##### Table of Contents





SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
 For The Fiscal Year Ended December 31, 2009
      VECTOR
    GROUP LTD.
 (Exact name of registrant as
    specified in its charter)
      Delaware

1-5759

65-0949535(State or other jurisdiction of
    incorporation
    incorporation or organization)

Commission File Number

(I.R.S. Employer Identification
    No.)   100 S.E. Second Street, Miami, Florida

33131(Address of principal executive
    offices)

(Zip Code)   (305)
    579-8000
 (Registrants
    telephone number, including area code)
    Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which registeredCommon Stock, par value $.10 per share

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE:




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##### 





VECTOR
    GROUP LTD.FORM 10-KTABLE OF CONTENTS
  
  PagePART IItem 1.

Business


1Item 1A.

Risk Factors


15Item 1B.

Unresolved Staff Comments


28Item 2.

Properties


28Item 3.

Legal Proceedings


29Item 4.

Reserved


29PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities; Executive Officers of the Registrant


30Item 6.

Selected Financial Data


34Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


35Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


61Item 8.

Financial Statements and Supplementary Data


61Item 9.

Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure


61Item 9A.

Controls and Procedures


61Item 9B.

Other Information


61PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


62Item 11.

Executive Compensation


62Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


62Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


62Item 14.

Principal Accounting Fees and Services


62PART IVItem 15.

Exhibits and Financial Statement Schedules


62SIGNATURES


67EX-10.19EX-10.20EX-10.22EX-10.23EX-21EX-23.1EX-23.2EX-23.3EX-23.4EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1EX-99.2EX-99.3EX-99.4




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PART I  ITEM 1.
    BUSINESS  Overview
    
    the manufacture and sale of cigarettes in the United States
    through our Liggett Group LLC and Vector Tobacco Inc.
    subsidiaries,
    research relating to reduced risk cigarette products through our
    Vector Tobacco Inc. subsidiary, and
    the real estate business through our New Valley LLC subsidiary,
    which is seeking to acquire additional operating companies and
    real estate properties. New Valley owns 50% of Douglas Elliman
    Realty, LLC, which operates the largest residential brokerage
    company in the New York metropolitan area.    Strategy
    Liggett
  
    Capitalize upon Liggetts cost advantage in the
    U.S. cigarette market due to the favorable treatment that
    it receives under the Master Settlement Agreement,
    Focus marketing and selling efforts on the discount segment,
    continue to build volume and margin in core discount brands
    (LIGGETT SELECT, GRAND PRIX, EVE and PYRAMID) and utilize core
    brand equity to selectively build distribution,
    Continue product development to provide the best quality
    products relative to other discount products in the marketplace,
    Increase efficiency by developing and adopting an organizational
    structure to maximize profit potential,
    Selectively expand the portfolio of private and control label
    partner brands utilizing a pricing strategy that offers
    long-term list price stability for customers,
    Identify, develop and launch relevant new cigarette brands and
    other tobacco products to the market in the future, and
    Pursue strategic acquisitions of smaller tobacco manufacturers.  Vector
    Tobacco
  
    Continue to conduct appropriate research relating to the
    development of cigarettes that materially reduce risk to smokers.  New
    Valley
  
    Continue to grow Douglas Elliman Realty operations by utilizing
    its strong brand name recognition and pursuing strategic and
    financial opportunities, 1




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
    Continue to leverage our expertise as direct investors by
    actively pursuing real estate investments in the United States
    and abroad which we believe will generate above-market returns,
    Acquire operating companies through mergers, asset purchases,
    stock acquisitions or other means, and
    Invest New Valleys excess funds opportunistically in
    situations that we believe can maximize stockholder value.  Liggett
    Group LLC
  General.
      
    LIGGETT SELECT  a leading brand in the deep discount
    category,
    GRAND PRIX  re-launched as a national brand in 2005,
    EVE  a leading brand of 120 millimeter cigarettes in
    the branded discount category,
    PYRAMID  the industrys first deep discount
    product with a brand identity relaunched in the second quarter
    of 2009, and
    USA and various Partner Brands and private label brands.     2




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Business Strategy.
  Sales, Marketing and
    Distribution.
     3




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Trademarks.
    Manufacturing.
        Competition.
       4




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The Medallion Company, Inc.
    Philip Morris Brand Transaction.
   5




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11-year
  90-day
    Vector
    Tobacco Inc.
    QUEST.
    Manufacturing and Marketing.
  Competition.
 6




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Intellectual Property.
    Risks.
  Legislation,
    Regulation and Litigation
          The
    Master Settlement Agreement and Other State Settlement
    Agreements
     7




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
    all claims of the Settling States and their respective political
    subdivisions and other recipients of state health care funds,
    relating to: (i) past conduct arising out of the use, sale,
    distribution, manufacture, development, advertising and
    marketing of tobacco products; (ii) the health effects of,
    the exposure to, or research, statements or warnings about,
    tobacco products; and
    all monetary claims of the Settling States and their respective
    subdivisions and other recipients of state health care funds,
    relating to future conduct arising out of the use of or exposure
    to, tobacco products that have been manufactured in the ordinary
    course of business.  12-month
    and/or per-unit
      New
    Valley LLC
   8




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Business
    Strategy
    Douglas
    Elliman Realty, LLC
         9




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Real Estate Brokerage Business. Real Trends
         10




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Marketing.
  Competition.
        Government Regulation.
 11




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Truth-in-Lending
    Franchises and Trade Names.
      Residential Property Management
    Business. The Real Deal.
 12




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New
    Valley Realty Division
  St. Regis Hotel, Washington, D.C.
      Escena. 450-acre seven-acre
      Aberdeen Townhomes LLC.
       13




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New Valley Oaktree Chelsea Eleven, LLC.
    Former
    Broker-Dealer Operations
      Other
    Investments
  Castle Brands.
  Long-Term Investments.
 14




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Employees
    Available
    Information
  (http://vectorgroupltd.com/invest.asp) Form 10-K, Form 10-Q, Form 8-K Form 10-K.
  ITEM 1A.
    RISK
    FACTORS    We have
    significant liquidity commitments
    
    cash interest expense of approximately $63.8 million,
    dividends on our outstanding common shares (currently at an
    annual rate of approximately $115 million), and
    other corporate expenses and taxes.    We and
    our subsidiaries have a substantial amount of
    indebtedness.
   15




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We are a
    holding company and depend on cash payments from our
    subsidiaries, which are subject to contractual and other
    restrictions, in order to service our debt and to pay dividends
    on our common stock.
      Our
    11% senior secured notes contain restrictive covenants that
    limit our operating flexibility.
    
    incur or guarantee additional indebtedness or issue preferred
    stock;
    pay dividends or distributions on, or redeem or repurchase,
    capital stock;
    create liens with respect to our assets;
    make investments, loans or advances;
    prepay subordinated indebtedness;
    enter into transactions with affiliates; and
    merge, consolidate, reorganize or sell our assets.     16




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Liggett
    faces intense competition in the domestic tobacco
    industry.
      Liggetts
    business is highly dependent on the discount cigarette
    segment.
    Liggetts
    market share is susceptible to decline.
   17




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The
    domestic cigarette industry has experienced declining unit sales
    in recent periods.
    Liggetts
    cigarettes are subject to substantial and increasing regulation
    and taxation, which has a negative effect on revenue and
    profitability.
        The newly
    enacted Family Smoking Prevention and Tobacco Control Act may
    adversely affect our sales and operating profit.
    
    increases the number of health warnings required on cigarette
    and smokeless tobacco products, increases the size of warnings
    on packaging and in advertising, requires the FDA to develop
    graphic warnings for cigarette packages, and grants the FDA
    authority to require new warnings;
    requires practically all tobacco product advertising to
    eliminate color and imagery and instead consist solely of black
    text on white background;
    imposes new restrictions on the sale and distribution of tobacco
    products, including significant new restrictions on tobacco
    product advertising and promotion as well as the use of brand
    and trade names;
    bans the use of light, mild,
    low or similar descriptors on tobacco products;
    bans the use of characterizing flavors in cigarettes
    other than tobacco or menthol;
    gives the FDA the authority to impose tobacco product standards
    that are appropriate for the protection of the public health
    (by, for example, requiring reduction or elimination of the use
    of particular constituents or 18




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components, requiring product testing, or addressing other
    aspects of tobacco product construction, constituents,
    properties or labeling);  
    requires manufacturers to obtain FDA review and authorization
    for the marketing of certain new or modified tobacco products;
    requires pre-market approval by the FDA for tobacco products
    represented (through labels, labeling, advertising, or other
    means) as presenting a lower risk of harm or tobacco-related
    disease;
    requires manufacturers to report ingredients and harmful
    constituents and requires the FDA to disclose certain
    constituent information to the public;
    mandates that manufacturers test and report on ingredients and
    constituents identified by the FDA as requiring such testing to
    protect the public health, and allows the FDA to require the
    disclosure of testing results to the public;
    requires manufacturers to submit to the FDA certain information
    regarding the health, toxicological, behavioral or physiologic
    effects of tobacco products;
    prohibits use of tobacco containing a pesticide chemical residue
    at a level greater than allowed under federal law;
    requires the FDA to establish good manufacturing
    practices to be followed at tobacco manufacturing
    facilities;
    requires tobacco product manufacturers (and certain other
    entities) to register with the FDA;
    authorizes the FDA to require the reduction of nicotine
    (although it may not require the reduction of nicotine yields of
    a tobacco product to zero) and the potential reduction or
    elimination of other constituents, including menthol;
    imposes (and allows the FDA to impose) various recordkeeping and
    reporting requirements on tobacco product manufacturers; and
    grants the FDA the regulatory authority to impose broad
    additional restrictions.    
    a recommendation on modified risk applications;
    a recommendation on the effects of tobacco product nicotine
    yield alteration and whether there is a threshold level below
    which nicotine yields do not produce dependence;
    a report on the public health impact of the use of menthol in
    cigarettes; and
    a report on the public health impact of dissolvable tobacco
    products.     19




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Litigation
    will continue to harm the tobacco industry.
  Engle and/or
   20




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Altria
    Group Inc. v. Good Good
  Ferlanti v. Liggett Group Hausrath v. Philip Morris
    Individual
    tobacco-related cases have increased as a result of the Florida
    Supreme Courts ruling in Engle.
  Engle R. J. Reynolds Tobacco
    Co
  Lukacs v. R.J. Reynolds Tobacco Company Lukacs Engle Engle
  Engle
 21




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Engle Engle Engle Engle Engle Engle
  Engle
  Regulation
    and legislation may negatively impact sales of tobacco products
    and our financial condition.
      Liggett
    may be adversely affected by the 2004 legislation to eliminate
    the federal tobacco quota system.
   22




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Excise
    tax increases adversely affect cigarette sales.
    Liggett
    may have additional payment obligations under the Master
    Settlement Agreement and its other settlement agreements with
    the states.
  NPM Adjustment.
        Gross v. Net Calculations.
 23




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
    use of net unit amounts is not required by the MSA
    (as reflected by, among other things, the use of
    gross unit amounts through 2005);
    such a change is not authorized without the consent of affected
    parties to the MSA;
    the MSA provides for four-year time limitation periods for
    revisiting calculations and determinations, which precludes
    recalculating Liggetts 1997 Market Share (and thus,
    Liggetts market share exemption); and
    Liggett and others have relied upon the calculations based on
    gross unit amounts since 1998.      Liggett
    may have additional payment obligations under its state
    settlements
    Vector
    Tobacco is subject to risks inherent in new product development
    initiatives.
      Potential extensive government
    regulation.
 24




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Competition from other cigarette manufacturers with greater
    resources.
  Intellectual property rights, including Vector Tobaccos
    patents involve complex legal and factual issues
      New
    Valley is subject to risks relating to the industries in which
    it operates.
  Risks of real estate ventures.
  The volatility in the capital and credit markets has
    increased in recent years.
  New Valley may pursue a variety of real estate development
    projects.
 25




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Risks relating to the residential brokerage
    business.
  
    coordinate with the franchiser on significant matters relating
    to their operations, including the opening and closing of
    offices;
    make substantial royalty payments to the franchiser and
    contribute significant amounts to national advertising funds
    maintained by the franchiser;
    indemnify the franchiser against losses arising out of the
    operations of their business under the franchise
    agreements; and
    maintain standards and comply with guidelines relating to their
    operations which are applicable to all franchisees of the
    franchisers real estate franchise system.        and/or
  
    periods of economic slowdown or recession;
    rising interest rates;
    the general availability of mortgage financing, including:  
    the impact of the recent contraction in the subprime and
    mortgage markets generally; and
    the effect of more stringent lending standards for home
    mortgages;  
    adverse changes in economic and general business conditions in
    the New York metropolitan area;
    a decrease in the affordability of homes; 26




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
    declining demand for real estate;
    a negative perception of the market for residential real estate;
    commission pressure from brokers who discount their commissions;
    acts of God, such as hurricanes, earthquakes and other natural
    disasters, or acts or threats of war or terrorism; and/or
    an increase in the cost of homeowners insurance.  The three major real estate ventures current operations
    are located in the New York metropolitan
    area
  Potential
    new investments we may make are unidentified and may not
    succeed.
    We depend
    on our key personnel.
    We are
    exposed to risks from legislation requiring companies to
    evaluate their internal control over financial
    reporting.
    The price
    of our common stock may fluctuate significantly.
      
    actual or anticipated fluctuations in our operating results;
    changes in expectations as to our future financial performance,
    including financial estimates by securities analysts and
    investors;
    the operating and stock performance of our competitors;
    announcements by us or our competitors of new products or
    services or significant contract, acquisitions, strategic
    partnerships, joint ventures or capital commitments; 27




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
    the initiation or outcome of litigation;
    changes in interest rates;
    general economic, market and political conditions;
    additions or departures of key personnel; and
    future sales of our equity or convertible securities.      We have
    many potentially dilutive securities outstanding.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES        Approximate TotalType

Location

Owned or Leased

Square FootageStorage Facilities


Danville, VA



Owned



578,000Office and Manufacturing Complex


Mebane, NC



Owned



240,000Warehouse


Mebane, NC



Owned



60,000Warehouse


Mebane, NC



Leased



50,000Warehouse


Mebane, NC



Leased



30,000Warehouse


Mebane, NC



Leased



22,000  28




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ITEM 3.
    LEGAL
    PROCEEDINGS      ITEM 4.
    RESERVED 29




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES    Year

High

Low

Cash Dividends2009:Fourth Quarter

$
15.79


$
13.50


$
.40Third Quarter


15.98



13.06



.38Second Quarter


14.70



12.14



.38First Quarter


14.21



10.23



.382008:Fourth Quarter

$
16.78


$
10.30


$
.38Third Quarter


18.52



14.51



.36Second Quarter


16.51



14.43



.36First Quarter


18.36



15.06



.36            30




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Performance
    Graph
    
  12/04


12/05


12/06


12/07


12/08


12/09Vector Group Ltd.



