Notes due 2011, valued at 107% of principal amount. The Company recognized interest expense of $4,933,120 in 2009 related to notes owned by the entity affiliated with Dr. Frost.

 

Mr. Lorber serves as a consultant to Hallman & Lorber. During 2009, Mr. Lorber and Hallman & Lorber and its affiliates received ordinary and customary insurance commissions aggregating approximately $329,000 on various insurance policies issued for the Company and its subsidiaries and investees. Hallman & Lorber and its affiliates have continued to provide services to the Company in 2009.

 

In March 2010, the Company entered into a services agreement, effective April 1, 2010, with Myeloma Health LLC, an affiliate of Mr. LeBow, whereby approximately 75% of the time of Dr. Anthony Albino, Vector Tobacco Inc.’s Senior Vice President of Public Health, will be spent on Myeloma matters. Under the agreement, Myeloma will reimburse the Company for 75% of Dr. Albino’s salary, which is presently $340,000 per year.

 

BOARD PROPOSAL 2 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

 

The Company asks that stockholders ratify the appointment of PricewaterhouseCoopers LLP, which has been the independent registered certified public accounting firm for the Company since December 1986, as its independent registered public accounting firm for the year ending December 31, 2010. It is expected that one or more representatives of such firm will attend the annual meeting and be available to respond to any questions. These representatives will be given an opportunity to make statements at the annual meeting if they desire.

 

If the appointment is not ratified, the adverse vote will be considered as an indication to the audit committee that it should consider selecting another independent registered certified public accounting firm for the following fiscal year. Even if the selection is ratified, the Company’s audit committee, in its discretion, may select a new independent registered certified public accounting firm at any time during the year if it believes that such a change would be in its best interest.

 

Approval of the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered certified public accounting firm for the year ending December 31, 2010 requires the affirmative vote of the majority of shares of Common Stock present or represented, and entitled to vote thereon, at the annual meeting.

 

The board recommends that stockholders vote “FOR” Proposal 2 to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered certified public accounting firm for the year ending December 31, 2010.

MISCELLANEOUS

 

Annual Report

 

The Company has mailed, with this proxy statement, a copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 to each stockholder as of the record date. If a stockholder requires an additional copy of such Annual Report, the Company will provide one, without charge, on the written request of any such stockholder addressed to the Company’s Secretary, Marc N. Bell, at Vector Group Ltd., 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires directors and executive officers of the Company, as well as persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of initial beneficial ownership and changes in beneficial ownership on Forms 3, 4 and 5 with the SEC. These persons are also required by SEC regulations to furnish the Company with copies of all reports that they file. As a practical matter, the Company assists its directors and officers by monitoring transactions and completing and filing Section 16 reports on their behalf.

 

To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and representations that no other reports were required, during and with respect to the fiscal year ended December 31, 2009, all reporting persons have timely complied with all filing requirements applicable to them with the exception of two settlements of option contracts totaling 1,050 shares each by Dr. Frost on September 30, 2009 and October 1, 2009, which were reported on December 22, 2009.

 

Communications with Directors

 

Any stockholder and other interested parties wishing to communicate with any of the Company’s directors regarding the Company may write to the director, c/o the Company’s Secretary, Marc N. Bell, at Vector Group Ltd., 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131. The secretary will forward these communications directly to the director(s) in question. The independent directors of the board review and approve this communication process periodically to ensure effective communication with stockholders and other interested parties.

 

Although the Company does not have a policy with regard to board members’ attendance at the annual meeting of stockholders, all of the directors are invited to attend such meeting. Three of the Company’s directors were in attendance at the Company’s 2009 annual meeting.

 

Stockholder Proposals for the 2010 Annual Meeting

 

Proposals of stockholders intended to be presented at the 2011 annual meeting of stockholders of the Company and included in the Company’s proxy statement for that meeting pursuant to Rule 14a-8 of the Exchange Act must be received by the Company at its principal executive offices, 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131, Attention: Marc N. Bell, Company Secretary, on or before December 21, 2010 in order to be eligible for inclusion in the Company’s proxy statement relating to that meeting. Notice of a stockholder proposal submitted outside the processes of Rule 14a-8 will be considered untimely unless submitted by March 6, 2011.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIAL FOR THE
STOCKHOLDER MEETING TO BE HELD ON JUNE 11, 2010

 

A copy of this proxy statement, the enclosed proxy card and the 2009 Annual Report of Vector Group Ltd., together with directions to the meeting, can be found at the website address: www.vectorgroupltd.com/invest.asp.

