<PAGE>   1

                                                                  Exhibit 10.34




                                BROOKE GROUP LTD.
                       100 S.E. Second Street, 32nd Floor
                              Miami, Florida 33131



                                                     December 16, 1996



Mr. Howard M. Lorber
70 East Sunrise Highway
Suite 411
Valley Stream, New York 11581

Dear Mr. Lorber:

     We are pleased to inform you that Brooke Group Ltd. (the "Company") has
granted you a nonqualified option (the "Option") to purchase 1,000,000 shares of
the Company's common stock, par value $.10 per share (the "Common Stock"), at a
price of $1.00 per share (any of the underlying shares of Common Stock to be
issued upon exercise of the Option are referred to hereinafter as the "Shares"),
subject to the following terms and conditions:

     1. The Option may be exercised on or prior to July 1, 2006 (at which date
the Option will, to the extent not previously exercised, expire), as follows:
(a) as to 166,666 of the Shares, on and after July 1, 1997; (b) as to 166,666 of
the Shares, on and after July 1, 1998; (c) as to 166,667 of the Shares, on and
after July 1, 1999; (d) as to 166,667 of the Shares, on and after July 1, 2000;
(e) as to 166,667 of the Shares, on and after July 1, 2001; and (f) as to the
final 166,667 of the Shares, on and after July 1, 2002. Each such installment
shall be cumulative and your right of purchase thereunder shall continue, unless
exercised or terminated as herein provided through the expiration date of the
Option.

     2. Any installment of the Option, from and after the date it becomes
exercisable pursuant to Section 1 hereof, may be exercised in whole or in part
by delivering to the Company a written notice of exercise in the form attached
hereto as Exhibit A, specifying the number of the Shares to be purchased,
together with payment of the purchase price of the Shares to be purchased. The
purchase price is to be paid in cash or by delivering shares of Common Stock
already owned by you and having a fair market value on the date of exercise
equal to the exercise price of the Option, or a combination of such shares and
cash.

     3. Except to the extent provided in Section 4 hereof, in the event your
consulting arrangement with the Company is terminated for any reason, other than
as a result of your death or Disability (as such term is defined in Section 6(c)
of that certain Employment Agreement entered into between you and New Valley
Corporation dated as of January 1, 1995 and as



<PAGE>   2
Mr. Howard M. Lorber
December 16, 1996
Page 2



amended effective as of January 1, 1996 [the "Employment Agreement"]) prior to
July 1, 1999, the Option shall forthwith terminate, provided that you may
exercise any then unexercised installments of the Option then exercisable at any
time prior to the earlier of three months after the termination of your
consulting arrangement or the expiration of the Option. Except to the extent
provided in Section 4 hereof, in the event your consulting arrangement is
terminated as a result of your death or Disability prior to July 1, 1999,
one-half of the Option (to the extent not previously exercised) shall become
immediately exercisable at any time prior to three months after the termination
of your consulting arrangement and any remaining Option shall forthwith
terminate.

     4. In the event of the occurrence of any Change of Control of the Company
or of New Valley Corporation (as the term "Change of Control" is defined in
Section 6(f) of the Employment Agreement), other than any Change of Control
arising by reason of a testamentary bequest by Bennett S. LeBow to or for the
benefit of his surviving spouse of any or all securities of the Company or of
New Valley Corporation beneficially owned by him as of his date of death so long
as, following the bequest, the event referenced in Section 6(f)(ii) of the
Employment Agreement shall not have occurred, all installments of the Option (to
the extent not previously exercised) shall become immediately exercisable at any
time prior to the earlier of three months after the termination of your
consulting arrangement or the expiration of the Option.

     5. In the event of the payment of any dividends or other distributions in
respect of the Common Stock on or after the date hereof through and including
July 1, 2006, you shall receive, within ten days of the payment of such dividend
or distribution, a payment equal to the amount of any such dividends or other
distributions that would have been paid to you had you been at the record date
for such dividends or other distributions a shareholder of the Shares, provided
that dividends or distributions in respect of Shares that are not exercisable on
such record date shall only be paid to you at the time such Shares become
exercisable.