100




126




142




183




142




171S&P 500



100




105




121




128




81




102S&P MidCap



100




112




124




134




86




117NYSE Arca Tobacco



100




112




155




171




138




192   Unregistered
    Sales of Equity Securities and Use of Proceeds
   31




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Issuer
    Purchases of Equity Securities
    Total Number


Maximum Numberof Shares


of Shares thatTotal





Purchased as


May Yet BeNumber of


Average


Part of Publicly


Purchased UnderShares


Price Paid


Announced Plans


the PlansPeriod

Purchased


per Share


or Programs


or ProgramsOctober 1 to October 31, 2009





$








November 1 to November 30, 2009


854,470
(1)


14.47







December 1 to December 30, 2009














Total


854,470


$
14.47







     (1)
    
    Delivery of shares to us in payment of exercise price and tax
    withholdings in connection with exercise of employees
    stock options. The shares were immediately cancelled.  EXECUTIVE
    OFFICERS OF THE REGISTRANT
    Year IndividualBecame anName

Age

Position

Executive OfficerHoward M. Lorber


61


President and Chief Executive Officer


2001Richard J. Lampen


56


Executive Vice President


1996J. Bryant Kirkland III


44


Vice President, Chief Financial Officer and Treasurer


2006Marc N. Bell


49


Vice President, General Counsel and Secretary


1998Ronald J. Bernstein


56


President and Chief Executive Officer of Liggett


2000   Howard M. Lorber
  Richard J. Lampen
 32




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J. Bryant Kirkland III
  Marc N. Bell
  Ronald J. Bernstein
 33




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Year Ended December 31,2009


2008


2007


2006


2005(dollars in thousands, except per share amounts)Statement of Operations Data:Revenues(1)

$
801,494


$
565,186


$
555,430


$
506,252


$
478,427Income from continuing operations


24,806



60,504



73,803



42,712



42,585Income from discontinued operations


















3,034Income from extraordinary item


















6,766Net income


24,806



60,504



73,803



42,712



52,385Per basic common share(2):Income from continuing operations

















$
0.79Income from discontinued operations

















$
0.06Income from extraordinary item

















$
0.12Net income applicable to common shares

$
0.34


$
0.85


$
1.05


$
0.63


$
0.97Per diluted common share(2):Income from continuing operations

















$
0.75Income from discontinued operations

















$
0.05Income from extraordinary item

















$
0.12Net income applicable to common shares

$
0.34


$
0.76


$
1.02


$
0.62


$
0.92Cash distributions declared per common share(2)

$
1.54


$
1.47


$
1.40


$
1.33


$
1.27Balance Sheet Data:Current assets

$
389,208


$
355,283


$
395,626


$
303,156


$
319,099Total assets


735,542



717,712



785,289



637,462



603,552Current liabilities


149,008



296,159



109,337



168,786



128,100Notes payable, embedded derivatives, long-term debt and other
    obligations, less current portion


487,936



287,545



378,760



198,777



277,613Non-current employee benefits, deferred income taxes, minority
    interests and other long-term liabilities


103,280



100,403



196,340



174,922



168,773Stockholders (deficiency) equity


(4,682
)


33,605



100,852



94,977



29,066     (1)
    
    Revenues include federal excise taxes of $377,771, $168,170,
    $176,269, $174,339 and $161,753, respectively. Effective
    April 1, 2009, federal excises taxes increased from $0.39
    per pack of cigarettes to $1.01 per pack of cigarettes.(2)
    
    Per share computations include the impact of 5% stock dividends
    on September 29, 2009, September 29, 2008,
    September 28, 2007, September 29, 2006, and
    September 29, 2005. 34




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ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  (Dollars
    in Thousands, Except Per Share Amounts)
  Overview
    
    the manufacture and sale of cigarettes in the United States
    through our Liggett Group LLC,
    the development of reduced risk cigarette products through our
    Vector Tobacco Inc. subsidiary, and
    the real estate business through our New Valley LLC subsidiary,
    which is seeking to acquire additional operating companies and
    real estate properties. New Valley owns 50% of Douglas Elliman
    Realty, LLC, which operates the largest residential brokerage
    company in the New York metropolitan area.      
    LIGGETT SELECT  a leading brand in the deep discount
    category,
    GRAND PRIX  re-launched as a national brand in 2005,
    EVE  a leading brand of 120 millimeter cigarettes in
    the branded discount category,
    PYRAMID  the industrys first deep discount
    product with a brand identity re-launched in the second quarter
    of 2009, and
    USA and various Partner Brands and private label brands.       35




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Recent
    Developments
  Senior Secured Notes.
  5% Variable Interest Senior Convertible Notes Due
    November 2011.
    6.75% Variable Interest Senior Convertible Note due
    2014.
    6.75% Variable Interest Senior Convertible Exchange Notes due
    2014.
   36




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Enacted and proposed excise tax
    increases.
  Family Smoking Prevention and Tobacco Control Act (FDA
    Legislation).
  Philip Morris Brand Transaction.
  NPM Adjustment.
   37




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Tobacco Settlement Agreements.
    Vector Tobacco Restructuring.
  Awards of Restricted Shares and Options.
  Investment in Real Estate. 450-acre
 38




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seven-acre
      Real Estate Activities.
  New Valley Oaktree Chelsea Eleven, LLC.
      Aberdeen Townhomes LLC.
 39




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Balance as of January 1, 2008

$
Purchase of preferred equity interest


10,000Impairment loss


(3,500
)Balance as of January 1, 2009


6,500Impairment loss


(3,500
)Preferred return distribution


(1,752
)Balance as of December 31, 2009

$
1,248           Sale of St. Regis Hotel.
  Losses on Long-term Investments. other-than-temporary
 40




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NASA Settlement.
  Recent
    Developments in Tobacco-Related Litigation
    Liggett Only Cases. Davis v. Liggett Group, Engle in Ferlanti v. Liggett Group Hausrath v. Philip Morris
  Engle Progeny Cases. Engle v. R.J. Reynolds Tobacco
    Co. Engle Engle Engle Engle Engle and/or Engle Engle Engle Engle Campbell Lukacs v. R. J. Reynolds Tobacco
    Company Engle Engle
 41




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Critical
    Accounting Policies
  General.
  Revenue Recognition.
  Marketing Costs.
  Restructuring and Asset Impairment Charges.
  Contingencies. Engle
 42




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Settlement Agreements.
  Derivatives; Beneficial Conversion Feature.
          Inventories. last-in,
 43




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Stock-Based Compensation.
  Employee Benefit Plans. 10-year
      Long-Term Investments and Impairments.
 44




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other-than-temporary other-than-temporary. other-than-temporary
  Income Taxes.
  Results
    of Operations
      Year Ended December 31,2009


2008


2007(Dollars in thousands)Revenues:Liggett

$
799,955
(1)

$
562,660


$
551,687Vector Tobacco


1,539
(2)


2,526



3,743Total revenues

$
801,494


$
565,186


$
555,430Operating income (loss):Liggett

$
168,032
(1)

$
170,181


$
159,347Vector Tobacco


(7,117
)(2)


(8,331
)


(9,896
)Total tobacco


160,915



161,850



149,451Real estate


(886
)






Corporate and other


(16,862
)


(26,546
)


(23,947
)Total operating income

$
143,167


$
135,304


$
125,504     (1)
    
    Includes a gain of $5,000 on the Philip Morris brand transaction
    completed in February 2009.(2)
    
    Includes restructuring costs of $900 in 2009. 45




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##### Table of Contents



2009
    Compared to 2008
  Revenues.
  Tobacco Revenues.
      Tobacco Gross Profit.
      Expenses.
 46




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##### Table of Contents



Other Income (Expenses).
    Income before income taxes.
  Income tax provision.
    2008
    Compared to 2007
  Revenues.
  Tobacco Revenues.
 47




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##### Table of Contents



Tobacco Gross Profit.
      Expenses.
    Other Income (Expenses).
 48




---



##### Table of Contents



Income Before Income Taxes.
  Income Tax Provision.
    Liquidity
    and Capital Resources
       49




---



##### Table of Contents



Liggett.
   50




---



##### Table of Contents



Engle Engle Engle
    V.T. Aviation. 30-day
 51




---



##### Table of Contents



VGR Aviation. 30-day
  Vector Tobacco.
  Vector.
         52




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##### Table of Contents



Indenture

December 31,

December 31,Covenant

Requirement

2009

2008Consolidated EBITDA, as defined

$
50,000


$
174,158


$
181,007Leverage ratio, as defined


<3.0 to 1



0.3 to 1



0.1 to 1Secured leverage ratio, as defined


<1.5 to 1



Negative



Negative       and/or
  other-than-temporary. other-than-temporary
   53




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##### Table of Contents



Long-Term
    Financial Obligations and Other Commercial Commitments
    Contractual Obligations

2010


2011


2012


2013


2014


Thereafter


TotalLong-term debt(1)

$
21,889


$
16,253


$
103,336
(8)

$
1,039


$
158,144


$
254,090
(8)

$
554,751Operating leases(2)


4,218



3,709



3,477



1,646



598







13,648Inventory purchase commitments(3)


12,963























12,963Capital expenditure purchase commitments(4)


9,077























9,077Funding obligations under credit line


900























900New Valley obligations under limited partnership agreements


61























61Interest payments(5)


65,034



65,213



66,906



68,768



70,707



274,779



611,407Total (6),(7)

$
114,142


$
85,175


$
173,719


$
71,453


$
229,449


$
528,869


$
1,202,807     (1)
    
    Long-term debt is shown before discount and assumes that only
    the mandatory redemption amounts will be retired on our 3.875%
    Variable Interest Senior Convertible Debentures due 2026 (10%
    and 90% of the principal balance in 2011 and 2026,
    respectively). For more information concerning our long-term
    debt, see Liquidity and Capital Resources above and
    Note 7 to our consolidated financial statements.(2)
    
    Operating lease obligations represent estimated lease payments
    for facilities and equipment. The amounts presented do not
    include amounts scheduled to be received under non-cancelable
    operating subleases of $946 in 2010, $2,135 in 2011, $1,920 in
    2012, $651 in 2013 and $159 in 2014 and $0 thereafter. See
    Note 8 to our consolidated financial statements.(3)
    
    Inventory purchase commitments represent purchase commitments
    under our leaf inventory management program. See Note 4 to
    our consolidated financial statements.(4)
    
    Capital expenditure purchase commitments represent purchase
    commitments for machinery and equipment at Liggett and Vector
    Tobacco. See Note 5 to our consolidated financial
    statements.(5)
    
    Interest payments are based on current interest rates at
    December 31, 2009 and the assumption our current policy of
    a cash dividend of $0.40 per quarter and an annual 5% stock
    dividend will continue. In addition, interest payments have been
    computed assuming that only the mandatory amounts will be
    retired on our convertible debt as discussed in Note
    (1) above. For more information concerning our long-term
    debt, see Liquidity and Capital Resources above and
    Note 7 to our consolidated financial statements.(6)
    
    Not included in the above table is approximately $8,382 of net
    deferred tax liabilities and $10,216 of unrecognized income tax
    benefits. 54




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##### Table of Contents



(7)
    
    Because their future cash outflows are uncertain, the above
    table excludes our pension and postretirement benefit plans and
    contractual guarantees.(8)
    
    We may be required to redeem $99,000 of this amount in 2012,
    2016 or 2021 in accordance with the terms of our 3.875% Variable
    Interest Senior Convertible Debentures due 2026.    Off-Balance
    Sheet Arrangements
  and/or
          Market
    Risk
     55




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##### Table of Contents



New
    Accounting Pronouncements
  Summary of Significant Accounting
    Policies New Accounting Pronouncements
  Legislation
    and Regulation
   56




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##### Table of Contents



111-31).
  
    increases the number of health warnings required on cigarette
    and smokeless tobacco products, increases the size of warnings
    on packaging and in advertising, requires the FDA to develop
    graphic warnings for cigarette packages, and grants the FDA
    authority to require new warnings;
    requires practically all tobacco product advertising to
    eliminate color and imagery and instead consist solely of black
    text on white background;
    imposes new restrictions on the sale and distribution of tobacco
    products, including significant new restrictions on tobacco
    product advertising and promotion, as well as the use of brand
    and trade names;
    bans the use of light, mild,
    low or similar descriptors on tobacco products;
    bans the use of characterizing flavors in cigarettes
    other than tobacco or menthol;
    gives the FDA the authority to impose tobacco product standards
    that are appropriate for the protection of the public health
    (by, for example, requiring reduction or elimination of the use
    of particular constituents or components, requiring product
    testing, or addressing other aspects of tobacco product
    construction, constituents, properties or labeling);
    requires manufacturers to obtain FDA review and authorization
    for the marketing of certain new or modified tobacco products;
    requires pre-market approval by the FDA for tobacco products
    represented (through labels, labeling, advertising, or other
    means) as presenting a lower risk of harm or tobacco-related
    disease;
    requires manufacturers to report ingredients and harmful
    constituents and requires the FDA to disclose certain
    constituent information to the public;
    mandates that manufacturers test and report on ingredients and
    constituents identified by the FDA as requiring such testing to
    protect the public health, and allows the FDA to require the
    disclosure of testing results to the public;
    requires manufacturers to submit to the FDA certain information
    regarding the health, toxicological, behavioral or physiologic
    effects of tobacco products;
    prohibits use of tobacco containing a pesticide chemical residue
    at a level greater than allowed under federal law;
    requires the FDA to establish good manufacturing
    practices to be followed at tobacco manufacturing
    facilities;
    requires tobacco product manufacturers (and certain other
    entities) to register with the FDA;
    authorizes the FDA to require the reduction of nicotine
    (although it may not require the reduction of nicotine yields of
    a tobacco product to zero) and the potential reduction or
    elimination of other constituents, including menthol; 57