 

HOUSEHOLDING OF ANNUAL MEETING MATERIALS

 

Some banks, brokers, broker-dealers and other similar organizations acting as nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of this proxy statement and the Annual Report may have been sent to multiple stockholders in your household. If

you would prefer to receive separate copies of a proxy statement or Annual Report for other stockholders in your household, either now or in the future, please contact your bank, broker, broker-dealer or other similar organization serving as your nominee. Upon written or oral request to Vector Group Ltd., 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131, or via telephone at 305-579-8000, we will provide separate copies of the Annual Report and/or this proxy statement.

 

Other Matters

 

All information in this proxy statement concerning the Common Stock has been adjusted to give effect to the 5% stock dividends paid on an annual basis to the stockholders of the Company since September 1999 with the most recent dividend paid on September 29, 2009.

 

The cost of this solicitation of proxies will be borne by the Company. The Company has hired Georgeson Shareholder Communications Inc. (“Georgeson”) to solicit proxies. Georgeson will solicit by personal interview, mail, telephone and email, and will request brokerage houses and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of Common Stock held of record by such persons. The Company will pay Georgeson a customary fee covering its services and will reimburse Georgeson for reasonable expenses incurred in forwarding soliciting material to the beneficial owners of Common Stock. In addition, some of the directors, officers and regular employees of the Company may, without additional compensation, solicit proxies personally or by telephone.

 

The Board knows of no other matters which will be presented at the annual meeting. If, however, any other matter is properly presented at the annual meeting, the proxy solicited by this proxy statement will be voted in accordance with the judgment of the person or persons holding such proxy.

 

By Order of the Board of Directors,

 

 

Howard M. Lorber

President and Chief Executive Officer

 

Dated: April 16, 2010

VECTOR GROUP LTD.

PROXY

SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE 2010 ANNUAL MEETING OF
STOCKHOLDERS OF VECTOR GROUP LTD.

          The undersigned stockholder of Vector Group Ltd. (the “Company”) hereby constitutes and appoints each of Marc N. Bell and J. Bryant Kirkland III attorney and proxy of the undersigned, with power of substitution, to attend, vote and act for the undersigned at the 2010 Annual Meeting of Stockholders of the Company, a Delaware corporation, to be held at the Miami Tower, 100 S.E. Second Street, 19^th Floor Auditorium, Miami, Florida 33131 on Friday, June 11, 2010 at 11:00 a.m. local time, and at any adjournments or postponements thereof, with respect to the following on the reverse side of this proxy card and, in their discretion, on such other matters as may properly come before the meeting and at any adjournments or postponements thereof.

(Continued and to be signed on the reverse side.)

The Board of Directors recommends a vote “FOR” the election of directors. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x

Item 1. Election of Directors:

		FOR ALL NOMINEES		o
		WITHHOLD AUTHORITY FOR ALL NOMINEES		o
		FOR ALL EXCEPT (See instructions below)		o

            Nominees: o Bennett S. LeBow, o Howard M. Lorber, o Ronald J. Bernstein, o Henry C. Beinstein, o Robert J. Eide,
o Jeffrey S. Podell and o Jean E. Sharpe

Item 2. Approval of ratification of PricewaterhouseCoopers LLP as independent registered certified public accounting firm for the year ending December 31, 2010.

		FOR		o
		AGAINST		o
		ABSTAIN		o

            INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: x

            The shares represented by this proxy will be voted in the manner directed by the undersigned stockholder. If not otherwise directed, this proxy will be voted FOR the election of the nominees and FOR the ratification of the independent registered certified public accounting firm.

To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. o

Signature of Stockholder                                     Date                 Signature of Stockholder                                    Date                

NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.