     6. The Option is not transferable otherwise than by will or by the
applicable laws of descent and distribution and may be exercised during your
lifetime only by you (or in the event of your Disability, by your personal
representative or representatives).

     7. In the event of your death, the Option may be exercised by your personal
representative or representatives or by the person or persons to whom your
rights under the Option shall pass by will or by the applicable laws of descent
or distribution.

     8. In the event of any change in the outstanding Common Stock by reason of
a stock dividend, recapitalization, merger, consolidation, split-up,
subdivision, combination or exchange of shares, or the like, the aggregate
number and kind of shares subject to the Option and the exercise price thereof
shall be proportionately adjusted by the Company.




<PAGE>   3
Mr. Howard M. Lorber
December 16, 1996
Page 3



     9. Unless at the time of the exercise of the Option a registration
statement under the Securities Act of 1933, as amended (the "Act"), is in effect
as to the Shares, the Shares shall be acquired for investment and not for sale
or distribution, and if the Company so requests, upon any exercise of the
Option, in whole or in part, you agree to execute and deliver to the Company a
certificate to such effect.

     10. You understand and acknowledge that, under existing law, unless at the
time of the exercise of the Option a registration statement under the Act is in
effect as to the Shares so issuable: (i) any Shares purchased by you upon
exercise of the Option may be required to be held indefinitely unless such
Shares are subsequently registered under the Act or an exemption from such
registration is available; (ii) any sales of such Shares made in reliance upon
Rule 144 promulgated under the Act may be made only in accordance with the terms
and conditions of that Rule (which, under certain circumstances, restrict the
number of shares which may be sold and the manner in which shares may be sold);
(iii) in the case of securities to which Rule 144 is not applicable, compliance
with Regulation A promulgated under the Act or some other disclosure exemption
shall be required; (iv) certificates for Shares to be issued to you hereunder
shall bear a legend to the effect that the Shares have not been registered under
the Act and that the Shares may not be sold, hypothecated or otherwise
transferred in the absence of an effective registration statement under the Act
relating thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; and (v) the Company shall place an appropriate
"stop transfer" order with its transfer agent with respect to such Shares.

     11. Promptly following the date hereof, the Company shall use its best
efforts to file and keep in effect a Registration Statement on Form S-8, Form
S-3 or other applicable form to register under the Act the Shares issuable to
you upon exercise of the Option and the resale thereof by you.



<PAGE>   4
Mr. Howard M. Lorber
December 16, 1996
Page 4



     Would you kindly evidence your acceptance of the Option and your agreement
to comply with the provisions hereof by executing this letter in the space
provided below.



                                            Very truly yours,


                                            BROOKE GROUP LTD.



                                            By: ______________________________
                                                Bennett S. LeBow
                                                Chairman, President
                                                 and Chief Executive Officer







AGREED TO AND ACCEPTED:


-----------------------------
       Howard M. Lorber







<PAGE>   5



                                                                  EXHIBIT A


Brooke Group Ltd.
100 S.E. Second Street, 32nd Floor
Miami, Florida  33131

Gentlemen:

     Notice is hereby given of my election to purchase __________ shares of
Common Stock, $.10 par value (the "Shares"), of Brooke Group Ltd., at a price of
$1.00 per Share, pursuant to the provisions of the stock option granted to me on
November _____, 1996. Enclosed in payment for the Shares is:

                  |_|      my check in the amount of $ ____________________.

                  |_|      ___________________  Shares having a total value of
                           $______________, such value being based on the
                           closing price(s) of the Shares on the date hereof.

     The following information is supplied for use in issuing an registering
the Shares purchased hereby:

         Number of Certificates
              and Denominations   ________________________________

         Name                     ________________________________

         Address                  ________________________________

                                  ________________________________

                                  ________________________________

         Social Security          ________________________________


Dated:

                                                    Very truly yours,




                                                    Howard M. Lorber