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##### Table of Contents




    imposes (and allows the FDA to impose) various recordkeeping and
    reporting requirements on tobacco product manufacturers; and
    grants the FDA the regulatory authority to impose broad
    additional restrictions.    
    a recommendation on modified risk applications;
    a recommendation on the effects of tobacco product nicotine
    yield alteration and whether there is a threshold level below
    which nicotine yields do not produce dependence;
    a report on the public health impact of the use of menthol in
    cigarettes; and
    a report on the public health impact of dissolvable tobacco
    products.             58




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##### Table of Contents



point-of-sale
   59




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##### Table of Contents



SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    economic outlook,
    capital expenditures,
    cost reduction,
    new legislation,
    cash flows,
    operating performance,
    litigation,
    impairment charges and cost saving associated with
    restructurings of our tobacco operations, and
    related industry developments (including trends affecting our
    business, financial condition and results of operations).      
    general economic and market conditions and any changes therein,
    due to acts of war and terrorism or otherwise,
    impact of current crises in capital and credit markets,
    including any continued worsening,
    governmental regulations and policies,
    effects of industry competition,
    impact of business combinations, including acquisitions and
    divestitures, both internally for us and externally in the
    tobacco industry,
    impact of restructurings on our tobacco business and our ability
    to achieve any increases in profitability estimated to occur as
    a result of these restructurings,
    impact of new legislation on our competitors payment
    obligations, results of operations and product costs, i.e. the
    impact of recent federal legislation eliminating the federal
    tobacco quota system and providing for regulation of tobacco
    products by the FDA,
    impact of substantial increases in federal, state and local
    excise taxes,
    uncertainty related to litigation and potential additional
    payment obligations for us under the Master Settlement Agreement
    and other settlement agreements with the states, and 60




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##### Table of Contents




    risks inherent in our new product development initiatives.      ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-1
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Conclusions
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
    Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f). Internal Control 
    Integrated Framework Internal
    Control  Integrated Framework
    Material
    Changes in Internal Control
    ITEM 9B.
    OTHER
    INFORMATION   61




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##### Table of Contents



PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    page F-1
    Schedule II  Valuation and Qualifying Accounts


Page F-79                62




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##### Table of Contents



EXHIBITS
  Form 10-K:
  INDEX
    OF EXHIBITS
  ExhibitNo.

Description* 3
.1

Amended and Restated Certificate of Incorporation of Vector
    Group Ltd. (formerly known as Brooke Group Ltd.)
    (Vector) (incorporated by reference to
    Exhibit 3.1 in Vectors
    Form 10-Q
    for the quarter ended September 30, 1999).* 3
.2

Certificate of Amendment to the Amended and Restated Certificate
    of Incorporation of Vector (incorporated by reference to
    Exhibit 3.1 in Vectors
    Form 8-K
    dated May 24, 2000).* 3
.3

Certificate of Amendment to the Amended and Restated Certificate
    of Incorporation of Vector Group Ltd. (incorporated by reference
    to Exhibit 3.1 in Vectors
    Form 10-Q
    for the quarter ended June 30, 2007).* 3
.4

Amended and Restated By-Laws of Vector Group Ltd. (incorporated
    by reference to Exhibit 3.4 in Vectors
    Form 8-K
    dated October 19, 2007).* 4
.1

Amended and Restated Loan and Security Agreement dated as of
    April 14, 2004, by and between Wachovia Bank, N.A., as
    lender, Liggett Group Inc., as borrower, 100 Maple LLC and Epic
    Holdings Inc. (the Wachovia Loan Agreement)
    (incorporated by reference to Exhibit 10.1 in Vectors
    Form 8-K
    dated April 14, 2004).* 4
.2

Amendment, dated as of December 13, 2005, to the Wachovia
    Loan Agreement (incorporated by reference to Exhibit 4.1 in
    Vectors
    Form 8-K
    dated December 13, 2005).* 4
.3

Amendment, dated as of January 31, 2007, to the Wachovia
    Loan Agreement (incorporated by reference to Exhibit 4.1 in
    Vectors
    Form 8-K
    dated February 2, 2007).* 4
.4

Amendment, dated as of August 10, 2007, to the Wachovia
    Loan Agreement (incorporated by reference to Exhibit 4.6 in
    Vectors
    Form 8-K
    dated August 16, 2007).* 4
.5

Amendment, dated as of August 16, 2007, to the Wachovia
    Loan Agreement (incorporated by reference to Exhibit 4.7 in
    Vectors
    Form 8-K
    dated August 16, 2007).* 4
.6

Intercreditor Agreement, dated as of August 16, 2007,
    between Wachovia Bank, N.A., as ABL Lender, U.S. Bank National
    Association, as Collateral Agent, Liggett Group LLC, as
    Borrower, and 100 Maple LLC, as Loan Party (incorporated by
    reference to Exhibit 99.1 in Vectors
    Form 8-K
    dated August 16, 2007).* 4
.7

Indenture, dated as of July 12, 2006, by and between Vector
    and Wells Fargo Bank, N.A., relating to the
    37/8%
    Variable Interest Senior Convertible Debentures due 2026 (the
    37/8% Debentures),
    including the form of the
    37/8% Debenture
    (incorporated by reference to Exhibit 4.1 in Vectors
    Form 8-K
    dated July 11, 2006).* 4
.8

Indenture, dated as of August 16, 2007, between Vector
    Group Ltd., the subsidiary guarantors named therein and U.S.
    Bank National Association, as Trustee, relating to the
    11% Senior Secured Notes due 2015, including the form of
    Note (incorporated by reference to Exhibit 4.1 in
    Vectors
    Form 8-K
    dated August 16, 2007).* 4
.9

First Supplemental Indenture, dated as of July 15, 2008, to
    the Indenture dated August 16, 2007 between Vector Group
    Ltd., the subsidiary guarantors named therein and U.S. Bank
    National Association, as Trustee (incorporated by reference to
    Exhibit 4.1 of Vectors
    Form 8-K
    dated July 15, 2008).* 4
.10

Second Supplemental Indenture, dated as of September 1,
    2009, to the Indenture dated August 16, 2007 between Vector
    Group Ltd., the subsidiary guarantors named therein and U.S.
    Bank National Association, as Trustee (incorporated by reference
    to Exhibit 4.1 of Vectors
    Form 8-K
    dated September 1, 2009).* 4
.11

Pledge Agreement, dated as of August 16, 2007, between VGR
    Holding LLC, as Grantor, and U.S. Bank National Association, as
    Collateral Agent (incorporated by reference to Exhibit 4.2
    in Vectors
    Form 8-K
    dated August 16, 2007). 63




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##### Table of Contents



ExhibitNo.

Description* 4
.12

Security Agreement, dated as of August 16, 2007, between
    Vector Tobacco Inc., as Grantor, and U.S. Bank National
    Association, as Collateral Agent (incorporated by reference to
    Exhibit 4.3 in Vectors
    Form 8-K
    dated August 16, 2007).* 4
.13

Security Agreement, dated as of August 16, 2007, between
    Liggett Group LLC and 100 Maple LLC, as Grantors, and U.S. Bank
    National Association, as Collateral Agent (incorporated by
    reference to Exhibit 4.4 in Vectors
    Form 8-K
    dated August 16, 2007).* 4
.14

Note, dated May 11, 2009, by Vector Group Ltd. to Frost
    Nevada Investments Trust (incorporated by reference to
    Exhibit 4.1 of Vectors
    Form 8-K
    dated May 11, 2009).* 4
.15

Purchase Agreement, dated as of May 11, 2009, between
    Vector Group Ltd. and Frost Nevada Investments Trust
    (incorporated by reference to Exhibit 4.2 of Vectors
    Form 8-K
    dated May 11, 2009).* 4
.16

Form of Issuance and Exchange Agreement, dated as of
    June 15, 2009, between Vector Group Ltd. and holders of its
    5% Variable Interest Senior Convertible Notes due 2011
    (incorporated by reference to Exhibit 4.1 of Vectors
    Form 8-K
    dated June 15, 2009).* 4
.17

Indenture, dated as of June 30, 2009, between Vector Group
    Ltd. and Wells Fargo Bank, N.A. as trustee, relating to the
    6.75% Variable Interest Senior Convertible Exchange Notes Due
    2014, including the form of Note (incorporated by reference to
    Exhibit 4.1 of Vectors
    Form 8-K
    dated June 30, 2009).* 10
.1

Corporate Services Agreement, dated as of June 29, 1990,
    between Vector and Liggett (incorporated by reference to
    Exhibit 10.10 in Liggetts Registration Statement on
    Form S-1,
    No. 33-47482).* 10
.2

Services Agreement, dated as of February 26, 1991, between
    Brooke Management Inc. (BMI) and Liggett (the
    Liggett Services Agreement) (incorporated by
    reference to Exhibit 10.5 in VGR Holdings
    Registration Statement on
    Form S-1,
    No. 33-93576).* 10
.3

First Amendment to Liggett Services Agreement, dated as of
    November 30, 1993, between Liggett and BMI (incorporated by
    reference to Exhibit 10.6 in VGR Holdings
    Registration Statement on
    Form S-1,
    No. 33-93576).* 10
.4

Second Amendment to Liggett Services Agreement, dated as of
    October 1, 1995, between BMI, Vector and Liggett
    (incorporated by reference to Exhibit 10(c) in
    Vectors
    Form 10-Q
    for the quarter ended September 30, 1995).* 10
.5

Third Amendment to Liggett Services Agreement, dated as of
    March 31, 2001, by and between Vector and Liggett
    (incorporated by reference to Exhibit 10.5 in Vectors
    Form 10-K
    for the year ended December 31, 2003).* 10
.6

Corporate Services Agreement, dated January 1, 1992,
    between VGR Holding and Liggett (incorporated by reference to
    Exhibit 10.13 in Liggetts Registration Statement on
    Form S-1,
    No. 33-47482).* 10
.7

Settlement Agreement, dated March 15, 1996, by and among
    the State of West Virginia, State of Florida, State of
    Mississippi, Commonwealth of Massachusetts, and State of
    Louisiana, Brooke Group Holding and Liggett (incorporated by
    reference to Exhibit 15 in the Schedule 13D filed by
    Vector on March 11, 1996, as amended, with respect to the
    common stock of RJR Nabisco Holdings Corp.).* 10
.8

Addendum to Initial States Settlement Agreement (incorporated by
    reference to Exhibit 10.43 in Vectors
    Form 10-Q
    for the quarter ended March 31, 1997).* 10
.9

Settlement Agreement, dated March 12, 1998, by and among
    the States listed in Appendix A thereto, Brooke Group
    Holding and Liggett (incorporated by reference to
    Exhibit 10.35 in Vectors
    Form 10-K
    for the year ended December 31, 1997).* 10
.10

Master Settlement Agreement made by the Settling States and
    Participating Manufacturers signatories thereto (incorporated by
    reference to Exhibit 10.1 in Philip Morris Companies
    Inc.s
    Form 8-K
    dated November 25, 1998, Commission File
    No. 1-8940).* 10
.11

General Liggett Replacement Agreement, dated as of
    November 23, 1998, entered into by each of the Settling
    States under the Master Settlement Agreement, and Brooke Group
    Holding and Liggett (incorporated by reference to
    Exhibit 10.34 in Vectors
    Form 10-K
    for the year ended December 31, 1998). 64




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##### Table of Contents



ExhibitNo.

Description* 10
.12

Stipulation and Agreed Order regarding Stay of Execution Pending
    Review and Related Matters, dated May 7, 2001, entered into
    by Philip Morris Incorporated, Lorillard Tobacco Co., Liggett
    Group Inc. and Brooke Group Holding Inc. and the class counsel
    in Engel, et. al., v. R.J. Reynolds Tobacco Co., et. al.
    (incorporated by reference to Exhibit 99.2 in Philip Morris
    Companies Inc.s
    Form 8-K
    dated May 7, 2001).* 10
.13

Amended and Restated Employment Agreement dated as of
    January 27, 2006, between Vector and Howard M. Lorber
    (incorporated by reference to Exhibit 10.1 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.14

Employment Agreement, dated as of January 27, 2006, between
    Vector and Richard J. Lampen (incorporated by reference to
    Exhibit 10.3 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.15

Amended and Restated Employment Agreement, dated as of
    January 27, 2006, between Vector and Marc N. Bell
    (incorporated by reference to Exhibit 10.4 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.16

Employment Agreement, dated as of November 11, 2005,
    between Liggett Group Inc. and Ronald J. Bernstein (incorporated
    by reference to Exhibit 10.1 in Vectors
    Form 8-K
    dated November 11, 2005).* 10
.17

Employment Agreement, dated as of January 27, 2006, between
    Vector and J. Bryant Kirkland III (incorporated by
    reference to Exhibit 10.5 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.18

Vector Group Ltd. Amended and Restated 1999 Long-Term Incentive
    Plan (incorporated by reference to Appendix A in
    Vectors Proxy Statement dated April 21, 2004).10
.19

Stock Option Agreement, dated December 3, 2009, between
    Vector and Richard J. Lampen.10
.20

Stock Option Agreement, dated December 3, 2009, between
    Vector and Marc N. Bell.* 10
.21

Stock Option Agreement, dated January 22, 2001, between
    Vector and Howard M. Lorber (incorporated by reference to
    Exhibit 10.2 in Vectors
    Form 10-Q
    for the quarter ended March 31, 2001).10
.22

Stock Option Agreement, dated December 3, 2009, between
    Vector and Howard M. Lorber.10
.23

Stock Option Agreement, dated December 3, 2009, between
    Vector and J. Bryant Kirkland III.* 10
.24

Option Letter Agreement, dated as of November 11, 2005
    between Vector and Ronald J. Bernstein (incorporated by
    reference to Exhibit 10.3 in Vectors
    Form 8-K
    dated November 11, 2005).* 10
.25

Restricted Share Award Agreement, dated as of April 7,
    2009, between Vector Group Ltd. and Howard M. Lorber
    (incorporated by reference to Exhibit 10.1 of Vectors
    Form 8-K
    dated April 10, 2009).* 10
.26

Vector Senior Executive Annual Bonus Plan (incorporated by
    reference to Exhibit 10.7 in Vectors
    Form 8-K
    dated January 27, 2006).* 10
.27

Vector Supplemental Retirement Plan (as amended and restated
    April 24, 2008) (incorporated by reference to
    Exhibit 10.1 in Vectors
    Form 10-Q
    for the quarter ended June 30, 2008).* 10
.28

Closing Agreement on Final Determination Covering Specific
    Matters between Vector and the Commissioner of Internal Revenue
    of the United States of America dated July 20, 2006
    (incorporated by reference to Exhibit 10.3 in Vectors
    Form 10-Q
    for the quarter ended September 30, 2006).* 10
.29

Operating Agreement of Douglas Elliman Realty, LLC (formerly
    known as Montauk Battery Realty LLC) dated
    December 17, 2002 (incorporated by reference to
    Exhibit 10.1 in New Valleys
    Form 8-K
    dated December 13, 2002).* 10
.30

First Amendment to Operating Agreement of Douglas Elliman
    Realty, LLC (formerly known as Montauk Battery Realty LLC),
    dated as of March 14, 2003 (incorporated by reference to
    Exhibit 10.1 in New Valleys
    Form 10-Q
    for the quarter ended March 31, 2003).* 10
.31

Second Amendment to Operating Agreement of Douglas Elliman
    Realty, LLC, dated as of May 19, 2003 (incorporated by
    reference to Exhibit 10.1 in New Valleys
    Form 10-Q
    for the quarter ended June 30, 2003).* 10
.32

Note and Equity Purchase Agreement, dated as of March 14,
    2003 (the Note and Equity Purchase Agreement), by
    and between Douglas Elliman Realty, LLC (formerly known as
    Montauk Battery Realty LLC), New Valley Real Estate Corporation
    and The Prudential Real Estate Financial Services of America,
    Inc., including form of 12% Subordinated Note due
    March 14, 2013 (incorporated by reference to
    Exhibit 10.2 in New Valleys
    Form 10-Q
    for the quarter ended March 31, 2003). 65




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##### Table of Contents



ExhibitNo.

Description* 10
.33

Amendment to the Note and Equity Purchase Agreement, dated as of
    April 14, 2003 (incorporated by reference to
    Exhibit 10.3 in New Valleys
    Form 10-Q
    for the quarter ended March 31, 2003).21


Subsidiaries of Vector.23
.1

Consent of PricewaterhouseCoopers LLP.23
.2

Consent of PricewaterhouseCoopers LLP.23
.3

Consent of PricewaterhouseCoopers LLP.23
.4

Consent of PricewaterhouseCoopers LLP.31
.1

Certification of Chief Executive Officer, Pursuant to Exchange
    Act
    Rule 13a-14(a),
    as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.31
.2

Certification of Chief Financial Officer, Pursuant to Exchange
    Act
    Rule 13a-14(a),
    as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.32
.1

Certification of Chief Executive Officer, Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial Officer, Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.99
.1

Material Legal Proceedings.99
.2

Liggett Group LLCs Consolidated Financial Statements for
    the three years ended December 31, 2009.99
.3

Vector Tobacco Inc.s Consolidated Financial Statements for
    the three years ended December 31, 2009.99
.4

Douglas Elliman Realty LLCs Consolidated Financial
    Statements for the three years ended December 31, 2009.     *
    
    Incorporated by reference   66




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##### Table of Contents



SIGNATURES    VECTOR GROUP LTD.
    (Registrant)
  By:
    /s/  J.
    Bryant Kirkland III        POWER OF
    ATTORNEY
  Form 10-K
    Signature

Title/s/  Howard
    M. LorberHoward
    M. Lorber

President and Chief Executive Officer
    (Principal Executive Officer)/s/  J.
    Bryant Kirkland IIIJ.
    Bryant Kirkland III

Vice President, Treasurer and Chief Financial Officer
    (Principal Financial Officer and Principal Accounting Officer)/s/  Henry
    C. BeinsteinHenry
    C. Beinstein

Director/s/  Ronald
    J. BernsteinRonald
    J. Bernstein

Director/s/  Robert
    J. EideRobert
    J. Eide

Director/s/  Bennett
    S. LeBowBennett
    S. LeBow

Director/s/  Jeffrey
    S. PodellJeffrey
    S. Podell

Director/s/  Jean
    E. SharpeJean
    E. Sharpe

Director  67




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##### Table of Contents



VECTOR
    GROUP LTD.FORM 10-K
    FOR THE YEAR ENDED DECEMBER 31, 2009
    ITEMS 8, 15(a)(1) AND (2), 15(c)
  INDEX TO
    FINANCIAL STATEMENTS
    AND FINANCIAL STATEMENT SCHEDULES
    PageFINANCIAL STATEMENTS:Vector Group Ltd. Consolidated Financial StatementsReport of Independent Registered Certified Public
    Accounting Firm


F-2Vector Group Ltd. Consolidated Balance Sheets as
    of December 31, 2009 and 2008


F-3Vector Group Ltd. Consolidated Statements of
    Operations for the years ended December 31, 2009, 2008 and
    2007


F-4Vector Group Ltd. Consolidated Statement of
    Stockholders (Deficiency) Equity for the years ended
    December 31, 2009, 2008 and 2007


F-5Vector Group Ltd. Consolidated Statements of Cash
    Flows for the years ended December 31, 2009, 2008 and
    2007


F-6Notes to Consolidated Financial Statements


F-8FINANCIAL STATEMENT SCHEDULE:Schedule II  Valuation and
    Qualifying Accounts


F-79     Liggett
    Group LLC
    Vector
    Tobacco Inc.
    Douglas
    Elliman Realty LLC
   F-1




---



##### Table of Contents



Report of
    Independent Registered Certified Public Accounting
    Firm     Internal Control  Integrated
    Framework
        
     F-2




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
  December 31,


December 31,2009


2008Dollars in thousands, except per share amountsASSETS:Current assets:Cash and cash equivalents

$
209,454


$
211,105Investment securities available for sale


51,743



28,518Accounts receivable  trade


8,098



9,506Inventories


98,486



92,581Deferred income taxes


14,154



3,642Restricted assets


3,138



2,653Other current assets


4,135



7,278Total current assets


389,208



355,283Property, plant and equipment, net


44,026



50,691Mortgage receivable, net






17,704Investment in real estate


12,204



Long-term investments accounted for at cost


50,323



51,118Investments in non-consolidated real estate businesses


49,566



50,775Restricted assets


4,835



6,555Deferred income taxes


39,838



45,222Intangible asset


107,511



107,511Prepaid pension costs


8,994



2,901Other assets


29,037



29,952Total assets

$
735,542


$
717,712LIABILITIES AND STOCKHOLDERS (DEFICIENCY) EQUITY:Current liabilities:Current portion of notes payable and long-term debt

$
21,889


$
97,498Current portion of employee benefits


1,029



21,840Accounts payable


4,355



6,104Accrued promotional expenses


12,745



10,131Income taxes payable, net


19,924



11,803Accrued excise and payroll taxes payable


24,093



7,004Settlement accruals


18,803



20,668Deferred income taxes


17,254



92,507Accrued interest


13,840



9,612Other current liabilities


15,076



18,992Total current liabilities


149,008



296,159Notes payable, long-term debt and other obligations, less
    current portion


334,920



210,301Fair value of derivatives embedded within convertible debt


153,016



77,245Non-current employee benefits


34,247



34,856Deferred income taxes


45,120



48,807Other liabilities


23,913



16,739Total liabilities


740,224



684,107Commitments and contingenciesStockholders (deficiency) equity:Preferred stock, par value $1.00 per share,
    10,000,000 shares authorized






Common stock, par value $0.10 per share, 150,000,000 shares
    authorized, 74,510,595 and 69,107,320 shares issued and
    71,262,684 and 66,014,070 shares outstanding


7,126



6,601Additional paid-in capital


15,928



65,103Retained earnings






Accumulated other comprehensive loss


(14,879
)


(25,242
)Less: 3,247,911 and 3,093,250 shares of common stock in
    treasury, at cost


(12,857
)


(12,857
)Total stockholders (deficiency) equity


(4,682
)


33,605Total liabilities and stockholders (deficiency) equity

$
735,542


$
717,712    F-3




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended December 31,2009


2008


2007Dollars in thousands, except per share amountsRevenues*

$
801,494


$
565,186


$
555,430Expenses:Cost of goods sold


577,386



335,299



337,079Operating, selling, administrative and general expenses


85,041



94,583



92,967Gain on brand transaction


(5,000
)






Restructuring charges


900







(120
)Operating income


143,167



135,304



125,504Other income (expenses):Interest and dividend income


492



5,864



9,897Interest expense


(68,490
)


(62,335
)


(45,762
)Changes in fair value of derivatives embedded within convertible
    debt


(35,925
)


24,337



(6,109
)Loss on extinguishment of debt


(18,573
)






Provision for loss on investments


(8,500
)


(32,400
)


(1,216
)Gain from conversion of LTS notes










8,121Equity income from non-consolidated real estate businesses


15,213



24,399



16,243Income from lawsuit settlement










20,000Other, net


1,153



(597
)


(75
)Income before provision for income taxes


28,537



94,572



126,603Income tax expense


(3,731
)


(34,068
)


(52,800
)Net income

$
24,806


$
60,504


$
73,803Per basic common share:Net income applicable to common shares

$
0.34


$
0.85


$
1.05Per diluted common share:Net income applicable to common shares

$
0.34


$
0.76


$
1.02Cash distributions declared per share

$
1.54


$
1.47


$
1.40     *
    
    Revenues and cost of goods sold include federal excise taxes of
    $377,771, $168,170 and $176,269 for the years ended
    December 31, 2009, 2008 and 2007, respectively.   F-4




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF STOCKHOLDERS
    (DEFICIENCY) EQUITY
  Additional








OtherCommon Stock


Paid-In


Unearned





Comprehensive


TreasuryShares


Amount


Capital


Compensation


Deficit


Income (Loss)


Stock


TotalDollars in thousandsBalance, January 1, 2007


57,031,269


$
5,703


$
132,807


$



$
(28,192
)

$
(2,587
)

$
(12,754
)

$
94,977Net income


















73,803











73,803Change in net loss and prior service cost, net of taxes






















11,545







11,545Forward contract adjustments, net of taxes






















28







28Unrealized gain on long-term investments accounted for under the
    equity method, net of taxes






















226







226Unrealized gain on investment securities, net of taxes






















8,967







8,967Total other comprehensive income






























20,766Total comprehensive income






























94,569Distributions and dividends on common stock










(54,054
)






(45,324
)










(99,378
)Effect of stock dividend


2,870,589



287











(287
)










Restricted stock grants


40,000



4



(4
)


















Tax benefit of options exercised










2,055



















2,055Exercise of options, net of 7,627 shares delivered to pay
    exercise price


419,210



42



5,161















(103
)


5,100Amortization of deferred compensation










3,529



















3,529Balance, December 31, 2007


60,361,068



6,036



89,494











18,179



(12,857
)


100,852Net income


















60,504











60,504Change in net loss and prior service cost, net of taxes






















(30,989
)






(30,989
)Forward contract adjustments, net of taxes






















35







35Unrealized gain on long-term investments accounted forunder the equity method, net of taxes






















(399
)






(399
)Unrealized gain on investment securities, net of taxes






















(12,263
)






(12,263
)Total other comprehensive loss






























(43,616
)Total comprehensive income






























16,888Adoption of SFAS No. 158, measurement date


















(509
)


195







(314
)Distributions and dividends on common stock










(46,081
)






(59,681
)










(105,762
)Effect of stock dividend


3,142,760



314











(314
)










Tax benefit of options exercised










18,304



















18,304Exercise of options, net of 1,375,895 shares delivered to
    pay exercise price


2,510,242



251



(164
)


















87Amortization of deferred compensation










3,550



















3,550Balance, December 31, 2008


66,014,070



6,601



65,103











(25,242
)


(12,857
)


33,605Net income


















24,806











24,806Change in net loss and prior service cost, net of taxes






















6,232







6,232Forward contract adjustments, net of taxes






















34







34Unrealized gain on investment securities, net of taxes






















4,097







4,097Total other comprehensive income






























10,363Total comprehensive income






























35,169Distributions and dividends on common stock










(88,110
)






(24,473
)










(112,583
)Restricted stock grant


500,000



50























50Effect of stock dividend


3,326,623



333











(333
)










Tax benefit of options exercised










9,162



















9,162Exercise of options, net of 2,814,866 shares delivered to
    pay exercise price


1,582,074



158



986



















1,144Surrender of shares in connection with option exercise


(160,083
)


(16
)


(2,298
)


















(2,314
)Amortization of deferred compensation










3,642



















3,642Beneficial conversion feature of notes payable, net of taxes










27,443



















27,443Balance, December 31, 2009


71,262,684


$
7,126


$
15,928


$



$



$
(14,879
)

$
(12,857
)

$
(4,682
)    F-5




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,2009


2008


2007Dollars in thousands, except per share amountsCash flows from operating activities:Net income

$
24,806


$
60,504


$
73,803Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


10,398



10,057



10,202Non-cash stock-based expense


3,642



3,550



3,529Non-cash portion of restructuring and impairment charges


100



53



(120
)Loss on extinguishment of debt


18,573







Gain on sale of assets


127







Deferred income taxes


(110,183
)


432



44,656Gain from conversion of LTS notes










(6,388
)Provision for loss on mortgage receivable


5,000



4,000



Provision for loss on non-consolidated realestate businesses


3,500



3,500



Provision for loss on long-term investments accountedfor at cost






21,900



Loss on long-term investments accountedunder the equity method






568



Provision for loss on marketable securities






3,000



1,216Equity income in non-consolidated real estate businesses


(15,213
)


(24,399
)


(16,243
)Distributions from non-consolidated real estate businesses


6,466



8,462



8,878Non-cash interest (income) expense


51,209



(11,907
)


13,912Changes in assets and liabilities:Receivables


1,408



(6,393
)


12,367Inventories


(5,905
)


(5,756
)


4,474Change in book overdraft






198



(179
)Accounts payable and accrued liabilities


4,035



11,850



(46,960
)Cash payments on restructuring liabilities


(902
)


(154
)


(884
)Other assets and liabilities, net


8,606



11,800



6,935Net cash provided by operating activities


5,667



91,265



109,198    F-6




---



##### Table of Contents



VECTOR
    GROUP LTD. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  (Continued)
   Year Ended December 31,2009


2008


2007Dollars in thousands, except per share amountsCash flows from investing activities:Proceeds from sale of businesses and assets


41



452



917Proceeds from sale or maturity of investment securities


78







Purchase of investment securities


(12,427
)


(6,411
)


(6,571
)Proceeds from sale or liquidation of long-term investments


2,254



8,334



71Purchase of long-term investments


(51
)


(51
)


(40,091
)Purchase of mortgage receivable






(21,704
)


Purchase of Castle Brands and other minority equity interests






(4,250
)


Decrease (increase) in restricted assets


1,720



(411
)


(492
)Investments in non-consolidated real estate businesses


(474
)


(22,000
)


(750
)Distributions from non-consolidated real estate businesses


6,730



19,393



1,000Capital expenditures


(3,848
)


(6,309
)


(5,189
)Increase in cash surrender value of life insurance policies


(839
)


(938
)


(838
)Net cash used in investing activities


(6,816
)


(33,895
)


(51,943
)Cash flows from financing activities:Proceeds from issuance of debt


118,805



2,831



174,576Repayments of debt


(6,179
)


(6,329
)


(41,200
)Deferred financing charges


(5,573
)


(137
)


(9,985
)Borrowings under revolver


749,474



531,251



537,746Repayments on revolver


(751,607
)


(526,518
)


(534,950
)Distributions on common stock


(115,778
)


(103,870
)


(99,249
)Proceeds from exercise of Vector options and warrants


1,194



86



5,100Tax benefit of options exercised


9,162



18,304



2,055Net cash (used in) provided by financing activities


(502
)


(84,382
)


34,093Net (decrease) increase in cash and cash equivalents


(1,651
)


(27,012
)


91,348Cash and cash equivalents, beginning of year


211,105



238,117



146,769Cash and cash equivalents, end of year

$
209,454


$
211,105


$
238,117    F-7




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
    in Thousands, Except Per Share Amounts)
  1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  (a)
    Basis
    of
    Presentation:      (b)
    Estimates
    and
    Assumptions:    (c)
    Cash
    and Cash
    Equivalents:    (d)
    Financial
    Instruments:        and/or
 F-8




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (e)
    Investment
    Securities:    other-than-temporary other-than-temporary other-than-temporary other-than-temporary
  (f)
    Significant
    Concentrations of Credit
    Risk:      (g)
    Accounts
    Receivable:      (h)
    Inventories:  last-in,
  (i)
    Restricted
    Assets:   F-9




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (j)
    Property,
    Plant and
    Equipment:      (k)
    Investment
    in Non-Consolidated Real Estate
    Businesses:        (l)
    Intangible
    Assets:    10-12 years
  (m)
    Impairment
    of Long-Lived
    Assets:   F-10




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (n)
    Pension,
    Postretirement and Postemployment Benefits
    Plans:    (o)
    Stock
    Options:    (p)
    Income
    Taxes:      (q)
    Distributions
    and Dividends on Common
    Stock:  paid-in-capital.
 F-11




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (r)
    Revenue
    Recognition:  Sales:
  Shipping and Handling Fees and Costs:
  (s)
    Advertising
    and Research and
    Development:      (t)
    Earnings
    Per
    Share:       F-12




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009


2008


2007Net income

$
24,806


$
60,504


$
73,803Income attributable to participating securities


(956
)


(2,783
)


(4,817
)Net income available to common stockholders

$
23,850


$
57,721


$
68,986         2009


2008


2007Weighted-average shares for basic EPS


69,513,609



67,708,495



65,724,435Plus incremental shares related to stock options and warrants


66,427



753,078



1,836,293Plus incremental shares related to convertible debt






6,219,710



Weighted-average shares for diluted EPS


69,580,036



74,681,283



67,560,728     Year Ended December 31,2009


2008


2007Number of stock options


1,629,442



540,472



183,383Weighted-average exercise price

$
15.66


$
18.30


$
24.98Weighted-average shares of non-vested restricted stock


158,926



69,941



N/AWeighted-average expense per share

$
16.28


$
16.79



N/AWeighted-average number of shares issuable upon conversion of
    debt


15,015,099



7,359,474



13,579,184Weighted-average conversion price

$
16.86


$
15.20


$
16.34  F-13




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2009


2008


2007Net income

$
24,806


$
60,504


$
73,803Income attributable to 3.875% variableinterest senior convertible debentures due 2026






(962
)


Income attributable to participating securities


(971
)


(2,783
)


(4,817
)Net income for diluted EPS

$
23,835


$
56,759


$
68,986   (u)
    Comprehensive
    Income:    Year Ended December 31,2009


2008


2007Net income

$
24,806


$
60,504


$
73,803Net unrealized gains (losses) on investment securities available
    for sale:Change in net unrealized gains (losses), net of income taxes


4,097



(14,047
)


8,248Net unrealized losses reclassified into net income, net of
    income taxes






1,784



719Net unrealized gains (losses) on investment securities available
    for sale, net of income taxes


4,097



(12,263
)


8,967Change in net unrealized (losses) gains, net of income taxes






(674
)


226Net unrealized losses reclassified into net income, net of
    income taxes






275



Net unrealized (losses) gains on long-term investments accounted
    for under the equity method






(399
)


226Net change in forward contracts


34



35



28Net change in pension-related amounts, net of income taxes


6,232



(30,989
)


11,545Comprehensive income

$
35,169


$
16,888


$
94,569  F-14




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,


December 31,


December 31,2009


2008


2007Net unrealized gains on investment securities available for
    sale, net of income taxes of $4,238, $1,456 and $9,943,
    respectively

$
6,201


$
2,104


$
14,367Net unrealized gains on long-term investment accounted for under
    the equity method, net of income taxes of $0, 0, and $276,
    respectively










399Forward contracts adjustment, net of income taxes of $170, $195
    and $219, respectively


(248
)


(282
)


(317
)Pension-related amounts, net of income taxes of $13,513, $17,408
    and $2,452, respectively


(20,832
)


(27,064
)


3,730Accumulated other comprehensive income (loss)

$
(14,879
)

$
(25,242
)

$
18,179   (v)
    Fair
    Value of Derivatives Embedded within Convertible
    Debt:    (w)
    Capital
    and Credit Market
    Crisis:    other-than-temporary. other-than-temporary
 F-15




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (x)
    Contingencies:      (y)
    New
    Accounting
    Pronouncements:           F-16




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        other-than-temporary
         F-17




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2.
    RESTRUCTURINGS      Employee


Non-Cash


ContractSeverance


Asset


Termination/and Benefits


Impairment


Exit Costs


TotalBalance, January 1, 2007

$
484


$



$
338


$
822Change in estimate


(71
)






8



(63
)Utilized


(343
)






(346
)


(689
)Balance, December 31, 2007


70











70Change in estimate


(14
)










(14
)Utilized


(56
)










(56
)Balance, December 31, 2008














Restructuring charges


738



30



232



1,000Change in estimate


(47
)


(3
)


(50
)


(100
)Utilized


(586
)


(27
)


(167
)


(780
)Balance, December 31, 2009

$
105


$



$
15


$
120  F-18




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Liggett Vector Brands Restructuring.
    Employee


Non-Cash


ContractSeverance


Asset


Termination/and Benefits


Impairment


Exit Costs


TotalBalance, January 1, 2007

$



$



$
850


$
850Change in estimate










(57
)


(57
)Utilized










(195
)


(195
)Balance, December 31, 2007










598



598Change in estimate










(39
)


(39
)Utilized










(98
)


(98
)Balance, December 31, 2008










461



461Change in estimate














Utilized










(122
)


(122
)Balance, December 31, 2009

$



$



$
339


$
339   3.
    INVESTMENT
    SECURITIES AVAILABLE FOR SALE  other-than-temporary
    Gross


GrossUnrealized


Unrealized


FairCost


Gain


Loss


Value2009Marketable equity securities

$
41,304


$
13,051


$
(2,613
)

$
51,7422008Marketable equity securities

$
24,958


$
5,024


$
(1,464
)

$
28,518    F-19




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    INVENTORIES    December 31,


December 31,2009


2008Leaf tobacco

$
48,942


$
48,880Other raw materials


3,497



5,128Work-in-process


2,388



314Finished goods


59,293



46,202Inventories at current cost


114,120



100,524LIFO adjustments


(15,635
)


(7,943
)$
98,485


$
92,581         5.
    PROPERTY,
    PLANT AND EQUIPMENT      December 31,


December 31,2009


2008Land and improvements

$
1,493


$
1,418Buildings


13,575



13,575Machinery and equipment


107,607



105,645Leasehold improvements


2,215



2,269Construction-in-progress


924



730125,814



123,637Less accumulated depreciation


(81,788
)


(72,946
)$
44,026


$
50,691    F-20




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   6.
    LONG-TERM
    INVESTMENTS    December 31,


December 31,2009


2008Carrying


Fair


Carrying


FairValue


Value


Value


ValueInvestment partnerships accounted for at cost

$
50,323


$
69,940


$
51,118


$
54,997             other-than-temporary other-than-temporary
     F-21




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    InvestmentPartnershipsAccounted for atCostBalance as of January 1, 2009

$
54,997Contributions


52Distributions


(847
)Unrealized gain on long-termInvestments


15,738Balance as of December 31, 2009

$
69,940     InvestmentInvestment


PartnershipsPartnerships


Accounted for onAccounted for at


theCost


Equity MethodBalance as of January 1, 2008

$
89,007


$
10,495Contributions (distributions)


47



(8,328
)Receivable classified as Other currents assets






(925
)Unrealized loss on long-term investments


(12,157
)


(675
)Other than temporary impairment on long-term investments


(21,900
)


Realized loss on long-term investments






(567
)Balance as of December 31, 2008

$
54,997


$
      F-22




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   7.
    NOTES PAYABLE,
    LONG-TERM DEBT AND OTHER OBLIGATIONS    December 31,


December 31,2009


2008Vector:11% Senior Secured Notes due 2015, net of unamortizeddiscount of $4,849 and $0

$
245,151


$
165,0006.75% Variable Interest Senior Convertible Note due 2014, net of
    unamortized discount of $39,755 and $0*


10,245



6.75% Variable Interest Senior Convertible Exchange Notes due
    2014, net of unamortized discount of $69,749 and $0*


37,781



3.875% Variable Interest Senior Convertible Debentures due 2026,
    net of unamortized discount of $83,589 and $83,993*


26,411



26,0075% Variable Interest Senior Convertible Notes due 2011, net of
    unamortized net discount of $0 and $39,565*






72,299Liggett:Revolving credit facility


17,382



19,515Term loan under credit facility


6,755



7,290Equipment loans


4,852



8,307V.T. Aviation:Note payable


3,882



5,266VGR Aviation:Note payable


3,687



4,053Other


663



62Total notes payable, long-term debt and other obligations


356,809



307,799Less:Current maturities


(21,889
)


(97,498
)Amount due after one year

$
334,920


$
210,301     *
    
    The fair value of the derivatives embedded within the 6.75%
    Variable Interest Convertible Note ($23,890 and $0 at
    December 31, 2009 and 2008, respectively), 6.75% Variable
    Interest Senior Convertible Exchange Notes ($47,552 and $0 at
    December 31, 2009 and 2008, respectively), 3.875% Variable
    Interest Senior Convertible Debentures ($81,574 and $51,829 at
    December 31, 2009 and 2008, respectively) and the 5%
    Variable Interest Senior Convertible Notes ($0 and $25,416 at
    December 31, 2009 and 2008, respectively) is separately
    classified as a derivative liability in the consolidated balance
    sheets.  11%
    Senior Secured Notes due 2015 
    Vector:
   F-23




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Variable
    Interest Senior Convertible Debt 
    Vector:
    5%
    Variable Interest Senior Convertible Notes due November
    2011:
    6.75%
    Variable Interest Senior Convertible Note due
    2014:
   F-24




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      6.75%
    Variable Interest Senior Convertible Exchange Notes due
    2014:
      3.875%
    Variable Interest Senior Convertible Debentures due
    2026:
     F-25




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Embedded
    Derivatives on the Variable Interest Senior Convertible
    Debt:
      Year Ended December 31,2009


2008


20076.75% note

$
331


$



$
6.75% exchange notes


1,210







3.875% convertible debentures


455



360



(28
)5% convertible notes


3,394



5,445



3,796Interest expense associated with embedded derivatives

$
5,390


$
5,805


$
3,768     Year Ended December 31,2009


2008


20076.75% note

$
(2,323
)

$



$
6.75% exchange notes


(3,237
)






3.875% convertible debentures


(29,745
)


16,082



(8,104
)5% convertible notes


(620
)


8,255



1,995Loss (gain) on changes in fair value of derivatives embedded
    within convertible debt

$
(35,925
)

$
24,337


$
(6,109
)  F-26




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    6.75%


3.875%


5%6.75%


Exchange


Convertible


ConvertibleNote


Notes


Debentures


Notes


TotalBalance at January 1, 2007

$



$



$
59,807


$
35,666


$
95,473Loss (gain) from changes in fair value of embedded derivatives










8,104



(1,995
)


6,109Balance at December 31, 2007










67,911



33,671



101,582Gain from changes in fair value of embedded derivatives










(16,082
)


(8,255
)


(24,337
)Balance at December 31, 2008










51,829



25,416



77,245Issuance of 6.75% Note


21,567











(2,485
)


19,082Issuance of 6.75% Exchange Notes






44,315







(23,551
)


20,764Loss from changes in fair value of embedded derivatives


2,323



3,237



29,745



620



35,925Balance at December 31, 2009

$
23,890


$
47,552


$
81,574


$



$
153,016   Beneficial
    Conversion Feature on Variable Interest Senior Convertible
    Debt:
      Year Ended December 31,2009


2008


2007Amortization of beneficial conversion feature:6.75% note

$
289


$



$
6.75% exchange notes


748







3.875% convertible debentures


(51
)


(54
)


(215
)5% convertible notes


1,883



3,017



2,083Interest expense associated with beneficial conversion feature

$
2,869


$
2,963


$
1,868  F-27




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Unamortized
    Debt Discount on Variable Interest Senior Convertible
    Debt:
    6.75%


3.875%


5%6.75%


Exchange


Convertible


ConvertibleNote


Notes


Debentures


Notes


TotalBalance at January 1, 2007

$



$



$
84,056


$
53,906


$
137,962Amortization of embedded derivatives










28



(3,796
)


(3,768
)Amortization of beneficial conversion feature










215



(2,083
)


(1,868
)Balance at December 31, 2007










84,299



48,027



132,326Amortization of embedded derivatives










(360
)


(5,445
)


(5,805
)Amortization of beneficial conversion feature










54



(3,017
)


(2,963
)Balance at December 31, 2008










83,993



39,565



123,558Issuance of convertible notes - embedded derivative


21,567



44,315











65,882Issuance of convertible notes - beneficial conversion feature


18,808



27,392











46,200Issuance of 6.75% Note-write-off of unamortized debt
    discount














(3,311
)


(3,311
)Issuance of 6.75% Exchange Notes-write-off of unamortized debt
    discount














(30,977
)


(30,977
)Amortization of embedded derivatives


(331
)


(1,210
)


(455
)


(3,394
)


(5,390
)Amortization of beneficial conversion feature


(289
)


(748
)


51



(1,883
)


(2,869
)Balance at December 31, 2009

$
39,755


$
69,749


$
83,589


$



$
193,093   Loss
    on Extinguishment of Debt:
    6.75%6.75%


ExchangeNote


Notes


TotalIssuance of additional notes payable

$
770


$
7,034


$
7,804Termination of embedded derivative


(2,485
)


(23,551
)


(26,036
)Write-off of deferred finance costs


257



2,260



2,517Write-off of unamortized debt discount, net


3,311



30,977



34,288Loss on extinguishment of debt

$
1,853


$
16,720


$
18,573  F-28




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revolving
    Credit Facility 
    Liggett:
  30-day
    Equipment
    Loans 
    Liggett:
          Note
    Payable 
    V.T.
    Aviation:  30-day
  Note
    Payable 
    VGR
    Aviation:  30-day
 F-29




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair
    Value of Notes Payable and Long-term Debt:
    December 31,

December 31,2009

2008Carrying

Fair

Carrying

FairValue

Value

Value

ValueNotes payable and long-term debt

$
334,920


$
573,439


$
307,799


$
447,520   Scheduled
    Maturities:
    UnamortizedPrincipal


Discount


NetYear Ending December 31:2010

$
21,889


$



$
21,8892011


16,253



1,270



14,9832012


103,336



82,319



21,0172013


1,039







1,0392014


158,144



109,504



48,640Thereafter


254,090



4,849



249,241Total

$
554,751


$
197,942


$
356,809     Weighted-Average
    Interest Rate on Current Maturities of Long-Term
    Debt:
   F-30




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    COMMITMENTS  month-to-month
  Lease


SubleaseCommitments


Rentals


NetYear Ending December
    31:2010

$
4,218


$
946


$
3,2722011


3,709



2,135



1,5742012


3,477



1,920



1,5572013


1,646



651



9952014


598



159



439Thereafter










Total

$
13,648


$
5,811


$
7,837       9.
    EMPLOYEE
    BENEFIT PLANS  Defined
    Benefit Plans and Postretirement Plans:
  Defined Benefit Plans.
   F-31




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Postretirement Medical and Life Plans.
 F-32




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    OtherPension Benefits


Postretirement Benefits2009


2008


2009


2008Change in benefit obligation:Benefit obligation at January 1

$
(156,318
)

$
(159,776
)

$
(8,743
)

$
(9,836
)Service cost


(1,319
)


(3,789
)


(15
)


(14
)Interest cost


(9,385
)


(9,525
)


(566
)


(591
)Gap period cash flow






3,192







194Gap period service and interest cost






(3,328
)






(151
)Benefits paid


32,903



12,583



596



642Expenses paid


507











Actuarial (gain) loss


(8,431
)


4,325



(677
)


1,013Benefit obligation at December 31

$
(142,043
)

$
(156,318
)

$
(9,405
)

$
(8,743
)Change in plan assets:Fair value of plan assets at January 1

$
111,266


$
169,465


$



$
Gap period cash flow






(3,278
)






Actual return on plan assets


26,085



(42,810
)






Expenses paid


(507
)










Contributions


21,225



472



596



643Benefits paid


(32,903
)


(12,583
)


(596
)


(643
)Fair value of plan assets at December 31

$
125,166


$
111,266


$



$
Funded status at December 31

$
(16,877
)

$
(45,052
)

$
(9,405
)

$
(8,743
)Amounts recognized in the consolidated balance sheets:Prepaid pension costs

$
8,994


$
2,901


$



$
Other accrued liabilities


(357
)


(21,139
)


(680
)


(701
)Non-current employee benefit liabilities


(25,514
)


(26,814
)


(8,725
)


(8,042
)Net amounts recognized

$
(16,877
)

$
(45,052
)

$
(9,405
)

$
(8,743
)   Pension Benefits


Other Postretirement Benefits2009


2008


2007


2009


2008


2007Service cost  benefits earned during the period

$
1,319


$
4,139


$
4,246


$
15


$
15


$
18Interest cost on projected benefit obligation


9,385



9,525



9,122



567



591



591Expected return on assets


(7,817
)


(12,145
)


(12,726
)










Prior service cost


801



1,402



1,402











Time contractual termination benefits


(1,808
)






632











Amortization of net loss (gain)


2,136



98



705



(163
)


(180
)


(105
)Net expense

$
4,016


$
3,019


$
3,381


$
419


$
426


$
504  F-33




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Defined

Post-Benefit

RetirementPension Plans

Plans

TotalPrior service cost

$
2,018


$



$
2,018Actuarial loss (gain)


1,358



(130
)


1,228     Defined


Post-Benefit


RetirementPension Plans


Plans


TotalPrior year accumulated other comprehensive income

$
(46,314
)

$
1,842


$
(44,472
)Amortization of prior service costs


801







801Effect of settlement


(1,808
)






(1,808
)Amortization of gain (loss)


2,136



(163
)


1,973Net (loss) gain arising during the year


9,837



(676
)


9,161Current year accumulated other comprehensive (loss) income

$
(35,348
)

$
1,003


$
(34,345
)         Defined


Post-Benefit


RetirementPension Plans


Plans


TotalPrior year accumulated othercomprehensive income

$
5,128


$
1,054


$
6,182Amortization of prior service costs


1,402







1,402Amortization of gain (loss)


99



(180
)


(81
)Net (loss) gain arising during the year


(53,316
)


1,013



(52,303
)Gap period adjustment


373



(45
)


328Current year accumulated other comprehensive (loss) income

$
(46,314
)

$
1,842


$
(44,472
)        F-34




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pension Benefits

Other Postretirement Benefits2009

2008

2007

2009

2008

2007Weighted average assumptions:Discount rates  benefit obligation


5.75
%


6.75
%


6.25
%


5.75
%


6.75
%


6.25
%Discount rates  service cost


6.75
%


6.25
%


5.85
%


6.75
%


6.25
%


5.85
%Assumed rates of return on invested assets


7.50
%


7.50
%


8.50
%










Salary increase assumptions


N/A



N/A



N/A



3.00
%


3.00
%


3.00
%   year-by-year,
  10-year
       F-35




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Plan Assets atDecember 31,2009


2008Asset category:Equity securities


50
%


44
%Investment grade fixed income securities


26
%


26
%High yield fixed income securities


2
%


5
%Alternative investments


8
%


8
%Short-term investments


14
%


17
%Total


100
%


100
%     Fair Value Measurements as of December 31, 2009Quoted Prices inActive Markets for


Significant Other


SignificantIdentical Assets


Observable Inputs


Unobservable InputsDescription

Total


(Level 1)


(Level 2)


(Level 3)Assets:Insurance contracts

$
2,684


$



$
2,684


$
Amounts in individually managed investment accounts:Cash, mutual funds and common stock


71,726



71,726







Common collective trusts


40,210







38,752



1,458Investment partnership


10,182











10,182Total

$
124,802


$
71,726


$
41,436


$
11,640   F-36




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair Value Measurements as of December 31, 2008Quoted Prices inActive Markets for


Significant Other


SignificantIdentical Assets


Observable Inputs


Unobservable InputsDescription

Total


(Level 1)


(Level 2)


(Level 3)Assets:Insurance contracts

$
2,280


$



$
2,280


$
Amounts in individually managed investment accounts:Cash, mutual funds and common stock


58,634



58,634







Common collective trusts


39,273







33,735



5,538Investment partnership


9,747











9,747Total

$
109,934


$
58,634


$
36,015


$
15,285       December 31,


December 31,2009


2008Prior year balance

$
15,285


$
34,637Distributions


(8,978
)


(12,700
)Unrealized loss on long-term investments


3,913



(8,307
)Realized gain on long-term investments


1,420



1,655Balance as of December 31, 2008

$
11,640


$
15,285       1% Increase


1% DecreaseEffect on total of service and interest cost components

$
9


$
(9
)Effect on benefit obligation

$
164


$
(151
)    F-37




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    PostretirementPension


Medical2010


12,370



6802011


13,706



7562012


13,339



7032013


31,920



6872014


18,048



6742015  2019


48,386



3,347   Profit
    Sharing and Other
    Plans:
    10.
    INCOME
    TAXES    Year Ended December 31,2009


2008


2007Current:U.S. Federal

$
94,640


$
25,747


$
5,035State


19,274



7,889



3,109$
113,914


$
33,636


$
8,144Deferred:U.S. Federal

$
(85,158
)

$
5,170


$
40,575State


(25,025
)


(4,738
)


4,081(110,183
)


432



44,656Total

$
3,731


$
34,068


$
52,800  F-38




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31, 2009


December 31, 2008Deferred Tax


Deferred Tax


Deferred Tax


Deferred TaxAssets


Liabilities


Assets


LiabilitiesExcess of tax basis over book basis- non-consolidated entities

$
8,876


$



$
3,938


$
Deferral on Philip Morris brand transaction














75,466Employee benefit accruals


11,084







18,803



Book/tax differences on fixed and Intangible assets






29,671







26,908Book/tax differences on inventory






13,015Book/tax differences on long-term investments


9,950Impact of accounting on convertible debt






13,467







18,890Impact of timing of settlement payments


10,099











7,854Various U.S. state tax loss carryforwards


15,138







15,211



Other


8,354



6,221



26,123



12,196Valuation allowance


(9,509
)






(15,211
)


$
53,992


$
62,374


$
48,864


$
141,314          F-39




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2009


2008


2007Income before income taxes

$
28,537


$
94,572


$
126,603Federal income tax expense at statutory rate


9,988



33,100



44,311Increases (decreases) resulting from:State income taxes, net of federal income tax benefits


261



2,048



4,674Non-deductible expenses


1,682



1,771



2,950Impact of domestic production deduction


(1,201
)


(1,608
)


Tax credits


(833
)






Equity and other adjustments






381



115Impact of tax audit settlements










(468
)Change in other tax contingencies










2,114Changes in valuation allowance, net of equity and tax audit
    adjustments


(6,166
)


(1,624
)


(896
)Income tax expense

$
3,731


$
34,068


$
52,800  F-40




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Balance at January 1, 2007

$
11,685Additions based on tax positions related to current year


Additions based on tax positions related to prior years


2,242Reductions based on tax positions related to prior years


(95
)Settlements


Expirations of the statute of limitations


(3,227
)Balance at December 31, 2007


10,605Additions based on tax positions related to current year


Additions based on tax positions related to prior years


747Reductions based on tax positions related to prior years


(317
)Settlements


Expirations of the statute of limitations


(3,532
)Balance at December 31, 2008


7,503Additions based on tax positions related to current year


3,380Additions based on tax positions related to prior years


2,619Reductions based on tax positions related to prior years


(550
)Settlements


(903
)Expirations of the statute of limitations


(1,833
)Balance at December 31, 2009

$
10,216         11.
    STOCK
    COMPENSATION    Stock Options.
 F-41




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          2009Risk-free interest rate


2.0%  3.4%Expected volatility


24.97%  35.93%Dividend yield


0.0%Expected holding period


4.79  10 yearsWeighted average fair value


$3.58  $7.40  F-42




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-AverageRemaining


AggregateNumber of


Weighted Average


Contractual Term


IntrinsicShares


Exercise Price


(Years)


Value(1)Outstanding on January 1, 2007


10,338,476


$
8.83



2.8


$
69,246Granted






Exercised


(492,605
)

$
7.91Cancelled


(10,784
)

$
21.60Outstanding on December 31, 2007


9,835,087


$
8.80



1.8


$
95,238Granted






Exercised


(4,284,490
)

$
5.45Cancelled


(1,473
)

$
29.46Outstanding on December 31, 2008


5,549,124


$
11.03



1.7


$
13,708Granted


1,120,000


$
14.07Exercised


(4,398,627
)

$
10.02Cancelled


(67,669
)

$
16.75Outstanding on December 31, 2009


2,202,828


$
14.51



6.6


$
1,947Options exercisable at:December 31, 2007


9,159,824December 31, 2008


5,169,119December 31, 2009


1,056,999     (1)
    
    The aggregate intrinsic value represents the amount by which the
    fair value of the underlying common stock ($14.00, $12.97 and
    $18.19 at December 31, 2009, 2008 and 2007, respectively)
    exceeds the option exercise price.    Options Outstanding


Options ExercisableWeighted-AverageOutstanding


Remaining





ExercisableRange of

as of


Contractual Life


Weighted-Average


as of


Weighted-AverageExercise Prices

12/31/2009


(Years)


Exercise Price


12/31/2009


Exercise Price$0.00  8.83



11,082



3.0


$
8.55



11,082


$
8.55$8.84  11.78



55,457



0.8


$
9.31



55,457


$
9.31$11.79  14.73



1,930,723



7.2


$
13.75



798,568


$
13.31$14.74  17.67



54,693



5.9


$
16.83



41,019


$
16.83$17.68  20.62



5,892



2.1


$
18.76



5,892


$
18.76$20.63  23.56



4,644



1.6


$
22.64



4,644


$
22.64$23.57  26.51



56,138



1.7


$
25.04



56,138


$
25.04$26.52  29.46



84,199



1.7


$
26.92



84,199


$
26.922,202,828



6.6


$
14.51



1,056,999


$
14.96    F-43




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        employee-by-employee grant-by-grant
            Restricted Stock Awards.
   F-44




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              12.
    CONTINGENCIES  Tobacco-Related
    Litigation:
  Overview
  and/or and/or
 F-45




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Individual
    Actions
  and/or Engle Engle
  NumberState

of CasesFlorida


15New York


9Maryland


8Louisiana


5West Virginia


2Missouri


1Ohio


1   Liggett Only Cases. Davis v. Liggett Group, Engle in Ferlanti v. Liggett Group Hausrath v. Philip
 F-46




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Morris
    and/or
  Davis Ferlanti
  Engle Progeny Cases. Engle v. R.J. Reynolds Tobacco
    Co. Engle Engle Engle Engle Engle Engle Engle Engle
  Engle Engle Campbell Engle Engle Lukacs Engle
 F-47




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Class Actions
  Castano v. American Tobacco
    Co.
    and/or
  Engle Case. Engle class-wide
    Engle
 F-48




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Merlob, Brown Burr Engle Brown Burr) Burr Engle Engle
  Lukacs Case. Lukacs v. R.J.
    Reynolds Tobacco Co., Lukacs Engle Engle
  Engle Engle
  Other Class Actions. Smith v.
    Philip Morris,
  Schwab [McLaughlin] v. Philip
    Morris, Altria Group v.
    Good Good
  Young v. American Tobacco Co. Scott v. American Tobacco Co.
 F-49




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cleary v. Philip Morris
  Brown v. Philip Morris USA, Altria Group v. Good
  In Re: Tobacco
    Litigation (Personal Injury Cases)
  Scott.
  Health
    Care Cost Recovery Actions
   F-50




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    DOJ Case.
    City of St. Louis v. American Tobacco Company
  and/or and/or
  National Committee to Preserve Social
    Security and Medicare v. Philip Morris USA,
 F-51




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Upcoming
    Trials
  City of
    St. Louis Engle
  MSA and
    Other State Settlement Agreements
        
    all claims of the Settling States and their respective political
    subdivisions and other recipients of state health care funds,
    relating to: (i) past conduct arising out of the use, sale,
    distribution, manufacture, development, advertising and
    marketing of tobacco products; (ii) the health effects of,
    the exposure to, or research, statements or warnings about,
    tobacco products; and
    all monetary claims of the Settling States and their respective
    subdivisions and other recipients of state health care funds
    relating to future conduct arising out of the use of, or
    exposure to, tobacco products that have been manufactured in the
    ordinary course of business.  12-month
   F-52




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    and/or per-unit
  Certain
    MSA Disputes
  NPM Adjustment.
       F-53




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Gross v. Net Calculations.
    
    use of net unit amounts is not required by the MSA
    (as reflected by, among other things, the use of
    gross unit amounts through 2005);
    such a change is not authorized without the consent of affected
    parties to the MSA;
    the MSA provides for four-year time limitation periods for
    revisiting calculations and determinations, which precludes
    recalculating Liggetts 1997 Market Share (and thus,
    Liggetts market share exemption); and
    Liggett and others have relied upon the calculations based on
    gross unit amounts since 1998.    Litigation Challenging the MSA. Freedom
    Holdings Inc. v. Cuomo
  Grand River Enterprises Six Nations, Ltd. v. King
 F-54




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Other State Settlements.
    Cautionary Statement. Davis Ferlanti Lukacs Engle Ferlanti Lukacs Engle Engle
 F-55




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Engle
  Engle
        Other
    Matters:
         F-56




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    13.
    SUPPLEMENTAL
    CASH FLOW INFORMATION  Year Ended December 31,2009

2008

2007I. Cash paid during the period for:Interest

$
52,487


$
48,794


$
30,491Income taxes


94,449



4,015



18,967II. Non-cash investing and financing activities:Issuance of stock dividend


333



314



287Debt issued in debt exchange


119,305







Debt retired in debt exchange


(111,501
)






   14.
    RELATED
    PARTY TRANSACTIONS  30-month
     F-57




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      and/or
        15.
    INVESTMENTS
    AND FAIR VALUE MEASUREMENTS      Level 1
    Observable inputs such as quoted prices (unadjusted) in active
    markets for identical assets or liabilities. F-58




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Level 2
    Inputs other than quoted prices that are observable for the
    assets or liability, either directly or indirectly. These
    include quoted prices for similar assets or liabilities in
    active markets and quoted prices for identical or similar assets
    or liabilities in markets that are not active.Level 3
    Unobservable inputs in which there is little market data, which
    requires the reporting entity to develop their own assumptions      Fair Value Measurements as of December 31, 2009Quoted Pricesin Active


SignificantMarkets for


Other


SignificantIdentical


Observable


UnobservableAssets


Inputs


InputsDescription

Total


(Level 1)


(Level 2)


(Level 3)Assets:Money market funds

$
199,423


$
199,423


$



$
Certificates of deposit


2,785







2,785



Bonds


3,128



3,128







Investment securities available for sale


51,742



38,706



13,036



Total

$
257,078


$
241,257


$
15,821


$
Liabilities:Fair value of derivatives embedded within convertible debt

$
153,016


$



$



$
153,016   Fair Value Measurements as of December 31, 2008Quoted Prices


Significantin Active


Other


SignificantMarkets for


Observable


UnobservableIdentical Assets


Inputs


InputsDescription

Total


(Level 1)


(Level 2)


(Level 3)Assets:Money market funds

$
192,348


$
192,348


$



$
Investment securities available for sale


28,518



20,627



7,891



Total

$
220,866


$
212,975


$
7,891


$
Liabilities:Fair value of derivatives embedded within convertible debt

$
77,245


$



$



$
77,245      F-59




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Fair Value Measurements Using:QuotedPrices inYear





ActiveEnded





Markets


SignificantDecember 31,





for


Other


Significant2009





Identical


Observable


UnobservableImpairment





Assets


Inputs


InputsDescription

Charge


Total


(Level 1)


(Level 2)


(Level 3)Assets:Investment in real estate

$
5,000


$
12,204


$



$



$
12,204Investment in non-consolidated real estate businesses


3,500



1,248











1,248Total

$
8,500


$
13,452


$



$



$
13,452     16.
    PHILIP
    MORRIS BRAND TRANSACTION  L&M, Chesterfield Lark
       F-60




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    11-year
  90-day
    17.
    NEW
    VALLEY CORPORATION  Investments in non-consolidated real estate
    businesses.
    December 31,


December 31,2009


2008Douglas Elliman Realty LLC

$
36,086


$
33,175Aberdeen Townhomes LLC


1,248



6,50016th and K Holdings LLC






New Valley Oaktree Chelsea Eleven LLC


12,232



11,100Investments in non-consolidated real estate businesses

$
49,566


$
50,775   Residential Brokerage Business.
  F-61




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,December 31, 2009


2008Cash

$
26,920


$
22,125Other current assets


6,664



7,496Property, plant and equipment, net


13,498



15,868Trademarks


21,663



21,663Goodwill


38,601



38,578Other intangible assets, net


742



939Other non-current assets


2,871



1,024Notes payable  current


776



833Current portion of notes payable to member 
    Prudential Real Estate Financial Services of America, Inc.


2,487



4,729Current portion of notes payable to member  New Valley


2,487



4,729Other current liabilities


20,724



23,617Notes payable  long term


2,136



2,833Notes payable to member  Prudential RealEstate Financial Services of America, Inc.






2,030Notes payable to member  New Valley






2,030Other long-term liabilities


7,747



6,170Members equity


74,602



60,722   Year Ended December 31,2009


2008


2007Revenues

$
283,851


$
352,680


$
405,595Costs and expenses


259,867



324,641



359,333Depreciation expense


4,448



5,448



6,047Amortization expense


255



298



448Other income


2,090







Interest expense, net


2,413



3,290



4,309Income tax expense


223



253



748Net income

$
18,785


$
18,750


$
34,710      F-62




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    St. Regis Hotel, Washington, D.C.
        Aberdeen Townhomes LLC.
  Balance as of January 1, 2008

$
Purchase of preferred equity interest


10,000Impairment loss


(3,500
)Balance as of January 1, 2009


6,500Impairment loss


(3,500
)Preferred return distribution


(1,752
)Balance as of December 31, 2009

$
1,248      F-63




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        New Valley Oaktree Chelsea Eleven, LLC.
      Investment
    in Real Estate:
  Escena. 450-acre seven-acre
   F-64




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31,2009Land

$
8,817Golf course and club house


3,387Total

$
12,204     Real Estate Market Conditions.
  Ladenburg Thalmann Financial Services.
      NASA Settlement.
  18.
    SEGMENT
    INFORMATION   F-65




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Vector

Real

CorporateLiggett

Tobacco

Estate

and Other

Total2009Revenues

$
799,955


$
1,539


$



$



$
801,494Operating income (loss)


168,032
(1)


(7,117
)(2)


(886
)


(16,862
)


143,167Equity income from non-consolidated real estate businesses










15,213







15,213Identifiable assets


288,688



8,899



61,770
(3)


376,185



735,542Depreciation and amortization


7,982



96



74



2,246



10,398Capital expenditures


2,720



14



1,114







3,8482008Revenues

$
562,660


$
2,526


$



$



$
565,186Operating income (loss)


170,181



(8,331
)






(26,546
)


135,304Equity income from non-consolidated real estate businesses










23,899







23,899Identifiable assets


277,532



13,730



70,979
(3)


355,471



717,712Depreciation and amortization


7,601



118







2,338



10,057Capital expenditures


6,220



89











6,3092007Revenues

$
551,687


$
3,743


$



$



$
555,430Operating income (loss)


159,347



(9,896
)






(23,947
)


125,504Equity income from non-consolidated real estate businesses










16,243







16,243Identifiable assets


314,242



2,459



35,731
(3)


432,857



785,289Depreciation and amortization


7,723



134







2,345



10,202Capital expenditures


4,997



192











5,189     (1)
    
    Operating income includes a gain of $5,000 on the Philip Morris
    brand transaction completed February 2009.(2)
    
    Operating income includes restructuring costs of $900.(3)
    
    Includes investments accounted for under the equity method of
    accounting of $48,318, $44,725 and $35,731 as of
    December 31, 2009, 2008 and 2007, respectively. F-66




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   19.
    QUARTERLY
    FINANCIAL RESULTS (UNAUDITED)    December 31,


September 30,


June 30,


March 31,2009(1)


2009


2009(2)


2009(3)Revenues

$
236,748


$
236,736


$
206,794


$
121,216Gross Profit


57,451



58,937



59,032



48,689Operating income


36,188



36,972



38,847



31,160Net income (loss) applicable to common shares

$
13,433


$
16,219


$
(7,946
)

$
3,100Per basic common share(4):Net income applicable to common shares

$
0.19


$
0.22


$
(0.11
)

$
0.04Per diluted common share(4):Net income applicable to common shares

$
0.19


$
0.22


$
(0.11
)

$
0.04     (1)
    
    Fourth quarter 2009 net income applicable to common shares
    includes pre-tax loss on extinguishment of debt of $129 and an
    adjustment to reduce restructuring charges for 2009 by $100.(2)
    
    Second quarter 2009 net income applicable to common shares
    includes pre-tax loss on extinguishment of debt of $18,444.(3)
    
    First quarter 2009 net income applicable to common shares
    includes pre-tax gain of $5,000 on brand transaction,
    restructuring charges of $1,000, and impairment charges of
    $8,500 on investments in non-consolidated real estate businesses.(4)
    
    Per share computations include the impact of a 5% stock dividend
    paid on September 29, 2009. Quarterly basic and diluted net
    income per common share were computed independently for each
    quarter and do not necessarily total to the year to date basic
    and diluted net income per common share.  December 31,


September 30,


June 30,


March 31,2008(1)


2008(2)


2008


2008(3)Revenues

$
144,420


$
145,601


$
142,960


$
132,205Gross profit


60,157



60,602



56,930



52,198Operating income


35,383



37,535



34,345



28,041Net income applicable to common shares

$
12,245


$
14,827


$
19,125


$
14,307Per basic common share(4):Net income applicable to common shares

$
0.17


$
0.21


$
0.27


$
0.21Per diluted common share(4):Net income applicable to common shares

$
0.08


$
0.20


$
0.23


$
0.20     (1)
    
    Fourth quarter 2008 net income applicable to common shares
    includes pre-tax impairment charges of $24,400 on long-term
    investments, $3,000 on investments held for sale and $3,500 on
    investments in non-consolidated real estate businesses.(2)
    
    Third quarter 2008 net income applicable to common shares
    includes pre-tax impairment charges on a mortgage receivable of
    $4,000 and long-term investments of $3,000.(3)
    
    First quarter 2008 net income applicable to common shares
    includes $12,000 of pre-tax income from the Companys
    investment in the St. Regis hotel, which was sold in March 2008. F-67




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (4)
    
    Per share computations include the impact of a 5% stock dividend
    paid on September 29, 2008. Quarterly basic and diluted net
    income per common share were computed independently for each
    quarter and do not necessarily total to the year to date basic
    and diluted net income per common share.  20.
    SUBSEQUENT
    EVENTS    21.
    CONDENSED
    CONSOLIDATING FINANCIAL INFORMATION  Regulation S-X, Rule 3-10,
     F-68




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEETS
  December 31, 2009Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.ASSETS:Current assets:Cash and cash equivalents

$
204,133


$
5,004


$
317


$



$
209,454Investment securities available for sale


51,743















51,743Accounts receivable  trade






8,089



9







8,098Intercompany receivables






43







(43
)


Inventories






98,485



1







98,486Deferred income taxes


11,240



2,914











14,154Income taxes receivable






26,086







(26,086
)


Restricted assets






3,138











3,138Other current assets


497



3,512



126







4,135Total current assets


267,613



147,271



453



(26,129
)


389,208Property, plant and equipment, net


623



42,363



1,040







44,026Investment in real estate










12,204







12,204Long-term investments accounted for at cost


49,486







837







50,323Investments in non- consolidated real estate businesses










49,566







49,566Investments in consolidated subsidiaries


282,010











(282,010
)


Restricted assets


2,685



2,150











4,835Deferred income taxes


28,729



94,088



9,667



(92,646
)


39,838Intangible asset






107,511











107,511Prepaid pension costs






8,994











8,994Other assets


14,942



14,095











29,037Total assets

$
646,088


$
416,472


$
73,767


$
(400,785
)

$
735,542 F-69




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2009Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Current portion of notes payable and long-term debt

$



$
21,773


$
116


$



$
21,889Current portion of employee benefits






1,029











1,029Accounts payable


1,490



2,763



102







4,355Intercompany payables


43











(43
)


Accrued promotional expenses






12,745











12,745Income taxes payable, net


14,472



547



30,991



(26,086
)


19,924Accrued excise and payroll taxes payable, net






24,088



5







24,093Settlement accruals






18,803











18,803Deferred income taxes


14,992



2,262











17,254Accrued interest


13,840















13,840Other current liabilities


6,039



8,427



610







15,076Total current liabilities


50,876



92,437



31,824



(26,129
)


149,008Notes payable, long-term debt and other obligations, less
    current portion


319,588



14,853



479







334,920Fair value of derivatives embedded within convertible debt


153,016















153,016Non-current employee benefits


13,301



20,946











34,247Deferred income taxes


113,667



24,040



59



(92,646
)


45,120Other liabilities


322



22,763



828







23,913Total liabilities


650,770



175,039



33,190



(118,775
)


740,224Commitments and contingencies


















Stockholders equity


(4,682
)


241,433



40,577



(282,010
)


(4,682
)Total liabilities and stockholders equity

$
646,088


$
416,472


$
73,767


$
(400,785
)

$
735,542  F-70




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEETS
  December 31, 2008Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.ASSETS:Current assets:Cash and cash equivalents

$
200,066


$
11,039


$



$



$
211,105Investment securities available for sale


28,440







78







28,518Accounts receivable  trade






9,506











9,506Intercompany receivables


1,938











(1,938
)


Inventories






92,581











92,581Deferred income taxes


3,304



338











3,642Income taxes receivable


25,125











(25,125
)


Other current assets


3,962



5,969











9,931Total current assets


262,835



119,433



78



(27,063
)


355,283Property, plant and equipment, net


735



49,956











50,691Mortgage receivable










17,704







17,704Long-term investments accounted for at cost


50,332







786







51,118Long-term investments accounted under the equity method


















Investments in non- consolidated real estate businesses










50,775







50,775Investments in consolidated subsidiaries


164,917











(164,917
)


Restricted assets


3,845



2,710











6,555Deferred income taxes


37,177



870



7,175







45,222Intangible asset






107,511











107,511Prepaid pension costs






2,901











2,901Other assets


16,295



13,657











29,952Total assets

$
536,136


$
297,038


$
76,518


$
(191,980
)

$
717,712 F-71




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2008Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Current portion of notes payable and long-term debt

$
72,299


$
25,199


$



$



$
97,498Current portion of employee benefits


20,789



1,051











21,840Accounts payable


3,219



2,885











6,104Intercompany payables






3







(3
)


Accrued promotional expenses






10,131











10,131Income taxes payable, net






10,754



26,174



(25,125
)


11,803Accrued excise and payroll taxes payable, net






7,004











7,004Settlement accruals






20,668











20,668Deferred income taxes


81,961



10,546











92,507Accrued interest


9,612















9,612Other current liabilities






20,017



910



(1,935
)


18,992Total current liabilities


187,880



108,258



27,084



(27,063
)


296,159Notes payable, long-term debt and other obligations, less
    current portion


191,007



19,294











210,301Fair value of derivatives embedded within convertible debt


77,245















77,245Non-current employee benefits


17,388



17,468











34,856Deferred income taxes


28,573



20,125



109







48,807Other liabilities


438



15,219



1,082







16,739Total liabilities


502,531



180,364



28,275



(27,063
)


684,107Commitments and contingencies


















Stockholders equity


33,605



116,674



48,243



(164,917
)


33,605Total liabilities and stockholders equity

$
536,136


$
297,038


$
76,518


$
(191,980
)

$
717,712  F-72




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
  Year Ended December 31, 2009Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.Revenues

$



$
801,494


$



$



$
801,494Expenses:Cost of goods sold






577,386











577,386Operating, selling, administrative and general expenses


20,679



63,277



1,085







85,041Gain on brand transaction






(5,000
)










(5,000
)Restructuring charges






900











900Management fee expense






8,223







(8,223
)


Operating income (loss)


(20,679
)


156,708



(1,085
)


8,223



143,167Other income (expenses):Interest and dividend income


387



105











492Interest expense


(67,420
)


(1,048
)


(22
)






(68,490
)Loss on extinguishment of debt


(18,573
)














(18,573
)Changes in fair value of derivatives embedded within convertible
    debt


(35,925
)














(35,925
)Provision for loss on investments










(8,500
)






(8,500
)Equity income from non-consolidated real estate businesses










15,213







15,213Equity income in consolidated subsidiaries


196,356











(196,356
)


Management fee income


8,223











(8,223
)


Other, net


1,153















1,153Income (loss) before provision for income taxes


63,522



155,765



5,606



(196,356
)


28,537Income tax benefit (expense)


(38,716
)


37,261



(2,276
)






(3,731
)Net income

$
24,806


$
193,026


$
3,330


$
(196,356
)

$
24,806  F-73




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
  Year Ended December 31, 2008Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.Revenues

$



$
565,186


$



$



$
565,186Expenses:Cost of goods sold






335,299











335,299Operating, selling, administrative and general expenses


29,577



65,135



(129
)






94,583Management fee expense






7,940







(7,940
)


Operating income (loss)


(29,577
)


156,812



129



7,940



135,304Other income (expenses):Interest and dividend income


4,911



953











5,864Interest expense


(60,172
)


(2,163
)










(62,335
)Changes in fair value of derivatives embedded within convertible
    debt


24,337















24,337Provision for loss on investments


(24,900
)






(7,500
)






(32,400
)Equity income from non-consolidated real estate businesses










24,399







24,399Equity income in consolidated subsidiaries


108,539











(108,539
)


Management fee income


7,940











(7,940
)


Other, net


(593
)






(4
)






(597
)Income before provision for income taxes


30,485



155,602



17,024



(108,539
)


94,572Income tax benefit (expense)


30,019



(57,056
)


(7,031
)






(34,068
)Net income

$
60,504


$
98,546


$
9,993


$
(108,539
)

$
60,504  F-74




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
  Year Ended December 31, 2007Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.Revenues

$



$
555,430


$



$



$
555,430Expenses:Cost of goods sold






337,079











337,079Operating, selling, administrative and general expenses


25,974



65,835



1,158







92,967Management fee expense






7,669







(7,669
)


Restructuring and impairment charges






(120
)










(120
)Operating income (loss)


(25,974
)


144,967



(1,158
)


7,669



125,504Other income (expenses):Interest and dividend income


13,618



1,406







(5,127
)


9,897Interest expense


(43,217
)


(7,672
)






5,127



(45,762
)Changes in fair value of derivatives embedded within convertible
    debt


(6,109
)














(6,109
)Provision for loss on investments, net










(1,216
)






(1,216
)Gain from conversion of LTS notes










8,121







8,121Equity income from non-consolidated real estate businesses










16,243







16,243Income from lawsuit settlement










20,000







20,000Equity income in consolidated subsidiaries


111,400











(111,400
)


Management fee income


7,669











(7,669
)


Other, net


(107
)






32







(75
)Income before provision for income taxes


57,280



138,701



42,022



(111,400
)


126,603Income tax benefit (expense)


16,523



(52,604
)


(16,719
)






(52,800
)Net income

$
73,803


$
86,097


$
25,303


$
(111,400
)

$
73,803  F-75




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS
  Year Ended December 31, 2009Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.Net cash provided by operating activities

$
10,517


$
80,572


$
5,547


$
(90,969
)

$
5,667Cash flows from investing activities:Proceeds from sale of businesses and assets






41











41Proceeds from sale or maturity of investment securities










78







78Purchase of investment securities


(12,427
)














(12,427
)Proceeds from sale or liquidation of long-term investments


2,254















2,254Purchase of long-term investments










(51
)






(51
)Investment in non-consolidated real estate businesses










(474
)






(474
)Distributions from non-consolidated real estate businesses










6,730







6,730Increase in cash surrender value of life insurance policies


(413
)


(426
)










(839
)Decrease in non-current restricted assets


1,160



560











1,720Investments in subsidiaries


(3,800
)










3,800



Capital expenditures






(2,734
)


(1,114
)






(3,848
)Net cash used in investing activities


(13,226
)


(2,559
)


5,169



3,800



(6,816
)Cash flows from financing activities:Proceeds from debt issuance


118,125



35



645







118,805Repayments of debt


(360
)


(5,769
)


(50
)






(6,179
)Deferred financing charges


(5,567
)


(6
)










(5,573
)Borrowings under revolver






749,474











749,474Repayments on revolver






(751,607
)










(751,607
)Capital contributions received






3,800







(3,800
)


Intercompany dividends paid






(79,975
)


(10,994
)


90,969



Dividends and distributions on common stock


(115,778
)














(115,778
)Proceeds from exercise of Vector options and warrants


1,194















1,194Excess tax benefit of options exercised


9,162















9,162Net cash (used in) provided by financing activities


6,776



(84,048
)


(10,399
)


87,169



(502
)Net decrease in cash and cash equivalents


4,067



(6,035
)


317







(1,651
)Cash and cash equivalents, beginning of period


200,066



11,039











211,105Cash and cash equivalents, end of period

$
204,133


$
5,004


$



$



$
209,454  F-76




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS
  Year Ended December 31, 2008Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.Net cash provided by operating activities

$
82,821


$
125,279


$
7,415


$
(124,250
)

$
91,265Cash flows from investing activities:Proceeds from sale of businesses and assets






452











452Purchase of investment securities


(6,411
)














(6,411
)Proceeds from sale or liquidation of long-term investments


8,334















8,334Purchase of long-term investments










(51
)






(51
)Purchase of mortgage receivable










(21,704
)






(21,704
)Purchase of Castle Brands equity


(4,250
)














(4,250
)Investment in non-consolidated real estate businesses










(22,000
)






(22,000
)Distributions from non-consolidated real estate businesses










19,393







19,393Increase in cash surrender value of life insurance policies


(500
)


(438
)










(938
)Decrease in non-current restricted assets


(1,465
)


1,054











(411
)Investments in subsidiaries


(21,747
)










21,747



Capital expenditures






(6,309
)










(6,309
)Net cash used in investing activities


(26,039
)


(5,241
)


(24,362
)


21,747



(33,895
)Cash flows from financing activities:Proceeds from debt






2,831











2,831Repayments of debt






(6,329
)










(6,329
)Deferred financing charges


(137
)














(137
)Borrowings under revolver






531,251











531,251Repayments on revolver






(526,518
)










(526,518
)Capital contributions received






4,800



16,947



(21,747
)


Intercompany dividends paid






(124,250
)






124,250



Dividends and distributions on common stock


(103,870
)














(103,870
)Proceeds from exercise of Vector options and warrants


86















86Excess tax benefit of options exercised


18,304















18,304Net cash (used in) provided by financing activities


(85,617
)


(118,215
)


16,947



102,503



(84,382
)Net decrease in cash and cash equivalents


(28,835
)


1,823











(27,012
)Cash and cash equivalents, beginning of period


228,901



9,216











238,117Cash and cash equivalents, end of period

$
200,066


$
11,039


$



$



$
211,105  F-77




---



##### Table of Contents



VECTOR
    GROUP LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS
  Year Ended December 31, 2007Subsidiary





ConsolidatedParent/


Subsidiary


Non-


Consolidating


Vector GroupIssuer


Guarantors


Guarantors


Adjustments


Ltd.Net cash provided by (used in) operating activities

$
115,616


$
80,376


$
30,549


$
(117,343
)

$
109,198Cash flows from investing activities:Proceeds from sale of businesses and assets






917











917Purchase of investment securities


(6,571
)














(6,571
)Proceeds from sale or liquidation of long-term investments










71







71Purchase of long-term investments


(40,000
)






(91
)






(40,091
)(Increase) decrease in restricted assets


(521
)


29











(492
)Investments in non-consolidated real estate businesses










(750
)






(750
)Investments in subsidiaries


(39,150
)










39,150



Distributions from non-consolidated real estate businesses










1,000







1,000Receipt of repayment ofnotes receivable


4,000











(4,000
)


Capital expenditures






(5,189
)










(5,189
)Increase in cash surrender value of life insurance policies


(460
)


(378
)










(838
)Net cash (used in) provided by investing activities


(82,702
)


(4,621
)


230



35,150



(51,943
)Cash flows from financing activities:Proceeds from issuance of debt


165,000



9,576











174,576Repayments of debt






(45,200
)






4,000



(41,200
)Deferred financing charges


(9,863
)


(122
)










(9,985
)Borrowings under revolver






537,746











537,746Repayments on revolver






(534,950
)










(534,950
)Capital contributions received






39,150







(39,150
)


Intercompany dividends paid






(86,536
)


(30,807
)


117,343



Dividends and distributions on common stock


(99,249
)














(99,249
)Proceeds from exercise of Vector options and warrants


5,100















5,100Tax benefit of options exercised


2,055















2,055Net cash provided by (used in) financing activities


63,043



(80,336
)


(30,807
)


82,193



34,093Net increase (decrease) in cash and cash equivalents


95,957



(4,581
)


(28
)






91,348Cash and cash equivalents, beginning of year


132,944



13,797



28







146,769Cash and cash equivalents, end of year

$
228,901


$
9,216


$



$



$
238,117  F-78




---



##### Table of Contents



VECTOR
    GROUP LTD.SCHEDULE II  VALUATION AND
    QUALIFYING ACCOUNTS(Dollars in Thousands)
  AdditionsBalance at


Charged to





BalanceBeginning


Costs and





at EndDescription

of Period


Expenses


Deductions


of PeriodYear Ended December 31, 2009Allowances for:Doubtful accounts

$
51


$
105


$
2


$
154Cash discounts


203



19,901



19,903



201Deferred tax valuation allowance


15,939







6,430



9,509Sales returns


4,000



3,618



3,281



4,337Total

$
20,193


$
23,624


$
29,616


$
14,201Year Ended December 31, 2008Allowances for:Doubtful accounts

$
51


$



$



$
51Cash discounts


69



14,797



14,662



204Deferred tax valuation allowance


16,835







896



15,939Sales returns


3,700



2,897



2,597



4,000Total

$
20,655


$
17,694


$
18,155


$
20,194Year Ended December 31, 2007Allowances for:Doubtful accounts

$
55


$



$
4


$
51Cash discounts


556



18,470



18,957



69Deferred tax valuation allowance


17,731







896



16,835Sales returns


3,651



1,806



1,757



3,700Total

$
21,993


$
20,276


$
21,614


$
20,655  F-79